Question 1

The wage paid to workers measured in terms of real purchasing power is called the:
A)nominal wage.
B)cost of living.
C)minimum wage.
D)real wage.

Accepted Answer

The "real wage" is the wage paid to workers measured in terms of real purchasing power.

Question 2

The price of a gallon of gasoline at the pump increased by 10 percent at the same time that the inflation rate was 5 percent. The nominal price of gasoline ________, and the real price of gasoline ________.
A)increased; increased
B)increased; decreased
C)increased; did not change
D)decreased; increased

Accepted Answer

The price of gasoline at the pump increased by more than the general level of prices increased, so both gasoline's nominal and real price increased.

Question 3

The price of a gallon of gasoline at the pump increased by 10 percent at the same time that the inflation rate was 15 percent. The nominal price of gasoline ________, and the real price of gasoline ________.
A)increased; also increased
B)increased; decreased
C)increased; did not change
D)decreased; increased

Accepted Answer

The price of gasoline at the pump increased by less than the general price level, thus while the nominal price increased, the real price decreased.

Question 4

One family earned an income of $28,000 in 1995. Over the next five years, their income increased by 15 percent, while the CPI increased by 12 percent. After five years, this family's nominal income ________, and their real income ________.
A)decreased; decreased
B)decreased; increased
C)increased; did not change
D)increased; increased

Accepted Answer

The family's nominal income increased, as it was 15 percent higher in 2000. The family's real income also increased because their percentage income gains were greater than the percentage price level increases. In other words, their nominal income grew faster than average prices increasing the purchasing power or real income of the family.

Question 5

The price of a gallon of gasoline was $1.35 in 2000 when the CPI equaled 1.68. The cost of a gallon of gasoline was $2.38 in 2016 when the CPI equaled 2.40. The real cost of a gallon of gasoline between 2000 and 2016:
A)increased.
B)decreased.
C)remained constant.
D)may have either increased or decreased.

Accepted Answer

The real cost of gasoline increased from $0.81 per gallon ($1.35/1.68)in 2000 to $0.99 ($2.38/2.40)in 2016.

Question 6

If workers received a 5 percent wage increase and the rate of inflation was 3 percent, then their real wage:
A)increased.
B)decreased.
C)remained constant.
D)equaled the nominal wage.

Accepted Answer

In this case, nominal wages rose faster than the inflation rate, so real wages increased.

Question 7

A college graduate in 1972 found a job paying $7,200. The CPI was 0.418 in 1972. A college graduate in 2016 found a job paying $35,000. The CPI was 2.40 in 2016. The 1972 graduate's job paid ________ in nominal terms and ________ in real terms than the 2016 graduate's job.
A)more; less
B)more; more
C)less; more
D)less; less

Accepted Answer

The 1972 graduate's job paid less in nominal terms ($7,200 is clearly less than $30,000)but more in real terms. The real wage for the 1972 graduate was $17,225 ($7,200/0.418)compared to $14,583 ($35,000/2.40)for the 2016 graduate.

Question 8

A quantity measured in physical terms is called a ________ quantity.
A)nominal
B)relative
C)real
D)current

Accepted Answer

A real quantity is measured in physical terms.

Question 9

A college graduate in 1972 found a job paying $7,200. The CPI was 0.418 in 1972. A college graduate in 2016 found a job paying $60,000. The CPI was 2.40 in 2016. The 1972 graduate's job paid ________ in nominal terms and ________ in real terms than the 2016 graduate's job.
A)more; less
B)more; more
C)less; more
D)less; less

Accepted Answer

The 1972 graduate's job paid less not only in nominal terms ($7,200 is clearly less than $30,000)but also in real terms. The real wage for the 1972 graduate was $17,225 ($7,200/0.418)compared to $25,000 ($60,000/2.40)for the 2016 graduate.

Question 10

To compare the purchasing power of nominal wages in two different years, one must:
A)compare the nominal values.
B)deflate both quantities by a common price index.
C)increase both quantities by the same percentage increase in a price index.
D)adjust both quantities by the real interest rate.

Accepted Answer

Deflating is the process of dividing a nominal value by a price index to obtain the real value.

Question 11

Deflating a nominal quantity is the process of dividing a ________ quantity by a ________ in order to express the quantity in ________ terms.
A)nominal; real quantity; nominal
B)real; nominal quantity; real
C)nominal; price index; real
D)real; price index; nominal

Accepted Answer

The process of dividing a nominal quantity by a price index in order to express the quantity in real terms is called deflating.

Question 12

To correct a nominal quantity for changes in the price level, one should:
A)add a price index to it.
B)subtract a price index from it.
C)divide it by a price index.
D)multiply it by a price index.

Accepted Answer

Deflating is the process of dividing a nominal value by a price index to obtain the real value.

Question 13

If workers received a 5 percent wage increase and the rate of inflation was 10 percent, then their real wage:
A)increased.
B)decreased.
C)remained constant.
D)equaled the nominal wage.

Accepted Answer

In this case, nominal wages grew less than the inflation rate, so real wages decreased.

Question 14

If the CPI equaled 1.00 in 2005 and 1.65 in 2015 and a typical household's income equaled $35,000 in 1995 and $40,000 in 2005, then between 2005 and 2015, real household income:
A)increased.
B)decreased.
C)was constant.
D)may have either increased or decreased.

Accepted Answer

Household real income fell because real income was $35,000 ($35,000 / 1.00)in 2005 and only $24,242 ($40,000 / 1.65)in 2015.

Question 15

A year's tuition at a state university cost $250 in 1972 when the CPI equaled 0.418. The cost of a year's tuition at the same state university cost $8,000 in 2016 when the CPI equaled 2.40. The real cost of tuition between 1972 and 2016:
A)increased.
B)decreased.
C)remained constant.
D)may have either increased or decreased.

Accepted Answer

The real cost of tuition increased from $598 ($250/0.418)in 1972 to $3,333 ($8,000/2.40)in 2016. In other words the real cost of tuition almost tripled in those 44 years.

Question 16

The price of a gallon of gasoline at the pump increased by 5 percent at the same time that the inflation rate was also 5 percent. The nominal price of gasoline ________, and the real price of gasoline ________.
A)did not change; increased
B)did not change; did not change
C)increased; did not change
D)increased; decreased

Accepted Answer

The price of gasoline at the pump increased at the same rate as the general price level, thus while the nominal price increased, the real price was unchanged.

Question 17

The real wage is the wage:
A)measured in current dollars.
B)required to maintain a minimum standard of living.
C)employers are required to pay workers.
D)measured in terms of purchasing power.

Accepted Answer

The real wage identifies the purchasing power of labor earnings.

Question 18

The process of dividing a nominal quantity by a price index in order to express the quantity in real terms is called:
A)deflating.
B)negative inflation.
C)indexing.
D)depressing.

Accepted Answer

The process of dividing a nominal quantity by a price index in order to express the quantity in real terms is called deflating.

Question 19

One family earned an income of $28,000 in 1995. Over the next five years, their income increased by 15 percent, while the CPI increased by 15 percent. After five years, this family's nominal income ________, and their real income ________.
A)decreased; also decreased
B)decreased; increased
C)increased; did not change
D)increased; also increased

Accepted Answer

The family's nominal income increased, as it was 15 percent higher in 200. However, the family's real income did not change because their nominal income increased by the same percent as the price level. In other words, the purchasing power or real income of the family did not change.

Question 20

All of the following are real quantities except the:
A)number of new cars produced in one year.
B)tons of steel shipped to South America.
C)millions of computer chips shipped to computer makers.
D)billions of dollars invested in stocks.

Accepted Answer

The value of "billions of dollars invested in stocks" depends on the price level whereas the values of the others do not.

Quiz 18: Measuring the Price Level and Inflation

The wage paid to workers measured in terms of real purchasing power is called the:

The price of a gallon of gasoline at the pump increased by 10 percent at the same time that the inflation rate was 5 percent. The nominal price of gasoline , and the real price of gasoline .

The price of a gallon of gasoline at the pump increased by 10 percent at the same time that the inflation rate was 15 percent. The nominal price of gasoline , and the real price of gasoline .

One family earned an income of $28,000 in 1995. Over the next five years, their income increased by 15 percent, while the CPI increased by 12 percent. After five years, this family's nominal income , and their real income .

The price of a gallon of gasoline was $1.35 in 2000 when the CPI equaled 1.68. The cost of a gallon of gasoline was $2.38 in 2016 when the CPI equaled 2.40. The real cost of a gallon of gasoline between 2000 and 2016:

If workers received a 5 percent wage increase and the rate of inflation was 3 percent, then their real wage:

A college graduate in 1972 found a job paying $7,200. The CPI was 0.418 in 1972. A college graduate in 2016 found a job paying $35,000. The CPI was 2.40 in 2016. The 1972 graduate's job paid in nominal terms and in real terms than the 2016 graduate's job.

A quantity measured in physical terms is called a ________ quantity.

A college graduate in 1972 found a job paying $7,200. The CPI was 0.418 in 1972. A college graduate in 2016 found a job paying $60,000. The CPI was 2.40 in 2016. The 1972 graduate's job paid in nominal terms and in real terms than the 2016 graduate's job.

To compare the purchasing power of nominal wages in two different years, one must:

Deflating a nominal quantity is the process of dividing a quantity by a in order to express the quantity in terms.

To correct a nominal quantity for changes in the price level, one should:

If workers received a 5 percent wage increase and the rate of inflation was 10 percent, then their real wage:

If the CPI equaled 1.00 in 2005 and 1.65 in 2015 and a typical household's income equaled $35,000 in 1995 and $40,000 in 2005, then between 2005 and 2015, real household income:

A year's tuition at a state university cost $250 in 1972 when the CPI equaled 0.418. The cost of a year's tuition at the same state university cost $8,000 in 2016 when the CPI equaled 2.40. The real cost of tuition between 1972 and 2016:

The price of a gallon of gasoline at the pump increased by 5 percent at the same time that the inflation rate was also 5 percent. The nominal price of gasoline , and the real price of gasoline .

The real wage is the wage:

The process of dividing a nominal quantity by a price index in order to express the quantity in real terms is called:

One family earned an income of $28,000 in 1995. Over the next five years, their income increased by 15 percent, while the CPI increased by 15 percent. After five years, this family's nominal income , and their real income .

All of the following are real quantities except the: