Question 1

When the quality of a good improves while its price remains the same, the purchasing power of the dollar

Accepted Answer

A) increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for. 
B) increases, so the CPI understates the change in the cost of living if the quality change is not accounted for. 
C) decreases, so the CPI overstates the change in the cost of living if the quality change is not accounted for. 
D) decreases, so the CPI understates the change in the cost of living if the quality change is not accounted for. 
A) increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for. 
B) increases, so the CPI understates the change in the cost of living if the quality change is not accounted for. 
C) decreases, so the CPI overstates the change in the cost of living if the quality change is not accounted for. 
D) decreases, so the CPI understates the change in the cost of living if the quality change is not accounted for.

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Write the formula for computing the cost of a basket of goods in a given period assuming you only have two goods, X and Y, which are bought in quantities Qx and Qy, and sold at prices of Px and Py.

Accepted Answer

The answer of Write the formula for computing the cost...

Question 4

Abhijit deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Abhijit withdraws his $105. If deflation was 7 percent during the year the money was deposited, then Abhijit's purchasing power has increased by 12 percent.

Accepted Answer

A) True 
 B)False

Question 5

​The PPI is a price index that measures the cost to consumers of a typical basket of goods sold by firms.

Accepted Answer

A) True 
 B)False

Question 6

The introduction of the video cassette recorder in the 1970s exemplified a problem in measuring the cost of living; that problem is the problem of

Accepted Answer

A) substitution bias. 
B) product-improvement bias. 
C) introduction of new goods. 
D) unmeasured quality change. 
A) substitution bias. 
B) product-improvement bias. 
C) introduction of new goods. 
D) unmeasured quality change.

Question 7

The table below lists the prices of chips and salsa for the months of October, November, and December. Assume that the typical consumer buys 8 bags of chips and 4 jars of salsa each month, and that October is the base period.
$\begin{array} { | l | l | l | } 
\hline \text { Month } & \text { Price of Chips } & \text { Price of Salsa } \
\hline \text { October } & \$ 2.50 & \$ 2.50 \
\hline \text { November } & \$ 2.40 & \$ 2.55 \
\hline \text { December } & \$ 2.60 & \$ 2.75 \
\hline
\end{array}$
-Refer to Table 24-6. Calculate the cost of a basket of goods for each month.

Accepted Answer

110 in January, 93.5

Question 8

If the real interest rate is 5 percent and the inflation rate is 2 percent, then the nominal interest rate is 7 percent.

Accepted Answer

A) True 
 B)False

Question 9

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 10

Suppose the price of a quart of milk rises from $1.00 to $1.20 and the price of a T-shirt rises from $8.00 to $9.60. If the CPI rises from 150 to 195, then people likely will buy

Accepted Answer

A) more milk and more T-shirts. 
B) more milk and fewer T-shirts. 
C) less milk and more T-shirts. 
D) less milk and fewer T-shirts. 
A) more milk and more T-shirts. 
B) more milk and fewer T-shirts. 
C) less milk and more T-shirts. 
D) less milk and fewer T-shirts.

Question 11

The table below lists the prices of chips and salsa for the months of October, November, and December. Assume that the typical consumer buys 8 bags of chips and 4 jars of salsa each month, and that October is the base period.
$\begin{array} { | l | l | l | } 
\hline \text { Month } & \text { Price of Chips } & \text { Price of Salsa } \
\hline \text { October } & \$ 2.50 & \$ 2.50 \
\hline \text { November } & \$ 2.40 & \$ 2.55 \
\hline \text { December } & \$ 2.60 & \$ 2.75 \
\hline
\end{array}$
-Refer to Table 24-6. Calculate the inflation rate for March.

Accepted Answer

The answer of The table below lists the prices of...

Question 12

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 13

Core CPI is

Accepted Answer

A) the CPI including only food, clothing, and energy. 
B) the CPI including only food and energy. 
C) the CPI excluding food, clothing, and energy. 
D) the CPI excluding food and energy. 
A) the CPI including only food, clothing, and energy. 
B) the CPI including only food and energy. 
C) the CPI excluding food, clothing, and energy. 
D) the CPI excluding food and energy.

Question 14

Data from the Bureau of Labor Statistics show that apparel makes up 14 percent of the typical consumer's budget.

Accepted Answer

A) True 
 B)False

Question 15

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 16

The consumer price index is used to

Accepted Answer

A) monitor changes in the level of wholesale prices in the economy. 
B) monitor changes in the cost of living over time. 
C) monitor changes in the level of real GDP over time. 
D) monitor changes in the stock market. 
A) monitor changes in the level of wholesale prices in the economy. 
B) monitor changes in the cost of living over time. 
C) monitor changes in the level of real GDP over time. 
D) monitor changes in the stock market.

Question 17

Which of the following statements is correct about the relationship between inflation and interest rates?

Accepted Answer

A) There is no relationship between inflation and interest rates. 
B) The interest rate is determined by the rate of inflation. 
C) In order to fully understand inflation, we need to know how to correct for the effects of interest rates. 
D) In order to fully understand interest rates, we need to know how to correct for the effects of inflation. 
A) There is no relationship between inflation and interest rates. 
B) The interest rate is determined by the rate of inflation. 
C) In order to fully understand inflation, we need to know how to correct for the effects of interest rates. 
D) In order to fully understand interest rates, we need to know how to correct for the effects of inflation.

Question 18

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 19

The producer price index measures the cost of a basket of goods and services

Accepted Answer

A) typically produced in the economy. 
B) produced for a typical consumer. 
C) sold by producers. 
D) bought by firms. 
A) typically produced in the economy. 
B) produced for a typical consumer. 
C) sold by producers. 
D) bought by firms.

Question 20

What is the difference between the Consumer Price Index and the Producer Price Index?

Accepted Answer

The CPI measures the cost of a

Exam 24: Measuring the Cost of Living

When the quality of a good improves while its price remains the same, the purchasing power of the dollar

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

Write the formula for computing the cost of a basket of goods in a given period assuming you only have two goods, X and Y, which are bought in quantities Qx and Qy, and sold at prices of Px and Py.

Abhijit deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Abhijit withdraws his $105. If deflation was 7 percent during the year the money was deposited, then Abhijit's purchasing power has increased by 12 percent.

​The PPI is a price index that measures the cost to consumers of a typical basket of goods sold by firms.

The introduction of the video cassette recorder in the 1970s exemplified a problem in measuring the cost of living; that problem is the problem of

If the real interest rate is 5 percent and the inflation rate is 2 percent, then the nominal interest rate is 7 percent.

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

Suppose the price of a quart of milk rises from $1.00 to $1.20 and the price of a T-shirt rises from $8.00 to $9.60. If the CPI rises from 150 to 195, then people likely will buy

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

Core CPI is

Data from the Bureau of Labor Statistics show that apparel makes up 14 percent of the typical consumer's budget.

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

The consumer price index is used to

Which of the following statements is correct about the relationship between inflation and interest rates?

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

The producer price index measures the cost of a basket of goods and services

What is the difference between the Consumer Price Index and the Producer Price Index?

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

The PPI is a price index that measures the cost to consumers of a typical basket of goods sold by firms.