Question 1

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. 
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.

Question 2

The goal of the consumer price index is to gauge how much incomes must rise to maintain a constant standard of living.

Accepted Answer

A) True 
 B)False

Question 3

Suppose in the year 2000 Ken earned $60,000 per year and that in 2015 he earned $78,000 per year. If the CPI in the year 2000 was 172.2 and in 2015 was 236.7, which of the following statements is correct?

Accepted Answer

A) ​Ken's standard of living got better from 2000 to 2015. 
B) ​If Ken had earned $81,000 in 2015, his standard of living would have improved relative to his income in 2000. 
C) ​Ken would have needed to earn $87,000 or more in 2015 for his standard of living to have improved relative to his income in 2000. 
D) ​If Ken had earned $83,000 in 2015, his standard of living would have improved relative to his income in 2000. 
A) ​Ken's standard of living got better from 2000 to 2015. 
B) ​If Ken had earned $81,000 in 2015, his standard of living would have improved relative to his income in 2000. 
C) ​Ken would have needed to earn $87,000 or more in 2015 for his standard of living to have improved relative to his income in 2000. 
D) ​If Ken had earned $83,000 in 2015, his standard of living would have improved relative to his income in 2000.

Question 4

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. 
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.

Question 5

The CPI is a measure of the overall cost of the goods and services bought by

Accepted Answer

A) a typical firm. 
B) the government. 
C) a typical consumer. 
D) All of the above are correct. 
A) a typical firm. 
B) the government. 
C) a typical consumer. 
D) All of the above are correct.

Question 6

Explain how the introduction of new goods might bias the calculation of the consumer price index.

Accepted Answer

Because the CPI is based on a fixed bask

Question 7

Table 24-4
The table below pertains to Studious, an economy in which the typical consumer's basket consists of 5 books and 10 calculators.  
-Refer to Table 24-4. The cost of the basket

Accepted Answer

A) increased from 2012 to 2013 and increased from 2013 to 2014. 
B) increased from 2012 to 2013 and decreased from 2013 to 2014. 
C) decreased from 2012 to 2013 and increased from 2013 to 2014. 
D) decreased from 2012 to 2013 and decreased from 2013 to 2014. 
A) increased from 2012 to 2013 and increased from 2013 to 2014. 
B) increased from 2012 to 2013 and decreased from 2013 to 2014. 
C) decreased from 2012 to 2013 and increased from 2013 to 2014. 
D) decreased from 2012 to 2013 and decreased from 2013 to 2014.

Question 8

The Bureau of Labor Statistics does not try to account for quality changes in the goods and services in the basket used to compute the CPI.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?

Accepted Answer

A) The real interest rate is the nominal interest rate times the rate of inflation. 
B) The real interest rate is the nominal interest rate minus the rate of inflation. 
C) The real interest rate is the nominal interest rate plus the rate of inflation. 
D) The real interest rate is the nominal interest rate divided by the rate of inflation. 
A) The real interest rate is the nominal interest rate times the rate of inflation. 
B) The real interest rate is the nominal interest rate minus the rate of inflation. 
C) The real interest rate is the nominal interest rate plus the rate of inflation. 
D) The real interest rate is the nominal interest rate divided by the rate of inflation.

Question 10

The price index that measures the cost of a basket of goods and services bought by firms is called the

Accepted Answer

A) industrial price index. 
B) producer price index. 
C) core price index. 
D) GDP deflator. 
A) industrial price index. 
B) producer price index. 
C) core price index. 
D) GDP deflator.

Question 11

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 12

The nominal interest rate tells you how fast the number of dollars in your bank account rises over time.

Accepted Answer

A) True 
 B)False

Question 13

The value of the consumer price index increased from 140 to 147 during 2006. Nathan opened a bank account at the beginning of 2006, and at the end of 2006 his account balance was $12,840. The purchasing power of Nathan's account increased by 2 percent during the year. We can conclude that Nathan opened his account with a deposit of $11,500 at the beginning of 2006.

Accepted Answer

A) True 
 B)False

Question 14

Ruben earned a salary of $60,000 in 2001 and $80,000 in 2006. The consumer price index was 177 in 2001 and 221.25 in 2006. Ruben's 2006 salary in 2001 dollars is

Accepted Answer

A) $20,000; thus, Ruben's purchasing power increased between 2001 and 2006. 
B) $20,000; thus, Ruben's purchasing power decreased between 2001 and 2006. 
C) $64,000; thus, Ruben's purchasing power increased between 2001 and 2006. 
D) $64,000; thus, Ruben's purchasing power decreased between 2001 and 2006. 
A) $20,000; thus, Ruben's purchasing power increased between 2001 and 2006. 
B) $20,000; thus, Ruben's purchasing power decreased between 2001 and 2006. 
C) $64,000; thus, Ruben's purchasing power increased between 2001 and 2006. 
D) $64,000; thus, Ruben's purchasing power decreased between 2001 and 2006.

Question 15

Scenario 24-1
The price tag on a tennis ball in 1975 read $0.10, and the price tag on a tennis ball in 2005 read $1.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3.
-Refer to Scenario 24-1. In 1975 dollars, a 1975 tennis ball cost $0.10 and a 2005 tennis ball cost

Accepted Answer

A) $0.27, so tennis balls were cheaper in 1975. 
B) $0.27, so tennis balls were cheaper in 2005. 
C) $3.66, so tennis balls were cheaper in 1975. 
D) $3.66, so tennis balls were cheaper in 2005. 
A) $0.27, so tennis balls were cheaper in 1975. 
B) $0.27, so tennis balls were cheaper in 2005. 
C) $3.66, so tennis balls were cheaper in 1975. 
D) $3.66, so tennis balls were cheaper in 2005.

Question 16

If the real value of an item bought ten years ago is less than it's nominal value at that time, what can one infer about the change in the overall price level during this ten year period?

Accepted Answer

One can infer that t

Question 17

Which of the following is not correct?

Accepted Answer

A) The U.S. economy has never experienced deflation. 
B) Since 1965, the U.S. nominal interest rate has exceeded the U.S. real interest rate. 
C) Since 1965, the U.S. economy has experienced rising consumer prices in most years. 
D) During deflation, the real interest rate exceeds the nominal interest rate. 
A) The U.S. economy has never experienced deflation. 
B) Since 1965, the U.S. nominal interest rate has exceeded the U.S. real interest rate. 
C) Since 1965, the U.S. economy has experienced rising consumer prices in most years. 
D) During deflation, the real interest rate exceeds the nominal interest rate.

Question 18

Two alternative measures of the overall level of prices are

Accepted Answer

A) the inflation rate and the consumer price index. 
B) the inflation rate and the GDP deflator. 
C) the GDP deflator and the consumer price index. 
D) the cost of living index and nominal GDP. 
A) the inflation rate and the consumer price index. 
B) the inflation rate and the GDP deflator. 
C) the GDP deflator and the consumer price index. 
D) the cost of living index and nominal GDP.

Question 19

Suppose that the CPI in 2009 is 220 and that the inflation rate is 5% in 2010. What is the CPI in 2010?

Accepted Answer

The CPI in

Question 20

If the nominal interest rate is 5 percent and the rate of inflation is -2.5 percent, then the real interest rate is

Accepted Answer

A) -7.5 percent. 
B) -2.5 percent. 
C) 2.5 percent. 
D) 7.5 percent. 
A) -7.5 percent. 
B) -2.5 percent. 
C) 2.5 percent. 
D) 7.5 percent.

Exam 24: Measuring the Cost of Living

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

The goal of the consumer price index is to gauge how much incomes must rise to maintain a constant standard of living.

Suppose in the year 2000 Ken earned $60,000 per year and that in 2015 he earned $78,000 per year. If the CPI in the year 2000 was 172.2 and in 2015 was 236.7, which of the following statements is correct?

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

The CPI is a measure of the overall cost of the goods and services bought by

Explain how the introduction of new goods might bias the calculation of the consumer price index.

Table 24-4 The table below pertains to Studious, an economy in which the typical consumer's basket consists of 5 books and 10 calculators. -Refer to Table 24-4. The cost of the basket

The Bureau of Labor Statistics does not try to account for quality changes in the goods and services in the basket used to compute the CPI.

Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?

The price index that measures the cost of a basket of goods and services bought by firms is called the

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.

The nominal interest rate tells you how fast the number of dollars in your bank account rises over time.

Ruben earned a salary of $60,000 in 2001 and $80,000 in 2006. The consumer price index was 177 in 2001 and 221.25 in 2006. Ruben's 2006 salary in 2001 dollars is

Scenario 24-1 The price tag on a tennis ball in 1975 read $0.10, and the price tag on a tennis ball in 2005 read $1.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3. -Refer to Scenario 24-1. In 1975 dollars, a 1975 tennis ball cost $0.10 and a 2005 tennis ball cost

If the real value of an item bought ten years ago is less than it's nominal value at that time, what can one infer about the change in the overall price level during this ten year period?

Which of the following is not correct?

Two alternative measures of the overall level of prices are

Suppose that the CPI in 2009 is 220 and that the inflation rate is 5% in 2010. What is the CPI in 2010?

If the nominal interest rate is 5 percent and the rate of inflation is -2.5 percent, then the real interest rate is

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Applications: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Measuring a Nation S Income

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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