Question 1

When new goods are introduced, consumers have more variety from which to choose. As a result, each dollar is worth

Accepted Answer

A) more, and the cost of living increases. 
B) more, and the cost of living decreases. 
C) less, and the cost of living increases. 
D) less, and the cost of living decreases. 
A) more, and the cost of living increases. 
B) more, and the cost of living decreases. 
C) less, and the cost of living increases. 
D) less, and the cost of living decreases.

Question 2

Suppose that U.S. mining companies purchase German-made ore trucks at a reduced price. By itself, what effect will this purchase have on the GDP deflator and on the consumer price index?

Accepted Answer

A) The consumer price index and the GDP deflator will both fall. 
B) The consumer price index and the GDP deflator will both be unaffected. 
C) The consumer price index will fall, and the GDP deflator will be unaffected. 
D) The consumer price index will be unaffected, and the GDP deflator will fall. 
A) The consumer price index and the GDP deflator will both fall. 
B) The consumer price index and the GDP deflator will both be unaffected. 
C) The consumer price index will fall, and the GDP deflator will be unaffected. 
D) The consumer price index will be unaffected, and the GDP deflator will fall.

Question 3

If the CPI increased from 215 to 218 between the years 2012 and 2013, while the nominal interest rate increased from 3.25% to 3.80%, what is the real interest rate in 2013?

Accepted Answer

The answer of If the CPI increased from 215 to...

Question 4

In the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the smallest?

Accepted Answer

A) education & communication 
B) apparel 
C) medical care 
D) recreation 
A) education & communication 
B) apparel 
C) medical care 
D) recreation

Question 5

Data from the Bureau of Labor Statistics show that consumer spending on medical care is about equal to consumer spending on housing.

Accepted Answer

A) True 
 B)False

Question 6

If the nominal interest rate is 4.2 percent and the rate of inflation is -0.5 percent, then the real interest rate is

Accepted Answer

A) -8.4 percent. 
B) -2.1 percent. 
C) 3.7 percent. 
D) 4.7 percent. 
A) -8.4 percent. 
B) -2.1 percent. 
C) 3.7 percent. 
D) 4.7 percent.

Question 7

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. 
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.

Question 8

Table 24-7. 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 24-7. If the base year is 2009, then the economy's inflation rate is

Accepted Answer

A) 10 percent in 2010 and 6.36 percent in 2011. 
B) 10 percent in 2010 and 17 percent in 2011. 
C) 9.2 percent in 2010 and 6 percent in 2011. 
D) 8.22 percent in 2010 and 5 percent in 2011. 
A) 10 percent in 2010 and 6.36 percent in 2011. 
B) 10 percent in 2010 and 17 percent in 2011. 
C) 9.2 percent in 2010 and 6 percent in 2011. 
D) 8.22 percent in 2010 and 5 percent in 2011.

Question 9

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 the consumer price index is 15.5 percent higher in 2011 than in 2009. Then Will's food expenditures for 2010 in 2011 dollars amount to

Accepted Answer

A) $6,352. 
B) $6,380. 
C) $6,426. 
D) $6,651. 
A) $6,352. 
B) $6,380. 
C) $6,426. 
D) $6,651.

Question 10

Which of the following is not correct?

Accepted Answer

A) The consumer price index gives economists a way of turning dollar figures into meaningful measures of purchasing power. 
B) The consumer price index is used to monitor changes in the cost of living over time. 
C) The consumer price index is used by economists to measure the inflation rate. 
D) The consumer price index is used to measure the quantity of goods and services that the economy is producing. 
A) The consumer price index gives economists a way of turning dollar figures into meaningful measures of purchasing power. 
B) The consumer price index is used to monitor changes in the cost of living over time. 
C) The consumer price index is used by economists to measure the inflation rate. 
D) The consumer price index is used to measure the quantity of goods and services that the economy is producing.

Question 11

In the calculation of the CPI, books are given greater weight than magazines if

Accepted Answer

A) consumers buy more books than magazines. 
B) the price of books is higher than the price of magazines. 
C) it costs more to produce books than it costs to produce magazines. 
D) books are more readily available than magazines to the typical consumer. 
A) consumers buy more books than magazines. 
B) the price of books is higher than the price of magazines. 
C) it costs more to produce books than it costs to produce magazines. 
D) books are more readily available than magazines to the typical consumer.

Question 12

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) $100,000 
A) $23,040 
B) $52,000 
C) $79,200 
D) $100,000

Question 13

The real 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. 
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.

Question 14

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 t

Question 15

Suppose the nominal interest rate this year is 6.5% and that the economy experiences 2.3% deflation. What is the real interest rate?

Accepted Answer

The real i

Question 16

Suppose prices of personal computers fall significantly and consumers respond by buying more personal computers. The consumer price index

Accepted Answer

A) reflects this price decrease accurately. 
B) understates this price decrease due to the substitution bias. 
C) overstates this price decrease due to the income bias. 
D) overstates this price decrease due to the substitution bias. 
A) reflects this price decrease accurately. 
B) understates this price decrease due to the substitution bias. 
C) overstates this price decrease due to the income bias. 
D) overstates this price decrease due to the substitution bias.

Question 17

Suppose that over the past year, the real interest rate was 3 percent, the CPI was 126.2 at the beginning of the year, and the CPI was 129.5 at the end of the year. It follows that

Accepted Answer

A) the dollar value of savings increased at 5.6 percent, and the purchasing power of savings increased at 3 percent. 
B) the dollar value of savings increased at 0.4 percent, and the purchasing power of savings increased at 3 percent. 
C) the dollar value of savings increased at 3 percent, and the purchasing power of savings increased at 5.6 percent. 
D) the dollar value of savings increased at 3 percent, and the purchasing power of savings increased at 0.4 percent. 
A) the dollar value of savings increased at 5.6 percent, and the purchasing power of savings increased at 3 percent. 
B) the dollar value of savings increased at 0.4 percent, and the purchasing power of savings increased at 3 percent. 
C) the dollar value of savings increased at 3 percent, and the purchasing power of savings increased at 5.6 percent. 
D) the dollar value of savings increased at 3 percent, and the purchasing power of savings increased at 0.4 percent.

Question 18

Table 24-8
The table below relates to the economy of Mainland, where the typical consumer's market basket consists of 2 televisions and 300 hamburgers.  
-Refer to Table 24-8. The cost of the basket

Accepted Answer

A) increased from 2013 to 2014 and increased from 2014 to 2015. 
B) increased from 2013 to 2014 and decreased from 2014 to 2015. 
C) decreased from 2013 to 2014 and increased from 2014 to 2015. 
D) decreased from 2013 to 2014 and decreased from 2014 to 2015. 
A) increased from 2013 to 2014 and increased from 2014 to 2015. 
B) increased from 2013 to 2014 and decreased from 2014 to 2015. 
C) decreased from 2013 to 2014 and increased from 2014 to 2015. 
D) decreased from 2013 to 2014 and decreased from 2014 to 2015.

Question 19

In the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the largest?

Accepted Answer

A) education & communication 
B) recreation 
C) medical care 
D) All of the above categories are about equal in magnitude. 
A) education & communication 
B) recreation 
C) medical care 
D) All of the above categories are about equal in magnitude.

Question 20

The basket of goods in the consumer price index changes

Accepted Answer

A) occasionally, as does the group of goods used to compute the GDP deflator. 
B) automatically, as does the group of goods used to compute the GDP deflator. 
C) occasionally, whereas the group of goods used to compute the GDP deflator changes automatically. 
D) automatically, whereas the group of goods used to compute the GDP deflator changes occasionally. 
A) occasionally, as does the group of goods used to compute the GDP deflator. 
B) automatically, as does the group of goods used to compute the GDP deflator. 
C) occasionally, whereas the group of goods used to compute the GDP deflator changes automatically. 
D) automatically, whereas the group of goods used to compute the GDP deflator changes occasionally.

Exam 24: Measuring the Cost of Living

When new goods are introduced, consumers have more variety from which to choose. As a result, each dollar is worth

Suppose that U.S. mining companies purchase German-made ore trucks at a reduced price. By itself, what effect will this purchase have on the GDP deflator and on the consumer price index?

If the CPI increased from 215 to 218 between the years 2012 and 2013, while the nominal interest rate increased from 3.25% to 3.80%, what is the real interest rate in 2013?

In the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the smallest?

Data from the Bureau of Labor Statistics show that consumer spending on medical care is about equal to consumer spending on housing.

If the nominal interest rate is 4.2 percent and the rate of inflation is -0.5 percent, then the real interest rate is

When the consumer price index falls, the typical family

Table 24-7. 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 24-7. If the base year is 2009, then the economy's inflation rate is

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 the consumer price index is 15.5 percent higher in 2011 than in 2009. Then Will's food expenditures for 2010 in 2011 dollars amount to

Which of the following is not correct?

In the calculation of the CPI, books are given greater weight than magazines if

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?

The real interest rate tells you

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

Suppose the nominal interest rate this year is 6.5% and that the economy experiences 2.3% deflation. What is the real interest rate?

Suppose prices of personal computers fall significantly and consumers respond by buying more personal computers. The consumer price index

Suppose that over the past year, the real interest rate was 3 percent, the CPI was 126.2 at the beginning of the year, and the CPI was 129.5 at the end of the year. It follows that

Table 24-8 The table below relates to the economy of Mainland, where the typical consumer's market basket consists of 2 televisions and 300 hamburgers. -Refer to Table 24-8. The cost of the basket

In the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the largest?

The basket of goods in the consumer price index changes

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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