Question 1

The CPI is a measure of the overall cost of

Accepted Answer

A)   the inputs purchased by a typical producer.
B)   the goods and services purchased by a typical consumer.
C)   the goods and services produced in the economy.
D)   the stocks on the New York Stock Exchange.E) A) and D)
F) C) and D)

Question 2

In general,if a consumer good is produced domestically and consumed domestically,a decrease in its price will have which of the following effects?

Accepted Answer

A)   The consumer price index will decrease relatively more than will the GDP deflator.
B)   The consumer price index and the GDP deflator will decrease by the same amount.
C)   The consumer price index will decrease relatively less than will the GDP deflator.
D)   One cannot generalize about the decrease in the consumer price index relative to the decrease in the GDP deflator.E) C) and D)
F) A) and C)

Question 3

List the three major problems in using the CPI as a measure of the cost of living.

Accepted Answer

(1)Substitution bias.The CPI ignores the...

Question 4

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

The answer of Suppose you know the value of the...

Question 5

When box office receipts are not corrected for inflation,the most popular movie of all time is

Accepted Answer

A)   Star Wars.
B)   Avatar.
C)   Gone With the Wind.
D)   The Dark Knight.E) A) and D)
F) C) and D)

Question 6

Which of the following changes in the price index produces the greatest rate of inflation: 80 to 100,100 to 120,or 150 to 170?

Accepted Answer

A)   80 to 100
B)   100 to 120
C)   150 to 170
D)   All of these changes produce the same rate of inflation.E) A) and B)
F) None of the above

Question 7

For an imaginary economy,the consumer price index was 62.50 in 2004,100.00 in 2005,and 160.00 in 2006.Which of the following statements is correct?

Accepted Answer

A)   If the basket of goods that is used to calculate the CPI cost $80 in 2004,then that basket of goods cost $128 in 2005.
B)   If the basket of goods that is used to calculate the CPI cost $90 in 2005,then that basket of goods cost $150 in 2006.
C)   The overall level of prices increased by 97.5 percent between 2004 and 2006.
D)   All of the above are correct.E) A) and C)
F) B) and C)

Question 8

When some dollar amount is automatically corrected for inflation by law or contract,the amount is said to be indexed for inflation.

Accepted Answer

A) True 
 B)False

Question 9

The purpose of measuring the overall level of prices in the economy is to permit comparison between dollar figures from different times.

Accepted Answer

A) True 
 B)False

Question 10

Dewey earned a salary of $75,000 in 2001 and $95,000 in 2006.The consumer price index was 177 in 2001 and 266 in 2006.Dewey's 2006 salary in 2001 dollars is

Accepted Answer

A)   $47,768.36.
B)   $63,214.29.
C)   $84,550.00.
D)   $142,768.36.E) All of the above
F) A) and C)

Question 11

Nate collected Social Security payments of $220 a month in 1985.If the price index rose from 90 to 108 between 1985 and 1986,then his Social Security payments for 1986 should have been

Accepted Answer

A)   $228.
B)   $238.
C)   $257.
D)   $264.E) B) and D)
F) B) and C)

Question 12

For any given year,the CPI is the price of the basket of goods and services in the

Accepted Answer

A)   given year divided by the price of the basket in the base year,then multiplied by 100.
B)   given year divided by the price of the basket in the previous year,then multiplied by 100.
C)   base year divided by the price of the basket in the given year,then multiplied by 100.
D)   previous year divided by the price of the basket in the given year,then multiplied by 100.E) C) and D)
F) A) and B)

Question 13

Table 16-6.The table below applies to an economy with only two goods - hamburgers and hot dogs.The fixed basket consists of 4 hamburgers and 8 hot dogs.
 
-Refer to Table 16-6.If the base year is 2009,then the economy's inflation rate in 2010 is

Accepted Answer

A)   8 percent.
B)   10 percent.
C)   10.91 percent.
D)   11.11 percent.E) B) and C)
F) A) and C)

Question 14

Table 16-12.Will's expenditures on food for three consecutive years,along with other values,are presented in the table below.
 
-Refer to Table 16-12.Suppose Will's 2009 food expenditures in 2011 dollars amounted to $5,670.Suppose also that the real interest rate in 2011 was 3 percent.Then,in 2011,

Accepted Answer

A)   the inflation rate was 8 percent and the nominal interest rate was 5 percent.
B)   the inflation rate was 9 percent and the nominal interest rate was 6 percent.
C)   the inflation rate was 8 percent and the nominal interest rate was 11 percent.
D)   the inflation rate was 9 percent and the nominal interest rate was 12 percent.E) A) and B)
F) A) and C)

Question 15

Janelle earned a salary of $40,000 in 1996 and $65,000 in 2006.The consumer price index was 160 in 1996 and 266 in 2006.Janelle's 1996 salary in 2006 dollars is

Accepted Answer

A)   $24,060.15.
B)   $42,400.00.
C)   $43,655.17.
D)   $66,500.00.E) C) and D)
F) B) and D)

Question 16

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

Accepted Answer

A)   When the nominal interest rate is rising,the real interest rate is necessarily rising; when the nominal interest rate is falling,the real interest rate is necessarily falling.
B)   If the nominal interest rate is 4 percent and the inflation rate is 3 percent,then the real interest rate is 7 percent.
C)   An increase in the real interest rate is necessarily accompanied by either an increase in the nominal interest rate,an increase in the inflation rate,or both.
D)   When the inflation rate is positive,the nominal interest rate is necessarily greater than the real interest rate.E) C) and D)
F) None of the above

Question 17

Which of the following statements regarding the consumer price index and the GDP deflator is correct?

Accepted Answer

A)   The two price measures are always equal.
B)   Divergence between the two price measures is the rule,not the exception.
C)   Divergence between the two price measures is the exception,not the rule.
D)   None of the above is correct.E) A) and B)
F) B) and C)

Question 18

Suppose that over the past year,the real interest rate was 5 percent and the inflation rate was 3 percent.It follows that

Accepted Answer

A)   the dollar value of savings increased at 5 percent,and the purchasing power of savings increased at 2 percent.
B)   the dollar value of savings increased at 5 percent,and the purchasing power of savings increased at 8 percent.
C)   the dollar value of savings increased at 8 percent,and the purchasing power of savings increased at 2 percent.
D)   the dollar value of savings increased at 8 percent,and the purchasing power of savings increased at 5 percent.E) A) and B)
F) A) and C)

Question 19

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because

Accepted Answer

A)   the CPI is easier to measure.
B)   the CPI is calculated more often than the GDP deflator is.
C)   the CPI better reflects the goods and services bought by consumers.
D)   the GDP deflator cannot be used to gauge inflation.E) A) and B)
F) A) and C)

Question 20

If the nominal interest rate is 8 percent and the real interest rate is 3.5 percent,then the inflation rate is

Accepted Answer

A)   -4.5 percent.
B)   0.78 percent.
C)   4.5 percent.
D)   11.5 percent.E) A) and B)
F) A) and C)

Exam 16: Measuring the Cost of Living

When some dollar amount is automatically corrected for inflation by law or contract,the amount is said to be indexed for inflation.

Correct AnswerverifiedShow Answer

Table 16-12.Will's expenditures on food for three consecutive years,along with other values,are presented in the table below. -Refer to Table 16-12.Suppose Will's 2009 food expenditures in 2011 dollars amounted to $5,670.Suppose also that the real interest rate in 2011 was 3 percent.Then,in 2011,

Correct AnswerverifiedShow Answer

The CPI is a measure of the overall cost of

Correct AnswerverifiedShow Answer

Suppose that over the past year,the real interest rate was 5 percent and the inflation rate was 3 percent.It follows that

Correct AnswerverifiedShow Answer

In general,if a consumer good is produced domestically and consumed domestically,a decrease in its price will have which of the following effects?

Correct AnswerverifiedShow Answer

If the nominal interest rate is 8 percent and the real interest rate is 3.5 percent,then the inflation rate is

Correct AnswerverifiedShow Answer

Janelle earned a salary of $40,000 in 1996 and $65,000 in 2006.The consumer price index was 160 in 1996 and 266 in 2006.Janelle's 1996 salary in 2006 dollars is

Correct AnswerverifiedShow Answer

When box office receipts are not corrected for inflation,the most popular movie of all time is

Correct AnswerverifiedShow Answer

Table 16-6.The table below applies to an economy with only two goods - hamburgers and hot dogs.The fixed basket consists of 4 hamburgers and 8 hot dogs. -Refer to Table 16-6.If the base year is 2009,then the economy's inflation rate in 2010 is

Correct AnswerverifiedShow Answer

For any given year,the CPI is the price of the basket of goods and services in the

Correct AnswerverifiedShow Answer

The purpose of measuring the overall level of prices in the economy is to permit comparison between dollar figures from different times.

Correct AnswerverifiedShow Answer

Nate collected Social Security payments of $220 a month in 1985.If the price index rose from 90 to 108 between 1985 and 1986,then his Social Security payments for 1986 should have been

Correct AnswerverifiedShow Answer

Dewey earned a salary of $75,000 in 2001 and $95,000 in 2006.The consumer price index was 177 in 2001 and 266 in 2006.Dewey's 2006 salary in 2001 dollars is

Correct AnswerverifiedShow Answer

Which of the following changes in the price index produces the greatest rate of inflation: 80 to 100,100 to 120,or 150 to 170?

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

Which of the following statements regarding the consumer price index and the GDP deflator is correct?

Correct AnswerverifiedShow Answer

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because

Correct AnswerverifiedShow Answer

For an imaginary economy,the consumer price index was 62.50 in 2004,100.00 in 2005,and 160.00 in 2006.Which of the following statements is correct?

Correct AnswerverifiedShow Answer

List the three major problems in using the CPI as a measure of the cost of living.

Correct Answerverified(1)Substitution bias.The CPI ignores the...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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(1)Substitution bias.The CPI ignores the...
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