Question 1

The GDP deflator is the ratio of nominal GDP to real GDP.

Accepted Answer

A) True 
 B)False

Question 2

Harry Porter worked at a library in 1996.A day's work paid him $35.If the price index was 65 in 1990 and 160 in 2011, how much was Harry's daily wage worth in 2011?

Accepted Answer

A) $42 
B) $51 
C) $86 
D) It is too difficult to calculate, as Harry would have become much better at his job 
A) $42 
B) $51 
C) $86 
D) It is too difficult to calculate, as Harry would have become much better at his job

Question 3

-If the 2012 CPI increased by five per cent, economists would estimate that the true cost of living had increased by about 4 per cent.

Accepted Answer

A) True 
 B)False

Question 4

The real interest rate equals nominal interest rate plus the inflation rate.

Accepted Answer

A) True 
 B)False

Question 5

The base year for the CPI is updated:

Accepted Answer

A) so that every change in consumer purchases can be immediately included 
B) to provide work for government economists 
C) because the pattern of consumer purchases changes over time 
D) because the CPI always uses the current year as the base year 
A) so that every change in consumer purchases can be immediately included 
B) to provide work for government economists 
C) because the pattern of consumer purchases changes over time 
D) because the CPI always uses the current year as the base year

Question 6

Suppose people consume only two goods, apple pies and meat pies:
 $\begin{array}{lllll} 
& \text { 2010 price (\$) } & \text { 2012 quantity } & \text { 2011 price (\$) } & \text { 2011 quantity } \
\text { Apple pies } & 8 & 50 & 10 & 50 \
\text { Meat pies } & 10 & 100 & 12 & 100
\end{array}$ 
a.What is the percentage increase in the price of food and in the price of clothing?
b.What is the percentage increase in the overall price level?
c.Do these price changes affect all consumers to the same extent? Explain.

Accepted Answer

a.The price of apple pies increased by 2

Question 7

In 1984, Allen buys a new stereo system at the Modern technology Hi-Fi store.He is told by the salesman that Mr Steve Jobs Bose has invented a computer that allows you to do complex calculations and word processing in your home.Allen buys an Apple Mac.This purchase illustrates which of the following problems in the CPI's construction?

Accepted Answer

A) Substitution bias 
B) Introduction of new goods 
C) Unmeasured quality change 
D) Both B and C 
A) Substitution bias 
B) Introduction of new goods 
C) Unmeasured quality change 
D) Both B and C

Question 8

The substitution bias in the CPI results from the index not taking into account:

Accepted Answer

A) the substitution of new goods for old goods in the purchases of consumers 
B) that consumers substitute towards goods that have become relatively less expensive 
C) the substitution of new prices for old prices in the basket of goods from one year to the next 
D) the substitution of quality for quantity in consumer purchases over time 
A) the substitution of new goods for old goods in the purchases of consumers 
B) that consumers substitute towards goods that have become relatively less expensive 
C) the substitution of new prices for old prices in the basket of goods from one year to the next 
D) the substitution of quality for quantity in consumer purchases over time

Question 9

Les buys a house in 2009.He obtains a fixed 10 per cent mortgage interest rate, and makes payments of $1000 per month.The 2009 CPI is 90, the 2010 CPI is 90, the 2011 CPI is 100, the 2012 CPI is 110 and the 2013 CPI is 120.
a.What is the real mortgage interest rate Les pays in 2010, 2011, 2012 and 2013?
b.What are the values in 2009 dollars of Les's monthly mortgage payments in 2010, 2011, 2012 and 2013?

Accepted Answer

a.The real mortgage interest rate in 201

Question 10

In 2010, nominal GDP is $500 million and real GDP is $550 million.What is the GDP deflator?

Accepted Answer

A) -50 
B) 50 
C) 91 
D) 110 
A) -50 
B) 50 
C) 91 
D) 110

Question 11

In Econoland in 2008, people with incomes between $20 000 and $30 000 must pay 12% of their income in taxes, and people with incomes between $30 001 and $40 000 must pay 15%.In 2008, the CPI in Econoland equals 1.20 and increases to 1.26 in 2009.If the government of Econoland wants to keep households with a given real income from being pushed up into a higher tax bracket by inflation, the $20 000 to $30 000 bracket will be changed to:

Accepted Answer

A) $15 873 to $23 810 
B) $21 000 to $31 500 
C) $24 000 to $37 800 
D) $25 200 to $37 800 
A) $15 873 to $23 810 
B) $21 000 to $31 500 
C) $24 000 to $37 800 
D) $25 200 to $37 800

Question 12

The price of a specific good or service in comparison with the prices of other goods and services is called:

Accepted Answer

A) a relative price 
B) a real price 
C) indexing 
A) a relative price 
B) a real price 
C) indexing

Question 13

When inflation is high, lenders will charge a high nominal interest rate.

Accepted Answer

A) True 
 B)False

Question 14

Karl's 1950 salary was $15 000.The CPI is 27 for 1950, and 150 for 2009.What is Karl's salary in 2009 dollars?

Accepted Answer

A) $83 333 
B) $27 000 
C) $40 500 
D) $22 500 
A) $83 333 
B) $27 000 
C) $40 500 
D) $22 500

Question 15

When nominal GDP exceeds real GDP it means that prices are higher.

Accepted Answer

A) True 
 B)False

Exam 25: Measuring the Cost of Living

The GDP deflator is the ratio of nominal GDP to real GDP.

Harry Porter worked at a library in 1996.A day's work paid him $35.If the price index was 65 in 1990 and 160 in 2011, how much was Harry's daily wage worth in 2011?

-If the 2012 CPI increased by five per cent, economists would estimate that the true cost of living had increased by about 4 per cent.

The real interest rate equals nominal interest rate plus the inflation rate.

The base year for the CPI is updated:

The substitution bias in the CPI results from the index not taking into account:

In 2010, nominal GDP is $500 million and real GDP is $550 million.What is the GDP deflator?

The price of a specific good or service in comparison with the prices of other goods and services is called:

When inflation is high, lenders will charge a high nominal interest rate.

Karl's 1950 salary was $15 000.The CPI is 27 for 1950, and 150 for 2009.What is Karl's salary in 2009 dollars?

When nominal GDP exceeds real GDP it means that prices are higher.

Ten Lessons From 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

Application: 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

Business Strategy and Oligopoly

Competition Policy

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

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 Trade-Off Between Inflation and Unemployment

Global Financial Crisis of 2008 and Beyond

Five Debates Over Macroeconomic Policy

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