Question 1

Janelle earned a salary of $62,000 in 2004 and $80,000 in 2014. The consumer price index was 126 in 2004 and 170 in 2014. Janelle's 2004 salary in 2014 dollars is

Accepted Answer

A)   $45,953.
B)   $89,280.
C)   $107,953.
D)   $83,651.E) All of the above
F) A) and D)

Question 2

If the CPI today is 120 and the CPI five years ago was 80, then something that cost $1 five years ago would cost $1.50 in today's prices.

Accepted Answer

A) True 
 B)False

Question 3

If the nominal interest rate is 8 percent and the rate of inflation is 3 percent, then the real interest rate is

Accepted Answer

A)   -5 percent.
B)   1.67 percent.
C)   5 percent.
D)   11 percent.E) A) and B)
F) C) and D)

Question 4

Suppose today's CPI is 134.85, and suppose one must spend $580 today to purchase the same basket of goods and services that could be bought for $400 in 1989. Then the CPI in 1989 was

Accepted Answer

A)   24.27.
B)   60.68.
C)   93.00.
D)   195.53.E) A) and C)
F) All of the above

Question 5

When the relative price of a good increases, consumers respond by buying

Accepted Answer

A)   a larger quantity of that good and a larger quantity of substitutes for that good.
B)   a larger quantity of that good and a smaller quantity of substitutes for that good.
C)   a smaller quantity of that good and a larger quantity of substitutes for that good.
D)   a smaller quantity of that good and a smaller quantity of substitutes for that good.E) A) and C)
F) B) and C)

Question 6

A 2009 Chevrolet model has more horsepower than the 2008 version and is included in the BLS basket of goods. BLS attempts to account for this change in the market basket by

Accepted Answer

A)   dropping the good from the basket.
B)   substituting in a different vehicle with the same horsepower as the 2008 model.
C)   adjusting the share of the market basket allocated to transportation.
D)   adjusting the price of the good to account for the quality change.E) A) and D)
F) A) and C)

Question 7

Scenario 24-3
Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2013. The price index was 17.6 in 1944 and 218.4 in 2013.
-Refer to Scenario 24-3. Sue Holloway's 1944 income in 2013 dollars is

Accepted Answer

A)   $23,033.
B)   $136,909.
C)   $148,909.
D)   $240,960.E) None of the above
F) C) and D)

Question 8

The CPI assumes a fixed basket of goods over time. In fact, consumers are likely to change purchasing behavior over time by purchasing less of the goods whose prices have risen by relatively large amounts and by buying more of the goods whose prices have risen less or maybe even fallen. What problem does this cause for measuring the cost of living?

Accepted Answer

This creates a subst...

Question 9

What measure reflects the overall cost of goods and services produced domestically?

Accepted Answer

The answer of What measure reflects the overall cost of...

Question 10

Suppose OPEC succeeds in raising world oil prices by 300 percent. This price increase causes inventors to look at alternative sources of fuel for internal-combustion engines. A hydrogen-powered engine is developed which is cheaper to operate than gasoline engines. Which problems in the construction of the CPI does this situation represent?

Accepted Answer

A)   substitution bias and introduction of new goods
B)   introduction of new goods and unmeasured quality change
C)   substitution bias and unmeasured quality change
D)   income bias and substitution biasE) None of the above
F) C) and D)

Question 11

Suppose a basket of goods and services has been selected to calculate the CPI. In 2002, the basket's cost was $80; in 2008, the basket's cost was $92; and in 2010, the basket's cost was $108. The base year must be

Accepted Answer

A)   2002.
B)   2008.
C)   one of the years between 2008 and 2010.
D)   The base year cannot be determined from the given information.E) A) and C)
F) B) and C)

Question 12

Suppose you know the value of the consumer price index CPI)  in year 1 as well as the inflation rate in year 2. Which of the following equations is valid for the CPI in year 2?

Accepted Answer

A)   CPI in year 2 = 
B)   CPI in year 2 = 
C)   CPI in year 2 = 
D)   CPI in year 2 = E) All of the above
F) B) and D)

Question 13

Every unit of good x that is produced in the United States is exported to other countries. An increase in the price of good x shows up

Accepted Answer

A)   in the consumer price index and in the GDP deflator.
B)   in the consumer price index, but not in the GDP deflator.
C)   in the GDP deflator, but not in the consumer price index.
D)   in neither the consumer price index nor in the GDP deflator.E) B) and C)
F) A) and B)

Question 14

The GDP Deflator reflects

Accepted Answer

A)   the prices of all final goods and services currently produced domestically, as does the CPI.
B)   the price of a fixed basket of goods and services purchased by a typical consumer, as does the CPI.
C)   the prices of all final goods and services currently produced domestically, while the CPI reflects the price of a fixed basket of goods and services purchased by a typical consumer.
D)   the price of a fixed basket of goods and services purchased by a typical consumer, while the CPI reflects the prices of all final goods and services produced domestically.E) A) and D)
F) None of the above

Question 15

By keeping the basket of goods and services the same when computing the CPI, the Bureau of Labor Statistics isolates the effects of price changes from the effect of any quantity changes that might be occurring at the same time.

Accepted Answer

A) True 
 B)False

Question 16

Suppose that over the past year, the real interest rate was 3 percent and the inflation rate was 1 percent. It follows that

Accepted Answer

A)   the dollar value of savings increased at 2 percent, and the purchasing power of savings increased at 3 percent.
B)   the dollar value of savings increased at 2 percent, and the purchasing power of savings increased at 4 percent.
C)   the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 2 percent.
D)   the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 3 percent.E) B) and D)
F) A) and D)

Question 17

Table 24-14
The table below lists the per pound prices of meat and potatoes for the months of January, February, and March. Assume that the typical consumer buys 25 pounds of meat and 15 pounds of potatoes each month, and that January is the base period.
 
-Refer to Table 24-14. Calculate the inflation rate for March.

Accepted Answer

The answer of Table 24-14
The table below lists the per...

Question 18

With respect to the consumer price index, which of the following serves as an example of how the substitution bias arises? Between 2010 and 2011, the price of a pound of peanuts

Accepted Answer

A)   rises from $0.80 to $1.00 while the price of a loaf of bread rises from $2.00 to $2.50.
B)   falls from $0.90 to $0.72 while the price of a loaf of bread falls from $2.00 to $1.60.
C)   remains constant, as does the price of a loaf of bread.
D)   None of the above serves as an example of how the substitution bias arises.E) A) and B)
F) B) and C)

Question 19

Which of the following statements about real and nominal interest rates is correct?

Accepted Answer

A)   Real interest rates can be either positive or negative, but nominal interest rates must be positive.
B)   Real interest rates and nominal interest rates must be positive.
C)   Real interest rates must be positive, but nominal interest rates can be either positive or negative.
D)   Real interest rates and nominal interest rates can be either positive or negative.E) A) and B)
F) All of the above

Question 20

Kristine has a savings account at a bank. If the nominal interest rate she earns exceeds the rate of inflation, then her purchasing power increases over time.

Accepted Answer

A) True 
 B)False

Exam 11: Measuring the Cost of Living

Suppose today's CPI is 134.85, and suppose one must spend $580 today to purchase the same basket of goods and services that could be bought for $400 in 1989. Then the CPI in 1989 was

Correct Answer
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Correct Answer
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If the CPI today is 120 and the CPI five years ago was 80, then something that cost $1 five years ago would cost $1.50 in today's prices.

Correct Answer
verified

Suppose that over the past year, the real interest rate was 3 percent and the inflation rate was 1 percent. It follows that

Correct Answer
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When the relative price of a good increases, consumers respond by buying

Correct Answer
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Which of the following statements about real and nominal interest rates is correct?

Correct Answer
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A 2009 Chevrolet model has more horsepower than the 2008 version and is included in the BLS basket of goods. BLS attempts to account for this change in the market basket by

Correct Answer
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If the nominal interest rate is 8 percent and the rate of inflation is 3 percent, then the real interest rate is

Correct Answer
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With respect to the consumer price index, which of the following serves as an example of how the substitution bias arises? Between 2010 and 2011, the price of a pound of peanuts

Correct Answer
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Suppose you know the value of the consumer price index CPI) in year 1 as well as the inflation rate in year 2. Which of the following equations is valid for the CPI in year 2?

Correct Answer
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Suppose a basket of goods and services has been selected to calculate the CPI. In 2002, the basket's cost was $80; in 2008, the basket's cost was $92; and in 2010, the basket's cost was $108. The base year must be

Correct Answer
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Janelle earned a salary of $62,000 in 2004 and $80,000 in 2014. The consumer price index was 126 in 2004 and 170 in 2014. Janelle's 2004 salary in 2014 dollars is

Correct Answer
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Correct Answer
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Correct Answer
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This creates a subst...
View Answer

Kristine has a savings account at a bank. If the nominal interest rate she earns exceeds the rate of inflation, then her purchasing power increases over time.

Correct Answer
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By keeping the basket of goods and services the same when computing the CPI, the Bureau of Labor Statistics isolates the effects of price changes from the effect of any quantity changes that might be occurring at the same time.

Correct Answer
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The GDP Deflator reflects

Correct Answer
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Scenario 24-3 Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2013. The price index was 17.6 in 1944 and 218.4 in 2013. -Refer to Scenario 24-3. Sue Holloway's 1944 income in 2013 dollars is

Correct Answer
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Every unit of good x that is produced in the United States is exported to other countries. An increase in the price of good x shows up

Correct Answer
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What measure reflects the overall cost of goods and services produced domestically?

Correct Answer
verified

Exam 11: Measuring the Cost of Living

Suppose today's CPI is 134.85, and suppose one must spend $580 today to purchase the same basket of goods and services that could be bought for $400 in 1989. Then the CPI in 1989 was

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the CPI today is 120 and the CPI five years ago was 80, then something that cost $1 five years ago would cost $1.50 in today's prices.

Correct AnswerverifiedShow Answer

Suppose that over the past year, the real interest rate was 3 percent and the inflation rate was 1 percent. It follows that

Correct AnswerverifiedShow Answer

When the relative price of a good increases, consumers respond by buying

Correct AnswerverifiedShow Answer

Which of the following statements about real and nominal interest rates is correct?

Correct AnswerverifiedShow Answer

A 2009 Chevrolet model has more horsepower than the 2008 version and is included in the BLS basket of goods. BLS attempts to account for this change in the market basket by

Correct AnswerverifiedShow Answer

If the nominal interest rate is 8 percent and the rate of inflation is 3 percent, then the real interest rate is

Correct AnswerverifiedShow Answer

With respect to the consumer price index, which of the following serves as an example of how the substitution bias arises? Between 2010 and 2011, the price of a pound of peanuts

Correct AnswerverifiedShow Answer

Suppose you know the value of the consumer price index CPI) in year 1 as well as the inflation rate in year 2. Which of the following equations is valid for the CPI in year 2?

Correct AnswerverifiedShow Answer

Suppose a basket of goods and services has been selected to calculate the CPI. In 2002, the basket's cost was $80; in 2008, the basket's cost was $92; and in 2010, the basket's cost was $108. The base year must be

Correct AnswerverifiedShow Answer

Janelle earned a salary of $62,000 in 2004 and $80,000 in 2014. The consumer price index was 126 in 2004 and 170 in 2014. Janelle's 2004 salary in 2014 dollars is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThis creates a subst...View AnswerShow Answer

Kristine has a savings account at a bank. If the nominal interest rate she earns exceeds the rate of inflation, then her purchasing power increases over time.

Correct AnswerverifiedShow Answer

By keeping the basket of goods and services the same when computing the CPI, the Bureau of Labor Statistics isolates the effects of price changes from the effect of any quantity changes that might be occurring at the same time.

Correct AnswerverifiedShow Answer

The GDP Deflator reflects

Correct AnswerverifiedShow Answer

Scenario 24-3 Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2013. The price index was 17.6 in 1944 and 218.4 in 2013. -Refer to Scenario 24-3. Sue Holloway's 1944 income in 2013 dollars is

Correct AnswerverifiedShow Answer

Every unit of good x that is produced in the United States is exported to other countries. An increase in the price of good x shows up

Correct AnswerverifiedShow Answer

What measure reflects the overall cost of goods and services produced domestically?

Correct AnswerverifiedShow Answer

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This creates a subst...
View Answer

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