Question 1

If the cost of transportation increases by 20 percent, then, other things the same, the CPI is likely to increase by about

Accepted Answer

A) 0.3 percent. 
B) 1.6 percent. 
C) 3.2 percent. 
D) 10 percent. 
A) 0.3 percent. 
B) 1.6 percent. 
C) 3.2 percent. 
D) 10 percent.

Question 2

In 1972, one could buy a bag of chips, a pound of hamburger, a package of buns, and a small bag of charcoal for about $2.50. If the same goods today cost $6.00, then which pair of CPIs would make the cost in today's dollars the same for both years?

Accepted Answer

A) 60 in 1972 and 150 today 
B) 65 in 1972 and 156 today 
C) 75 in 1972 and 160 today 
D) 90 in 1972 and 145.8 today 
A) 60 in 1972 and 150 today 
B) 65 in 1972 and 156 today 
C) 75 in 1972 and 160 today 
D) 90 in 1972 and 145.8 today

Question 3

Table 24-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below.  
-Refer to Table 24-12. Suppose Will's 2009 food expenditures in 2011 dollars amount to $5,670. Then

Accepted Answer

A) the consumer price index was 11.8 percent higher in 2011 than it was in 2009. 
B) the inflation rate in 2011 was 8 percent. 
C) Will's 2011 food expenditures in 2009 dollars amount to $5,740. 
D) Will's 2010 food expenditures in 2011 dollars amount to $6,210. 
A) the consumer price index was 11.8 percent higher in 2011 than it was in 2009. 
B) the inflation rate in 2011 was 8 percent. 
C) Will's 2011 food expenditures in 2009 dollars amount to $5,740. 
D) Will's 2010 food expenditures in 2011 dollars amount to $6,210.

Question 4

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. 
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.

Question 5

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. 
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.

Question 6

In the late 1970s, U.S. nominal interest rates were high and real interest rates were low, but in the late 1990s, U.S. nominal interest rates were low and real interest rates were high.

Accepted Answer

A) True 
 B)False

Question 7

If the nominal interest rate is 6 percent and the rate of inflation is 2 percent, then the real interest rate is

Accepted Answer

A) -4 percent. 
B) 3 percent. 
C) 4 percent. 
D) 8 percent. 
A) -4 percent. 
B) 3 percent. 
C) 4 percent. 
D) 8 percent.

Question 8

Compute how much each of the following items is worth in terms of today's dollars using 177 as the price index for today.
a.In 1926, the CPI was 17.7 and the price of a movie ticket was $0.25.
b.In 1932, the CPI was 13.1 and a cook earned $15.00 a week.
c.In 1943, the CPI was 17.4 and a gallon of gas cost $0.19.

Accepted Answer

a.The movie ticket is worth $.25 x 177/1

Question 9

When consumer spending is broken down into the major categories of goods and services, the largest single category is spending on transportation.

Accepted Answer

A) True 
 B)False

Question 10

With respect to the consumer price index, the substitution bias arises because

Accepted Answer

A) prices of goods and services do not change in the same proportion from year to year. 
B) consumers are slow to adjust their buying patterns from year to year in response to price changes. 
C) consumers are eager to buy new products as they are introduced, despite their lack of full information about the quality of those products until they buy and use them. 
D) All of the above are correct. 
A) prices of goods and services do not change in the same proportion from year to year. 
B) consumers are slow to adjust their buying patterns from year to year in response to price changes. 
C) consumers are eager to buy new products as they are introduced, despite their lack of full information about the quality of those products until they buy and use them. 
D) All of the above are correct.

Question 11

Explain how the prices of goods and services used in the CPI differ from the prices used in the PPI.

Accepted Answer

The CPI focuses on goods and s

Question 12

Table 24-15
​
The following table shows the prices of good X and good Y for 2013-2015. In addition, assume the basket of goods used to compute the Consumer Price Index consists of 3 units of good X and 4 units of good Y.
​   ​
-Refer to Table 24-15. If the base year is 2014, the value of the Consumer Price Index in 2013 is​

Accepted Answer

A) ​41.2. 
B) ​58.8. 
C) ​93.0. 
D) ​114.0. 
A) ​41.2. 
B) ​58.8. 
C) ​93.0. 
D) ​114.0.

Question 13

Many economists believe the bias in the CPI is now only about half as large as it once was.

Accepted Answer

A) True 
 B)False

Question 14

The consumer price index is used to

Accepted Answer

A) convert nominal GDP into real GDP. 
B) turn dollar figures into meaningful measures of purchasing power. 
C) characterize the types of goods and services that consumers purchase. 
D) measure the quantity of goods and services that the economy produces. 
A) convert nominal GDP into real GDP. 
B) turn dollar figures into meaningful measures of purchasing power. 
C) characterize the types of goods and services that consumers purchase. 
D) measure the quantity of goods and services that the economy produces.

Question 15

If the value of the consumer price index is 110 in 2005 and 121 in 2006, then the inflation rate is 11 percent for 2006.

Accepted Answer

A) True 
 B)False

Question 16

Economists use the term inflation to describe a situation in which the economy's overall price level is rising.

Accepted Answer

A) True 
 B)False

Question 17

The consumer price index was 200 in 2008 and 190 in 2009. The nominal interest rate during this period was 4.5 percent. What was the real interest rate during this period?

Accepted Answer

A) - 0.75 percent 
B) - 0.5 percent 
C) 9.5 percent 
D) 9.75 percent 
A) - 0.75 percent 
B) - 0.5 percent 
C) 9.5 percent 
D) 9.75 percent

Question 18

Scenario 24-5
TOPICS:
Price levels
Inflation
KEYWORDS:
BLOOM'S: Application
CUSTOM ID:
012.24 - SAE - MANK08
Scenario 24-6
A small economy produced and consumed goods X and Y in 2010 and 2011 in the amounts shown in the table below. Assume that the market basket for the CPI is defined in the base year.  
-Refer to Scenario 24-6. Using 2010 as the base year, what is the CPI in each year?

Accepted Answer

The CPI is

Question 19

When the price of nuclear missiles rises, this change is reflected in the CPI but not in the GDP deflator.

Accepted Answer

A) True 
 B)False

Question 20

The inflation rate is defined as the

Accepted Answer

A) price level in an economy. 
B) change in the price level from one period to the next. 
C) percentage change in the price level from the previous period. 
D) price level minus the price level from the previous period. 
A) price level in an economy. 
B) change in the price level from one period to the next. 
C) percentage change in the price level from the previous period. 
D) price level minus the price level from the previous period.

Exam 24: Measuring the Cost of Living

If the cost of transportation increases by 20 percent, then, other things the same, the CPI is likely to increase by about

In 1972, one could buy a bag of chips, a pound of hamburger, a package of buns, and a small bag of charcoal for about $2.50. If the same goods today cost $6.00, then which pair of CPIs would make the cost in today's dollars the same for both years?

Table 24-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. -Refer to Table 24-12. Suppose Will's 2009 food expenditures in 2011 dollars amount to $5,670. Then

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

To calculate the CPI, the Bureau of Labor Statistics uses

In the late 1970s, U.S. nominal interest rates were high and real interest rates were low, but in the late 1990s, U.S. nominal interest rates were low and real interest rates were high.

If the nominal interest rate is 6 percent and the rate of inflation is 2 percent, then the real interest rate is

When consumer spending is broken down into the major categories of goods and services, the largest single category is spending on transportation.

With respect to the consumer price index, the substitution bias arises because

Explain how the prices of goods and services used in the CPI differ from the prices used in the PPI.

Many economists believe the bias in the CPI is now only about half as large as it once was.

The consumer price index is used to

If the value of the consumer price index is 110 in 2005 and 121 in 2006, then the inflation rate is 11 percent for 2006.

Economists use the term inflation to describe a situation in which the economy's overall price level is rising.

The consumer price index was 200 in 2008 and 190 in 2009. The nominal interest rate during this period was 4.5 percent. What was the real interest rate during this period?

When the price of nuclear missiles rises, this change is reflected in the CPI but not in the GDP deflator.

The inflation rate is defined as the

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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