Question 1

If 2002 is the base year,then the inflation rate in 2005 equals
A)
B)
C)
D)

Accepted Answer

The answer of If 2002 is the base year,then the...

Question 2

Which of the following is not a widely acknowledged problem with using the CPI as a measure of the cost of living?

Accepted Answer

A)   substitution bias
B)   introduction of new goods
C)   unmeasured quality change
D)   unmeasured price changeE) A) and B)
F) B) and C)

Question 3

If the nominal interest rate is 5 percent and the rate of inflation is 9 percent,then the real interest rate is

Accepted Answer

A)   -4 percent.
B)   -0.44 percent.
C)   4 percent.
D)   14 percent.E) B) and C)
F) A) and D)

Question 4

In an imaginary economy,consumers buy only hot dogs and hamburgers.The fixed basket consists of 10 hot dogs and 6 hamburgers.A hot dog cost $3 in 2006 and $5.40 in 2007.A hamburger cost $5 in 2006 and $6 in 2007.Which of the following statements is correct?

Accepted Answer

A)   When 2006 is chosen as the base year,the consumer price index is 90 in 2007.
B)   When 2006 is chosen as the base year,the inflation rate is 150 percent in 2007.
C)   When 2007 is chosen as the base year,the consumer price index is 100 in 2006.
D)   When 2007 is chosen as the base year,the inflation rate is 50 percent in 2007.E) B) and C)
F) A) and D)

Question 5

Data from the Bureau of Labor Statistics show that the largest category of consumer spending is housing.

Accepted Answer

A) True 
 B)False

Question 6

When the consumer price index is computed,the base year is always the first year among the years being considered.

Accepted Answer

A) True 
 B)False

Question 7

Suppose that the prices of dairy products have risen relatively less than prices in general over the last several years.To which problem in the construction of the CPI is this situation most relevant?

Accepted Answer

A)   substitution bias
B)   introduction of new goods
C)   unmeasured quality change
D)   income biasE) A) and C)
F) A) and B)

Question 8

If you currently make $25,000 a year and the CPI rises from 110 today to 150 in five years,then you need to be making $43,333.33 in five years to have kept pace with consumer price inflation.

Accepted Answer

A) True 
 B)False

Question 9

The real interest rate tells you how fast the purchasing power of your bank account rises over time.

Accepted Answer

A) True 
 B)False

Question 10

In the United States,if the price of imported oil rises so that the prices of gasoline and heating oil rise,then the

Accepted Answer

A)   GDP deflator rises much more than does the consumer price index.
B)   consumer price index rises much more than does the GDP deflator.
C)   GDP deflator and the consumer price index rise by about the same amount.
D)   consumer price index rises slightly more than does the GDP deflator.E) B) and D)
F) A) and B)

Question 11

One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI

Accepted Answer

A)   fails to measure all changes in the quality of goods.
B)   displays a housing bias.
C)   accounts for changes in prices of some goods,but prices of certain goods are assumed to remain constant.
D)   All of the above are correct.E) All of the above
F) A) and C)

Question 12

Several studies in the 1990s concluded that the consumer price index overstated inflation by about

Accepted Answer

A)   3 percentage points per year,and that number of percentage points likely still applies now.
B)   3 percentage points per year,but recent improvements to the CPI probably have reduced the overstatement of inflation to something less than 3 percentage points.
C)   1 percentage point per year,and that number of percentage points likely still applies now.
D)   1 percentage point per year,but recent improvements to the CPI probably have reduced the overstatement of inflation to something less than 1 percentage pointE) A) and B)
F) All of the above

Question 13

Assume an economy experienced a positive rate of inflation between 2003 and 2004 and again between 2004 and 2005.However,the inflation rate was lower between 2004 and 2005 than it was between 2003 and 2004.Which of the following scenarios is consistent with this assumption?

Accepted Answer

A)   The CPI was 100 in 2003,110 in 2004,and 105 in 2005.
B)   The CPI was 100 in 2003,120 in 2004,and 135 in 2005.
C)   The CPI was 100 in 2003,105 in 2004,and 130 in 2005.
D)   The CPI was 100 in 2003,90 in 2004,and 88 in 2005.E) A) and D)
F) A) and C)

Question 14

The consumer price index is used to monitor changes in an economy's production of goods and services over time.

Accepted Answer

A) True 
 B)False

Question 15

The Bureau of Labor Statistics is part of the U.S.Department of Labor.

Accepted Answer

A) True 
 B)False

Question 16

To which of the problems in the construction of the CPI is the creation of the mobile phone most relevant?

Accepted Answer

A)   substitution bias
B)   introduction of new goods
C)   unmeasured quality change
D)   income biasE) A) and D)
F) B) and C)

Question 17

An important difference between the GDP deflator and the consumer price index is that

Accepted Answer

A)   the GDP deflator reflects the prices of goods and services bought by producers,whereas the consumer price index reflects the prices of goods and services bought by consumers.
B)   the GDP deflator reflects the prices of all final goods and services produced domestically,whereas the consumer price index reflects the prices of goods and services bought by consumers.
C)   the GDP deflator reflects the prices of all final goods and services produced by a nation's citizens,whereas the consumer price index reflects the prices of all final goods and services bought by consumers.
D)   the GDP deflator reflects the prices of all final goods and services bought by producers and consumers,whereas the consumer price index reflects the prices of all final goods and services bought by consumers.E) A) and D)
F) A) and C)

Question 18

When the consumer price index falls,the typical family has to spend fewer dollars to maintain the same standard of living.

Accepted Answer

A) True 
 B)False

Question 19

Table 24-4
The table below pertains to Wrexington,an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys.
 
-Refer to Table 24-4.The cost of the basket in 2006 was

Accepted Answer

A)   $9.
B)   $130.
C)   $140.
D)   $270.E) All of the above
F) A) and B)

Question 20

The CPI differs from the GDP deflator in that

Accepted Answer

A)   the CPI is an inflation index,while the GDP deflator is a price index.
B)   substitution bias is not a problem with the CPI,but it is a problem with the GDP deflator.
C)   increases in the prices of foreign produced goods that are sold to U.S.consumers show up in the GDP deflator but not in the CPI.
D)   increases in the prices of domestically produced goods that are sold to the U.S.government show up in the GDP deflator but not in the CPI.E) None of the above
F) A) and B)

Exam 24: Measuring the Cost of Living

To which of the problems in the construction of the CPI is the creation of the mobile phone most relevant?

Correct AnswerverifiedShow Answer

The Bureau of Labor Statistics is part of the U.S.Department of Labor.

Correct AnswerverifiedShow Answer

Data from the Bureau of Labor Statistics show that the largest category of consumer spending is housing.

Correct AnswerverifiedShow Answer

In the United States,if the price of imported oil rises so that the prices of gasoline and heating oil rise,then the

Correct AnswerverifiedShow Answer

When the consumer price index is computed,the base year is always the first year among the years being considered.

Correct AnswerverifiedShow Answer

If 2002 is the base year,then the inflation rate in 2005 equals A) B) C) D)

Correct AnswerverifiedShow Answer

When the consumer price index falls,the typical family has to spend fewer dollars to maintain the same standard of living.

Correct AnswerverifiedShow Answer

Which of the following is not a widely acknowledged problem with using the CPI as a measure of the cost of living?

Correct AnswerverifiedShow Answer

The real interest rate tells you how fast the purchasing power of your bank account rises over time.

Correct AnswerverifiedShow Answer

Suppose that the prices of dairy products have risen relatively less than prices in general over the last several years.To which problem in the construction of the CPI is this situation most relevant?

Correct AnswerverifiedShow Answer

The consumer price index is used to monitor changes in an economy's production of goods and services over time.

Correct AnswerverifiedShow Answer

Several studies in the 1990s concluded that the consumer price index overstated inflation by about

Correct AnswerverifiedShow Answer

An important difference between the GDP deflator and the consumer price index is that

Correct AnswerverifiedShow Answer

In an imaginary economy,consumers buy only hot dogs and hamburgers.The fixed basket consists of 10 hot dogs and 6 hamburgers.A hot dog cost $3 in 2006 and $5.40 in 2007.A hamburger cost $5 in 2006 and $6 in 2007.Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Assume an economy experienced a positive rate of inflation between 2003 and 2004 and again between 2004 and 2005.However,the inflation rate was lower between 2004 and 2005 than it was between 2003 and 2004.Which of the following scenarios is consistent with this assumption?

Correct AnswerverifiedShow Answer

One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI

Correct AnswerverifiedShow Answer

If the nominal interest rate is 5 percent and the rate of inflation is 9 percent,then the real interest rate is

Correct AnswerverifiedShow Answer

If you currently make $25,000 a year and the CPI rises from 110 today to 150 in five years,then you need to be making $43,333.33 in five years to have kept pace with consumer price inflation.

Correct AnswerverifiedShow Answer

Table 24-4 The table below pertains to Wrexington,an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. -Refer to Table 24-4.The cost of the basket in 2006 was

Correct AnswerverifiedShow Answer

The CPI differs from the GDP deflator in that

Correct AnswerverifiedShow Answer

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