Question 1

Which of the following is the most accurate statement?

Accepted Answer

A) In the 1970s, the late 1980s, 1990s, and 2000s, the GDP deflator and the CPI both showed high rates of inflation. 
B) In the 1970s, both the GDP deflator and the consumer price index showed high rates of inflation, and in the late 1980s, 1990s, and 2000s, both measures showed low rates of inflation. 
C) In the 1970s, both the GDP deflator and the consumer price index showed low rates of inflation, and in the late 1980s, 1990s, and 2000s, both measures showed high rates of inflation. 
D) In the 1970s, the late 1980s, 1990s, and 2000s, the GDP deflator and the CPI both showed low rates of inflation. 
A) In the 1970s, the late 1980s, 1990s, and 2000s, the GDP deflator and the CPI both showed high rates of inflation. 
B) In the 1970s, both the GDP deflator and the consumer price index showed high rates of inflation, and in the late 1980s, 1990s, and 2000s, both measures showed low rates of inflation. 
C) In the 1970s, both the GDP deflator and the consumer price index showed low rates of inflation, and in the late 1980s, 1990s, and 2000s, both measures showed high rates of inflation. 
D) In the 1970s, the late 1980s, 1990s, and 2000s, the GDP deflator and the CPI both showed low rates of inflation.

Question 2

There is no longer much debate among economists concerning the severity of and the solution to the problems in using the CPI to measure the cost of living.

Accepted Answer

A) True 
 B)False

Question 3

If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation rate is 3 percent.

Accepted Answer

A) True 
 B)False

Question 4

If the consumer price index is 120 in 2009 and 139.2 in 2010, then the rate of inflation for 2010 is 39.2 percent.

Accepted Answer

A) True 
 B)False

Question 5

For an imaginary economy, the value of the consumer price index was 138.75 in 2016, and the inflation rate was 10 percent between 2015 and 2016. The consumer price index in 2015 was

Accepted Answer

A) 126.1. 
B) 128.8. 
C) 148.8. 
D) 152.6. 
A) 126.1. 
B) 128.8. 
C) 148.8. 
D) 152.6.

Question 6

Scenario 24-5
Suppose the residents of Mediaville spend all of their income on books, CDs, and DVDs. In 2009, they buy 400 books for $3,200, 200 CDs for $1,400, and 100 DVDs for $900. In 2010, they buy 360 books for $3,240, 250 CDs for $1,500, and 125 DVDs for $1,250. Assume that the market basket for the CPI is defined in the base year.
-Refer to Scenario 24-5. What are the prices of books, CDs, and DVDs in 2009?

Accepted Answer

In 2009, books are $

Question 7

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

Accepted Answer

A) the number of apples bought by the typical consumer is equal to the number of pears bought by the typical consumer in each year. 
B) neither the number of apples nor the number of pears bought by the typical consumer changes from year to year. 
C) the percentage change in the price of apples is equal to the percentage change in the price of pears from year to year. 
D) neither the price of apples nor the price of pears changes from year to year. 
A) the number of apples bought by the typical consumer is equal to the number of pears bought by the typical consumer in each year. 
B) neither the number of apples nor the number of pears bought by the typical consumer changes from year to year. 
C) the percentage change in the price of apples is equal to the percentage change in the price of pears from year to year. 
D) neither the price of apples nor the price of pears changes from year to year.

Question 8

If the CPI was 110 this year and 100 last year, then

Accepted Answer

A) the cost of the CPI basket of goods and services increased by 10 percent this year. 
B) the price level increased by 110 percent this year. 
C) the inflation rate for this year was 10 percent higher than the inflation rate for last year. 
D) All of the above are correct. 
A) the cost of the CPI basket of goods and services increased by 10 percent this year. 
B) the price level increased by 110 percent this year. 
C) the inflation rate for this year was 10 percent higher than the inflation rate for last year. 
D) All of the above are correct.

Question 9

If the price of Spanish olives imported into the United States decreases, then

Accepted Answer

A) both the GDP deflator and the consumer price index will decrease. 
B) neither the GDP deflator nor the consumer price index will decrease. 
C) the GDP deflator will decrease, but the consumer price index will not decrease. 
D) the consumer price index will decrease, but the GDP deflator will not decrease. 
A) both the GDP deflator and the consumer price index will decrease. 
B) neither the GDP deflator nor the consumer price index will decrease. 
C) the GDP deflator will decrease, but the consumer price index will not decrease. 
D) the consumer price index will decrease, but the GDP deflator will not decrease.

Question 10

The consumer price index is subject to substitution bias because

Accepted Answer

A) some pairs of goods are complements rather than substitutes. 
B) some goods are inferior rather than normal. 
C) the law of demand applies to most, if not all, goods. 
D) the index does not take into account the likelihood that consumers substitute newly-introduced goods for more-established goods. 
A) some pairs of goods are complements rather than substitutes. 
B) some goods are inferior rather than normal. 
C) the law of demand applies to most, if not all, goods. 
D) the index does not take into account the likelihood that consumers substitute newly-introduced goods for more-established goods.

Question 11

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $50; in 2014, the basket's cost was $51; and in 2016, the basket's cost was $52. The value of the CPI in 2014 was

Accepted Answer

A) 98.0. 
B) 102.0. 
C) 104.0. 
D) 151.0. 
A) 98.0. 
B) 102.0. 
C) 104.0. 
D) 151.0.

Question 12

The substitution bias in the consumer price index refers to the

Accepted Answer

A) substitution by consumers toward new goods and away from old goods. 
B) substitution by consumers toward a smaller number of high-quality goods and away from a larger number of low-quality goods. 
C) substitution by consumers toward goods that have become relatively less expensive and away from goods that have become relatively more expensive. 
D) substitution of new prices for old prices in the CPI basket of goods and services from one year to the next. 
A) substitution by consumers toward new goods and away from old goods. 
B) substitution by consumers toward a smaller number of high-quality goods and away from a larger number of low-quality goods. 
C) substitution by consumers toward goods that have become relatively less expensive and away from goods that have become relatively more expensive. 
D) substitution of new prices for old prices in the CPI basket of goods and services from one year to the next.

Question 13

The consumer price index tries to gauge how much incomes must rise to maintain

Accepted Answer

A) an increasing standard of living. 
B) a constant standard of living. 
C) a decreasing standard of living. 
D) the highest standard of living possible. 
A) an increasing standard of living. 
B) a constant standard of living. 
C) a decreasing standard of living. 
D) the highest standard of living possible.

Question 14

Suppose the typical consumer buys more bananas than oranges. In fixing the basket of goods and services for the purpose of calculating the consumer price index, the Bureau of Labor Statistics

Accepted Answer

A) ignores the fact that the typical consumer buys more bananas than orange; this procedure does not affect the value of the index. 
B) ignores the fact that the typical consumer buys more bananas than orange; this procedure results in a potentially-serious bias in the index. 
C) places more weight on the price of bananas than on the price of oranges; the weights of the two prices are determined by surveying consumers. 
D) places more weight on the price of bananas than on the price of oranges; the weights of the two prices are determined by the extent to which those prices have changed over the previous year. 
A) ignores the fact that the typical consumer buys more bananas than orange; this procedure does not affect the value of the index. 
B) ignores the fact that the typical consumer buys more bananas than orange; this procedure results in a potentially-serious bias in the index. 
C) places more weight on the price of bananas than on the price of oranges; the weights of the two prices are determined by surveying consumers. 
D) places more weight on the price of bananas than on the price of oranges; the weights of the two prices are determined by the extent to which those prices have changed over the previous year.

Question 15

The price index was 150 in the first year, 142.5 in the second year, and 138.2 in the third year. The economy experienced

Accepted Answer

A) 5.0 percent deflation between the first and second years, and 3.0 percent deflation between the second and third years. 
B) 7.5 percent deflation between the first and second years, and 4.3 percent deflation between the second and third years. 
C) 5.3 percent inflation between the first and second years, and 4.1 percent inflation between the second and third years. 
D) 7.5 percent inflation between the first and second years, and 4.3 percent inflation between the second and third years. 
A) 5.0 percent deflation between the first and second years, and 3.0 percent deflation between the second and third years. 
B) 7.5 percent deflation between the first and second years, and 4.3 percent deflation between the second and third years. 
C) 5.3 percent inflation between the first and second years, and 4.1 percent inflation between the second and third years. 
D) 7.5 percent inflation between the first and second years, and 4.3 percent inflation between the second and third years.

Question 16

The nominal interest rate for a consumer loan lasting from 2007 to 2008 is 8.5 percent and the real interest rate is 4.5 percent. If the consumer price index was 200 in 2007, what would the consumer price index value be in 2008?

Accepted Answer

A) 192 
B) 208 
C) 209 
D) 217 
A) 192 
B) 208 
C) 209 
D) 217

Question 17

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. If the base year is 2014, then the consumer price index was

Accepted Answer

A) 80 in 2013, 100 in 2014, and 60 in 2015. 
B) 98 in 2013, 100 in 2014, and 96 in 2015. 
C) 90 in 2013, 100 in 2014, and 80 in 2015. 
D) 180 in 2013, 200 in 2014, and 160 in 2015. 
A) 80 in 2013, 100 in 2014, and 60 in 2015. 
B) 98 in 2013, 100 in 2014, and 96 in 2015. 
C) 90 in 2013, 100 in 2014, and 80 in 2015. 
D) 180 in 2013, 200 in 2014, and 160 in 2015.

Question 18

In the United States, nominal interest rates were

Accepted Answer

A) high in the 1970s and 1990s. 
B) low in the 1970s and 1990s. 
C) high in the 1970s and low in the 1990s. 
D) low in the 1970s and high in the 1990s. 
A) high in the 1970s and 1990s. 
B) low in the 1970s and 1990s. 
C) high in the 1970s and low in the 1990s. 
D) low in the 1970s and high in the 1990s.

Question 19

Table 24-1
The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year.  
-Refer to Table 24-1. What belongs in space C?

Accepted Answer

A) 120 
B) 25% 
C) 8.7% 
D) 12% 
A) 120 
B) 25% 
C) 8.7% 
D) 12%

Question 20

Which of the following statements is correct?

Accepted Answer

A) The consumer price index is a measure of the overall level of prices, whereas the GDP deflator is not a measure of the overall level of prices. 
B) If, in the year 2011, the consumer price index has a value of 123.50, then the inflation rate for 2011 must be 23.50 percent. 
C) Compared to the GDP deflator, the consumer price index is the more common gauge of inflation. 
D) The consumer price index and the GDP deflator reflect the goods and services bought by consumers equally well. 
A) The consumer price index is a measure of the overall level of prices, whereas the GDP deflator is not a measure of the overall level of prices. 
B) If, in the year 2011, the consumer price index has a value of 123.50, then the inflation rate for 2011 must be 23.50 percent. 
C) Compared to the GDP deflator, the consumer price index is the more common gauge of inflation. 
D) The consumer price index and the GDP deflator reflect the goods and services bought by consumers equally well.

Exam 24: Measuring the Cost of Living

Which of the following is the most accurate statement?

There is no longer much debate among economists concerning the severity of and the solution to the problems in using the CPI to measure the cost of living.

If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation rate is 3 percent.

If the consumer price index is 120 in 2009 and 139.2 in 2010, then the rate of inflation for 2010 is 39.2 percent.

For an imaginary economy, the value of the consumer price index was 138.75 in 2016, and the inflation rate was 10 percent between 2015 and 2016. The consumer price index in 2015 was

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

If the CPI was 110 this year and 100 last year, then

If the price of Spanish olives imported into the United States decreases, then

The consumer price index is subject to substitution bias because

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $50; in 2014, the basket's cost was $51; and in 2016, the basket's cost was $52. The value of the CPI in 2014 was

The substitution bias in the consumer price index refers to the

The consumer price index tries to gauge how much incomes must rise to maintain

Suppose the typical consumer buys more bananas than oranges. In fixing the basket of goods and services for the purpose of calculating the consumer price index, the Bureau of Labor Statistics

The price index was 150 in the first year, 142.5 in the second year, and 138.2 in the third year. The economy experienced

The nominal interest rate for a consumer loan lasting from 2007 to 2008 is 8.5 percent and the real interest rate is 4.5 percent. If the consumer price index was 200 in 2007, what would the consumer price index value be in 2008?

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. If the base year is 2014, then the consumer price index was

In the United States, nominal interest rates were

Table 24-1 The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year. -Refer to Table 24-1. What belongs in space C?

Which of the following statements is correct?

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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