EC 250 Final Actual Exam Questions with
complete verified correct detailed
Answers/Solutions latest update 2025
(Wilfrid Laurier University)
17. John received a raise of 3%, but the inflation rate was 8%
a) he is better off
b) his real wage increased by, approximately, 5%
c) his real wage fell by, approximately, 5%
d) none of the above ---correct answer ---c) his real wage fell by,
approximately, 5%
If changes in the price level and the nominal wage are small, the
change in real wage is, approximately
%Δw-%ΔP=3%-8%
18. The consumer price index
,a) Overestimates the inflation rate because it does not take into
account substitution towards cheaper goods
b) Underestimates the inflation rate because it does not take into
account substitution towards cheaper goods
c) Overestimates the inflation rate because it takes into account
substitution towards cheaper goods
d) Underestimates the inflation rate because it takes into account
substitution towards cheaper goods ---correct answer ---a)
Overestimates the inflation rate because it does not take into account
substitution towards cheaper goods
19. Consider the following simple economy that produces cloth and
wine:
Price per 1m cloth Price per 1l wine
2020 $4 200 $5 100
2021 $5 150 $4 150
The rate of inflation calculated using the CPI is
a) 0%
b) 7.6%
c) 14.3%
d) 28.6% ---correct answer ---b) 7.6%
,CPI is a base year index. So in 2020 we have 4*200+5*100=1300; in
2021 we have 5*200+4*100=1400 Inflation rate is 1400/1300
20. Consider the following simple economy that produces cloth and
wine:
Price per 1m cloth Price per 1l wine
2020 $4 200 $5 100
2021 $5 150 $4 150
The rate of inflation using the GDP deflator is
a) 0%
b) 7.6%
c) 14.3%
d) 28.6% ---correct answer ---a) 0%
GDP deflator is a current year index. So in 2020 we have
4*150+5*150=1350; in 2021 we have 5*150+4*150=1350
21. Over a long period of time, Jane's wages increased by 700% while
prices increased by 500%.
, a) she is worse off
b) her real wage increased by 100%
c) her real wage increased by 33%
d) none of the above ---correct answer ---c) her real wage increased
by 33%
Use numbers: initially the nominal wage is 10. Price level is 10. Real
wage is 1. After the change nominal wage is (1+700%)*10=80; Price
level is (1+500%)*10=60; real wage is 80/60=1 1/3
22. The real exchange rate of Canada versus UK is 0.9. This means
that
a) if something costs 9 pounds in the UK, it costs 10 dollars in Canada
b) on the average, goods are cheaper in the UK than in Canada
c) on the average, goods are more expensive in the UK than in Canada
d) if something costs 10 pounds in the UK, it costs 9 dollars in Canada
---correct answer ---c) on the average, goods are more expensive in
the UK than in Canada
complete verified correct detailed
Answers/Solutions latest update 2025
(Wilfrid Laurier University)
17. John received a raise of 3%, but the inflation rate was 8%
a) he is better off
b) his real wage increased by, approximately, 5%
c) his real wage fell by, approximately, 5%
d) none of the above ---correct answer ---c) his real wage fell by,
approximately, 5%
If changes in the price level and the nominal wage are small, the
change in real wage is, approximately
%Δw-%ΔP=3%-8%
18. The consumer price index
,a) Overestimates the inflation rate because it does not take into
account substitution towards cheaper goods
b) Underestimates the inflation rate because it does not take into
account substitution towards cheaper goods
c) Overestimates the inflation rate because it takes into account
substitution towards cheaper goods
d) Underestimates the inflation rate because it takes into account
substitution towards cheaper goods ---correct answer ---a)
Overestimates the inflation rate because it does not take into account
substitution towards cheaper goods
19. Consider the following simple economy that produces cloth and
wine:
Price per 1m cloth Price per 1l wine
2020 $4 200 $5 100
2021 $5 150 $4 150
The rate of inflation calculated using the CPI is
a) 0%
b) 7.6%
c) 14.3%
d) 28.6% ---correct answer ---b) 7.6%
,CPI is a base year index. So in 2020 we have 4*200+5*100=1300; in
2021 we have 5*200+4*100=1400 Inflation rate is 1400/1300
20. Consider the following simple economy that produces cloth and
wine:
Price per 1m cloth Price per 1l wine
2020 $4 200 $5 100
2021 $5 150 $4 150
The rate of inflation using the GDP deflator is
a) 0%
b) 7.6%
c) 14.3%
d) 28.6% ---correct answer ---a) 0%
GDP deflator is a current year index. So in 2020 we have
4*150+5*150=1350; in 2021 we have 5*150+4*150=1350
21. Over a long period of time, Jane's wages increased by 700% while
prices increased by 500%.
, a) she is worse off
b) her real wage increased by 100%
c) her real wage increased by 33%
d) none of the above ---correct answer ---c) her real wage increased
by 33%
Use numbers: initially the nominal wage is 10. Price level is 10. Real
wage is 1. After the change nominal wage is (1+700%)*10=80; Price
level is (1+500%)*10=60; real wage is 80/60=1 1/3
22. The real exchange rate of Canada versus UK is 0.9. This means
that
a) if something costs 9 pounds in the UK, it costs 10 dollars in Canada
b) on the average, goods are cheaper in the UK than in Canada
c) on the average, goods are more expensive in the UK than in Canada
d) if something costs 10 pounds in the UK, it costs 9 dollars in Canada
---correct answer ---c) on the average, goods are more expensive in
the UK than in Canada
