Price Index Practice Problems

1) If Real GDP = $200 billion and the price index= 200, Nominal GDP is
a $! billion
b $!00 billion
c $200 billion
d $2 billion
e Impossible to determine since the base "ear is not #i$en
2) If "o%r nominal income rises ! percent and "o%r real income falls 1 percent, b" ho&
m%ch did the price le$el chan#e'
a () decrease
b * ) increase
c +) increase
d +) decrease
e () increase
+) ,n increase in the -PI from 200 to 22( &o%ld indicate an ann%al rate of meas%red
inflation of
a 1+)
b 12()
c 2()
d 200)
e 22()

!) If act%al inflation is more than expected inflation, &hich of the follo&in# #ro%ps &ill
most certainl" benefit'
a .enders
b /orro&ers
c 0inorities
d 1omen
e 0en
() 2%ppose that the cons%mer price index of a co%ntr" &as 130 at "ear4end 200! and 135 at the
end of 200( 1hat &as the co%ntr"6s inflation rate d%rin# 200('
a ( percent
b 5 percent
c 30 percent
d 35 percent
3) If the cons%mer price index 7-PI) at the end of "ear one &as 100 and &as 105 at the end of
"ear t&o, the inflation rate d%rin# "ear t&o &as
a 8ero9 the -PI of 100 indicates that prices &ere stable
b 5 percent
c ( percent
d 105 percent
:) 2%ppose that the cons%mer price index 7-PI) &as 130 in 200! and 133 in 200(, inflation
d%rin# 200( &as
a 8ero9 prices &ere stable
b +5 percent
c 3 percent
d 33 percent
5) If the cons%mer price index 7-PI) &as 150 at "ear4end 200! and 15; at "ear4end 200(,
inflation d%rin# 200( &as
a 8ero9 prices &ere stable d%rin# 200(
b !5 percent
c ( percent
d ; percent
;) 2%ppose a mar<et bas<et of #oods and ser$ices costs $1,000 in the base "ear and the cons%mer
price index 7-PI) is c%rrentl" 110 =his indicates the price of the mar<et bas<et of #oods and
ser$ices is no&
a $110
b $1,000
c $1,100
d $1,22(
10) =he GDP deflator is desi#ned to ad>%st nominal GDP
a for chan#es in the %nemplo"ment rate
b for chan#es in prices
c for problems that arise beca%se of externalities
d for chan#es in interest rates
11) =he t"pical b%ndle of #oods and ser$ices on &hich the GDP deflator is based
a is narro&er than the one %sed to calc%late the -PI
b is %pdated once e$er" decade
c is the same as the one %sed to calc%late the -PI
d is %pdated e$er" "ear
12) ,ss%me that bet&een 1;;( and 200(, nominal GDP increased from $: trillion to $12 trillion
and that the price index rose from 100 to 1+++ 1hich of the follo&in# expresses GDP for
200( in terms of 1;;( prices'
a $:( trillion
b $;0 trillion
c $;( trillion
d $130 trillion
?se the table belo& to ans&er the follo&in# @%estions
Nominal GDP
Aear 7billions) GDP deflator
2000 300 1000
200( 1,000 1+++
1+) /et&een 2000 and 200(, the #eneral le$el of prices increased b" approximatel"
a 13: percent
b +++ percent
c 33: percent
d 1+++ percent
1!) 0eas%red in terms of 2000 prices, real GDP in 200( &as
a 300
b :(0
c ;00
d 1,+++
,ns&ersB
1) b
2) e
+) b
!) b
() a
3) b
:) b
5) c
;) c
10) b
11) d
12) b
1+) b
1!) b