Question 1

The inflation rate for 2007 is computed by dividing (the CPI in 2007 minus the CPI in 2006) by the CPI in 2006, then multiplying by 100.

Accepted Answer

A) True 
 B)False

Question 2

Which is likely to have the larger effect on the CPI, a 2 percent increase in the price of food or a 3 percent increase in the price of diamond rings? Explain.

Accepted Answer

The 2 percent increase in the

Question 3

Table 24-4
Lee's expenditures on food for three consecutive years, along with other values, are presented in the following table.
​
​
  
-Refer to Table 24-4. If the nominal interest rate was 12 percent in Year 2, then

Accepted Answer

A) the real interest rate in Year 2 was 6 percent. 
B) the real interest rate in Year 2 was 18 percent. 
C) Lee's Year 1 food expenditures in Year 2 dollars amount to $5,800. 
D) Lee's Year 1 food expenditures in Year 3 dollars amount to $6,200. 
A) the real interest rate in Year 2 was 6 percent. 
B) the real interest rate in Year 2 was 18 percent. 
C) Lee's Year 1 food expenditures in Year 2 dollars amount to $5,800. 
D) Lee's Year 1 food expenditures in Year 3 dollars amount to $6,200.

Question 4

Suppose that the price of one ear of corn was $0.05 in 1920, that the CPI in 1920 was 10, and that in 1990 the CPI was 180. What is the price of a 1920 ear of corn in 1990 dollars?

Accepted Answer

The price of a 1920

Question 5

Michael Jordan's rookie salary in 1984 was $550,000. The CPI in 1984 was 103.9, while the CPI in 2010 was 218.1. What is Michael Jordan's rookie salary in 2010 dollars?

Accepted Answer

The answer of Michael Jordan's rookie salary in 1984 was...

Question 6

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 7

When a new good is introduced, consumers have more variety from which to choose, and this in turn increases the cost of maintaining the same level of economic well-being.

Accepted Answer

A) True 
 B)False

Question 8

By far the largest category of goods and services in the CPI basket is

Accepted Answer

A) housing. 
B) transportation. 
C) education & communication. 
D) food & beverages. 
A) housing. 
B) transportation. 
C) education & communication. 
D) food & beverages.

Question 9

When the consumer price index falls, the typical family has to spend fewer dollars to maintain the same standard of living.

Accepted Answer

A) True 
 B)False

Question 10

Table 24-1
The following table pertains to Quicheland, an economy in which the typical consumer's basket consists of 15 bushels of apples and 7 bushels of almond .
​
​
 $$\begin{array} { | l | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Price of Apples } \
\text { (Dollarsp er bushel) }
\end{array} & \begin{array} { c } 
\text { Price of Almond } \
\text { (Dollars per bushel) }
\end{array} \
\hline \text { Year 1 } & 12 & 4 \
\hline \text { Year } 2 & 7 & 11 \
\hline
\end{array}$$ ​
-Refer to Table 24-1. If Year 1 is the base year, then the inflation rate in Year 2 was

Accepted Answer

A) 12.50 percent. 
B) -15.00 percent. 
C) -9.00 percent. 
D) -12.50 percent. 
A) 12.50 percent. 
B) -15.00 percent. 
C) -9.00 percent. 
D) -12.50 percent.

Question 11

The CPI assumes a fixed basket of goods over time. In fact, consumers are likely to change purchasing behavior over time by purchasing less of the goods whose prices have risen by relatively large amounts and by buying more of the goods whose prices have risen less or maybe even fallen. What problem does this cause for measuring the cost of living?

Accepted Answer

This creates a subst

Question 12

When the consumer price index is computed, the base year is always the first year among the years being considered.

Accepted Answer

A) True 
 B)False

Question 13

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 14

Table 24-5
​
The following table shows the value of the consumer price index and the nominal interest rate for three consecutive years.
​
​
 $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \text { CPI } & \begin{array} { c } 
\text { Nominal Interest Rate } \
\text { (Percent) }
\end{array} \
\hline 1 & 233.0 & 2.4 \
\hline 2 & 236.7 & 2.5 \
\hline 3 & 237.0 & 2.1 \
\hline
\end{array}$$
-Refer to Table 24-5. What was the real interest rate in Year 3?

Accepted Answer

A) 1.8% 
B) 2.0% 
C) 2.2% 
D) 2.4% 
A) 1.8% 
B) 2.0% 
C) 2.2% 
D) 2.4%

Question 15

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 16

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 17

The real interest rate tells you how fast the purchasing power of your bank account rises over time.

Accepted Answer

A) True 
 B)False

Question 18

The CPI does not reflect the increase in the value of the dollar that arises from the introduction of new goods.

Accepted Answer

A) True 
 B)False

Question 19

Two common 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 20

The GDP deflator reflects the prices of all goods and services produced around the world, whereas the consumer price index reflects the prices of all goods and services bought by consumers.

Accepted Answer

A) True 
 B)False

Exam 24: Measuring the Cost of Living

The inflation rate for 2007 is computed by dividing (the CPI in 2007 minus the CPI in 2006) by the CPI in 2006, then multiplying by 100.

Which is likely to have the larger effect on the CPI, a 2 percent increase in the price of food or a 3 percent increase in the price of diamond rings? Explain.

Table 24-4 Lee's expenditures on food for three consecutive years, along with other values, are presented in the following table. ​ ​ -Refer to Table 24-4. If the nominal interest rate was 12 percent in Year 2, then

Suppose that the price of one ear of corn was $0.05 in 1920, that the CPI in 1920 was 10, and that in 1990 the CPI was 180. What is the price of a 1920 ear of corn in 1990 dollars?

Michael Jordan's rookie salary in 1984 was $550,000. The CPI in 1984 was 103.9, while the CPI in 2010 was 218.1. What is Michael Jordan's rookie salary in 2010 dollars?

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

When a new good is introduced, consumers have more variety from which to choose, and this in turn increases the cost of maintaining the same level of economic well-being.

By far the largest category of goods and services in the CPI basket is

When the consumer price index falls, the typical family has to spend fewer dollars to maintain the same standard of living.

When the consumer price index is computed, the base year is always the first year among the years being considered.

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

Table 24-5 ​ The following table shows the value of the consumer price index and the nominal interest rate for three consecutive years. ​ ​ Year CPI Nominal Interest Rate (Percent) 1 233.0 2.4 2 236.7 2.5 3 237.0 2.1 -Refer to Table 24-5. What was the real interest rate in Year 3?

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

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

The real interest rate tells you how fast the purchasing power of your bank account rises over time.

The CPI does not reflect the increase in the value of the dollar that arises from the introduction of new goods.

Two common measures of the overall level of prices are

The GDP deflator reflects the prices of all goods and services produced around the world, whereas the consumer price index reflects the prices of all goods and services bought by consumers.

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 Nations 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

Filters

Table 24-4 Lee's expenditures on food for three consecutive years, along with other values, are presented in the following table. -Refer to Table 24-4. If the nominal interest rate was 12 percent in Year 2, then

Table 24-5 The following table shows the value of the consumer price index and the nominal interest rate for three consecutive years. Year CPI Nominal Interest Rate (Percent) 1 233.0 2.4 2 236.7 2.5 3 237.0 2.1 -Refer to Table 24-5. What was the real interest rate in Year 3?