Question 1

If the nominal interest rate is 5 percent and the real interest rate is 7 percent, then the inflation rate is

Accepted Answer

A)   -2 percent.
B)   0.4 percent.
C)   2 percent.
D)   12 percent.E) A) and B)
F) A) and C)

Question 2

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 B)
F) All of the above

Question 3

The GDP deflator reflects the prices of all goods and services produced around the world, whereas the consumer price index reflects the prices of all goods and services bought by consumers.

Accepted Answer

A) True 
 B)False

Question 4

Recent changes in methods used to compute the CPI have made the

Accepted Answer

A)   upward bias in the CPI inflation rate more severe than it used to be.
B)   upward bias in the CPI inflation rate less severe than it used to be.
C)   downward bias in the CPI inflation rate more severe than it used to be.
D)   downward bias in the CPI inflation rate less severe than it used to be.E) A) and C)
F) C) and D)

Question 5

List the five steps for calculating the consumer price index and inflation rate.

Accepted Answer

(1) Survey consumers to determine a fixe...

Question 6

The introduction of the video cassette recorder in the 1970s exemplified a problem in measuring the cost of living; that problem is the problem of

Accepted Answer

A)   substitution bias.
B)   product-improvement bias.
C)   introduction of new goods.
D)   unmeasured quality change.E) A) and D)
F) A) and C)

Question 7

Michelle bought word-processing software in 2009 for $75. Michelle's cousin, Barry, bought an upgrade of the same software in 2010 for $75. To which problem in the construction of the CPI is this situation most relevant?

Accepted Answer

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

Question 8

When the consumer price index falls, the typical family

Accepted Answer

A)   has to spend more dollars to maintain the same standard of living.
B)   can spend fewer dollars to maintain the same standard of living.
C)   finds that its standard of living is not affected.
D)   can save less because they do not need to offset the effects of rising prices.E) None of the above
F) A) and D)

Question 9

If the real interest rate is 5 percent and the inflation rate is 2 percent, then the nominal interest rate is 7 percent.

Accepted Answer

A) True 
 B)False

Question 10

Arlo is offered a job in Des Moines, where the CPI is 60, and a job in New York, where the CPI is 125. Arlo's job offer in Des Moines is for $48,000. How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?

Accepted Answer

A)   $23,040
B)   $52,000
C)   $79,200
D)   $100,000E) None of the above
F) C) and D)

Question 11

If the CPI was 104 in 1967 and is 390 today, then $10 in 1967 purchased the same amount of goods and services as

Accepted Answer

A)   $2.67 purchases today.
B)   $37.50 purchases today.
C)   $39.00 purchases today.
D)   $104.00 purchases today.E) A) and D)
F) All of the above

Question 12

Arlo is offered a job in Des Moines, where the CPI is 80, and a job in New York, where the CPI is 125. Arlo's job offer in Des Moines is for $42,000. How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?

Accepted Answer

A)   $42,000
B)   $65,625
C)   $68,880
D)   $189,000E) A) and B)
F) A) and C)

Question 13

To calculate the CPI, the Bureau of Labor Statistics uses

Accepted Answer

A)   the prices of all goods and services produced domestically.
B)   the prices of all final goods and services.
C)   the prices of all consumer goods.
D)   the prices of some consumer goods.E) A) and B)
F) A) and C)

Question 14

The nominal interest rate tells you

Accepted Answer

A)   how fast the number of dollars in your bank account rises over time.
B)   how fast the purchasing power of your bank account rises over time.
C)   the number of dollars in your bank account today.
D)   the purchasing power of your bank account today.E) B) and C)
F) B) and D)

Question 15

Table 24-6
The table below pertains to Napandsnack, an economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs. 
-Refer to Table 24-6. If the base year is 2009, then the consumer price index was

Accepted Answer

A)   100 in 2009, 115 in 2010, and 116 in 2011.
B)   100 in 2009, 115 in 2010, and 135 in 2011.
C)   100 in 2009, 120 in 2010, and 116 in 2011.
D)   120 in 2009, 125 in 2010, and 135 in 2011.E) All of the above
F) B) and D)

Question 16

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) A) and B)
F) C) and D)

Question 17

Data from the Bureau of Labor Statistics show that consumer spending on transportation is only slightly higher than consumer spending on food and beverages.

Accepted Answer

A) True 
 B)False

Question 18

Consider a small economy in which consumers buy only two goods: pretzels and cookies. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that

Accepted Answer

A)   the percentage change in the price of pretzels is equal to the percentage change in the price of cookies from year to year.
B)   the number of pretzels bought by the typical consumer is equal to the number of cookies bought by the typical consumer in each year.
C)   neither the number of pretzels nor the number of cookies bought by the typical consumer changes from year to year.
D)   neither the price of pretzels nor the price of cookies changes from year to year.E) A) and D)
F) None of the above

Question 19

Which of the following is correct?

Accepted Answer

A)   The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers.
B)   The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers.
C)   The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers.
D)   The GDP deflator is more commonly used as a gauge of inflation than the CPI is.E) All of the above
F) A) and D)

Question 20

Suppose that the CPI in 1990 was 150, that the inflation rate in 1991 was 6%, and that the inflation rate in 1992 was 4%. What was the CPI in 1991 and 1992?

Accepted Answer

The CPI in 1991 was ...

Exam 24: Measuring the Cost of Living

When the consumer price index falls, the typical family

Correct AnswerverifiedShow Answer

To calculate the CPI, the Bureau of Labor Statistics uses

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

Which of the following is correct?

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

The GDP deflator reflects the prices of all goods and services produced around the world, whereas the consumer price index reflects the prices of all goods and services bought by consumers.

Correct AnswerverifiedShow Answer

The nominal interest rate tells you

Correct AnswerverifiedShow Answer

If the CPI was 104 in 1967 and is 390 today, then $10 in 1967 purchased the same amount of goods and services as

Correct AnswerverifiedShow Answer

If the real interest rate is 5 percent and the inflation rate is 2 percent, then the nominal interest rate is 7 percent.

Correct AnswerverifiedShow Answer

List the five steps for calculating the consumer price index and inflation rate.

Correct Answerverified(1) Survey consumers to determine a fixe...View AnswerShow Answer

Arlo is offered a job in Des Moines, where the CPI is 60, and a job in New York, where the CPI is 125. Arlo's job offer in Des Moines is for $48,000. How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?

Correct AnswerverifiedShow Answer

Arlo is offered a job in Des Moines, where the CPI is 80, and a job in New York, where the CPI is 125. Arlo's job offer in Des Moines is for $42,000. How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?

Correct AnswerverifiedShow Answer

Consider a small economy in which consumers buy only two goods: pretzels and cookies. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that

Correct AnswerverifiedShow Answer

Suppose that the CPI in 1990 was 150, that the inflation rate in 1991 was 6%, and that the inflation rate in 1992 was 4%. What was the CPI in 1991 and 1992?

Correct AnswerverifiedThe CPI in 1991 was ...View AnswerShow Answer

Data from the Bureau of Labor Statistics show that consumer spending on transportation is only slightly higher than consumer spending on food and beverages.

Correct AnswerverifiedShow Answer

Recent changes in methods used to compute the CPI have made the

Correct AnswerverifiedShow Answer

Michelle bought word-processing software in 2009 for $75. Michelle's cousin, Barry, bought an upgrade of the same software in 2010 for $75. To which problem in the construction of the CPI is this situation most relevant?

Correct AnswerverifiedShow Answer

If the nominal interest rate is 5 percent and the real interest rate is 7 percent, then the inflation rate is

Correct AnswerverifiedShow Answer

Table 24-6 The table below pertains to Napandsnack, an economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs. -Refer to Table 24-6. If the base year is 2009, then the consumer price index was

Correct AnswerverifiedShow Answer

The introduction of the video cassette recorder in the 1970s exemplified a problem in measuring the cost of living; that problem is the problem of

Correct AnswerverifiedShow Answer

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(1) Survey consumers to determine a fixe...
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The CPI in 1991 was ...
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