Question 1

Suppose the price index in 2004 was 110;in 2005 it was 120;and in 2006 it was 125.Which of the following statements is correct?

Accepted Answer

A) The economy experienced inflation between 2004 and 2005, and again between 2005 and 2006. 
B) The inflation rate was positive between 2004 and 2005, and it was negative between 2005 and 2006. 
C) The inflation rate was higher between 2005 and 2006 than it was between 2004 and 2005. 
D) All of the above are correct. 
A) The economy experienced inflation between 2004 and 2005, and again between 2005 and 2006. 
B) The inflation rate was positive between 2004 and 2005, and it was negative between 2005 and 2006. 
C) The inflation rate was higher between 2005 and 2006 than it was between 2004 and 2005. 
D) All of the above are correct.

Question 2

You know that a candy bar costs sixty cents today.You also know the CPI for 1962 and the CPI for today.Which of the following would you use to compute the price of the candy bar in 1962 prices?

Accepted Answer

A) sixty cents × (today's CPI - 1962 CPI) 
B) sixty cents × (1962 CPI - today's CPI) 
C) sixty cents × (today's CPI/1962 CPI) 
D) sixty cents × (1962 CPI/today's CPI) 
A) sixty cents × (today's CPI - 1962 CPI) 
B) sixty cents × (1962 CPI - today's CPI) 
C) sixty cents × (today's CPI/1962 CPI) 
D) sixty cents × (1962 CPI/today's CPI)

Question 3

The price of CD players increases dramatically,causing a 1 percent increase in the CPI.The price increase will most likely cause the GDP deflator to increase by

Accepted Answer

A) more than 1 percent. 
B) less than 1 percent. 
C) 1 percent. 
D) None of the above is correct; this particular price increase will not affect the GDP deflator. 
A) more than 1 percent. 
B) less than 1 percent. 
C) 1 percent. 
D) None of the above is correct; this particular price increase will not affect the GDP deflator.

Question 4

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 5

The price index was 128.96 in 2006 and,between 2005 and 2006,the inflation rate was 24 percent.The price index in 2005 was

Accepted Answer

A) 30.95. 
B) 104.00. 
C) 104.96. 
D) 106.67. 
A) 30.95. 
B) 104.00. 
C) 104.96. 
D) 106.67.

Question 6

Which of these changes in the price index produces the greatest rate of inflation: 80 to 100,100 to 120,or 150 to 170?

Accepted Answer

A) 80 to 100 
B) 100 to 120 
C) 150 to 170 
D) All of these changes show the same rate of inflation. 
A) 80 to 100 
B) 100 to 120 
C) 150 to 170 
D) All of these changes show the same rate of inflation.

Question 7

The price index in the first year is 110,in the second year is 100,and in the third year is 96.The economy experienced

Accepted Answer

A) 9.1 percent deflation between the first and second years, and 4 percent deflation between the second and third years. 
B) 9.1 percent deflation between the first and second years, and 9.6 percent deflation between the second and third years. 
C) 10 percent deflation between the first and second years, and 4 percent deflation between the second and third years. 
D) 10 percent deflation between the first and second years, and 8.7 percent deflation between the second and third years. 
A) 9.1 percent deflation between the first and second years, and 4 percent deflation between the second and third years. 
B) 9.1 percent deflation between the first and second years, and 9.6 percent deflation between the second and third years. 
C) 10 percent deflation between the first and second years, and 4 percent deflation between the second and third years. 
D) 10 percent deflation between the first and second years, and 8.7 percent deflation between the second and third years.

Question 8

If the cost of housing increases by 10 percent,then,other things the same,the CPI is likely to increase by about

Accepted Answer

A) 10 percent. 
B) 8.5 percent. 
C) 6 percent. 
D) 4.2 percent. 
A) 10 percent. 
B) 8.5 percent. 
C) 6 percent. 
D) 4.2 percent.

Question 9

Suppose the CPI was 108 in 1967,and suppose one must spend $936 today to obtain the same basket of goods and services that could be bought for $200 in 1967.Then today's CPI is

Accepted Answer

A) 410.10. 
B) 433.33. 
C) 468.00 
D) 505.44. 
A) 410.10. 
B) 433.33. 
C) 468.00 
D) 505.44.

Question 10

Let 2002 be the base year;then

Accepted Answer

A) Inflation rate in 2005 =   
B) Inflation rate in 2005 =   
C) Inflation rate in 2005 =   
D) Inflation rate in 2005 =   
A) Inflation rate in 2005 =   
B) Inflation rate in 2005 =   
C) Inflation rate in 2005 =   
D) Inflation rate in 2005 =

Question 11

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 bought by the typical consumer, nor the number of pears bought by the typical consumer, changes from year to year. 
C) the percentage change in the price of applies is equal to the percentage change in the price of pears from year to year. 
D) All of the above are correct. 
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 bought by the typical consumer, nor the number of pears bought by the typical consumer, changes from year to year. 
C) the percentage change in the price of applies is equal to the percentage change in the price of pears from year to year. 
D) All of the above are correct.

Question 12

Which of the following is not a widely acknowledged problem with the CPI as a measure of the cost of living?

Accepted Answer

A) substitution bias 
B) introduction of new goods 
C) unmeasured quality change 
D) unmeasured price change 
A) substitution bias 
B) introduction of new goods 
C) unmeasured quality change 
D) unmeasured price change

Question 13

Ingrid took a university teaching job as an assistant professor in 1974 at a salary of $10,000.By 2003,she had been promoted to full professor,with a salary of $50,000.If the price index in 1974 was 50 and the price index in 2003 was 180,what is Ingrid's 2003 salary in 1974 dollars?

Accepted Answer

A) $13,889 
B) $18,000 
C) $26,000 
D) $36,000 
A) $13,889 
B) $18,000 
C) $26,000 
D) $36,000

Question 14

If the prices of Australian-made shoes imported into the United States increase,then,as a result,

Accepted Answer

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

Question 15

The CPI is a measure of the overall cost of

Accepted Answer

A) inputs purchased by a typical producer. 
B) goods and services bought by a typical consumer. 
C) goods and services produced in the economy. 
D) stocks on the New York Stock Exchange. 
A) inputs purchased by a typical producer. 
B) goods and services bought by a typical consumer. 
C) goods and services produced in the economy. 
D) stocks on the New York Stock Exchange.

Question 16

The price index in 2006 is 120,and in 2007 it is 127.2.What is the inflation rate?

Accepted Answer

A) 5.4 percent 
B) 6.0 percent 
C) 7.2 percent 
D) The inflation rate is impossible to determine without knowing the base year. 
A) 5.4 percent 
B) 6.0 percent 
C) 7.2 percent 
D) The inflation rate is impossible to determine without knowing the base year.

Question 17

Table 24-1
  
-Refer to Table 24-1.Suppose the typical consumer basket consists of 10 bushels of peaches and 15 bushels of pecans.Using 2005 as the base year,what was the inflation rate in 2006?

Accepted Answer

A) 20 percent 
B) 16.7 percent 
C) 10 percent 
D) 8 percent 
A) 20 percent 
B) 16.7 percent 
C) 10 percent 
D) 8 percent

Question 18

Scenario 24-1
Grant Smith was a doctor in 1944 and earned $12,000 that year. His daughter, Lisa Smith, is a doctor today and she earned $210,000 in 2005. The price index in 1944 was 17.6 and the price index in 2005 was 184.
-Refer to Scenario 24-1.Grant Smith's 1944 income in 2005 dollars is about

Accepted Answer

A) $75,971. 
B) $80,777. 
C) $120,682. 
D) $125,455. 
A) $75,971. 
B) $80,777. 
C) $120,682. 
D) $125,455.

Question 19

The consumer price index and the GDP deflator are two alternative measures of the overall price level.Which of the following statements about the two measures is correct?

Accepted Answer

A) The two measures are constructed differently, but they will always indicate the same inflation rate. 
B) The substitution bias applies equally to both measures. 
C) A change in the price of Japanese-made televisions shows up in the consumer price index but not in the GDP deflator. 
D) All of the above are correct. 
A) The two measures are constructed differently, but they will always indicate the same inflation rate. 
B) The substitution bias applies equally to both measures. 
C) A change in the price of Japanese-made televisions shows up in the consumer price index but not in the GDP deflator. 
D) All of the above are correct.

Question 20

A German automobile company produces cars in the United States,with some of those cars being exported to other nations and some of them being sold within the United States.If the prices of these cars increase,then

Accepted Answer

A) the GDP deflator and the CPI will both increase. 
B) the GDP deflator will increase and the CPI will be unchanged. 
C) the GDP deflator will be unchanged and the CPI will increase. 
D) the GDP deflator and the CPI will both be unchanged. 
A) the GDP deflator and the CPI will both increase. 
B) the GDP deflator will increase and the CPI will be unchanged. 
C) the GDP deflator will be unchanged and the CPI will increase. 
D) the GDP deflator and the CPI will both be unchanged.

Exam 24: Measuring the Cost of Living

Suppose the price index in 2004 was 110;in 2005 it was 120;and in 2006 it was 125.Which of the following statements is correct?

You know that a candy bar costs sixty cents today.You also know the CPI for 1962 and the CPI for today.Which of the following would you use to compute the price of the candy bar in 1962 prices?

The price of CD players increases dramatically,causing a 1 percent increase in the CPI.The price increase will most likely cause the GDP deflator to increase by

In the United States,nominal interest rates were

The price index was 128.96 in 2006 and,between 2005 and 2006,the inflation rate was 24 percent.The price index in 2005 was

Which of these changes in the price index produces the greatest rate of inflation: 80 to 100,100 to 120,or 150 to 170?

The price index in the first year is 110,in the second year is 100,and in the third year is 96.The economy experienced

If the cost of housing increases by 10 percent,then,other things the same,the CPI is likely to increase by about

Suppose the CPI was 108 in 1967,and suppose one must spend $936 today to obtain the same basket of goods and services that could be bought for $200 in 1967.Then today's CPI is

Let 2002 be the base year;then

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

Which of the following is not a widely acknowledged problem with the CPI as a measure of the cost of living?

Ingrid took a university teaching job as an assistant professor in 1974 at a salary of $10,000.By 2003,she had been promoted to full professor,with a salary of $50,000.If the price index in 1974 was 50 and the price index in 2003 was 180,what is Ingrid's 2003 salary in 1974 dollars?

If the prices of Australian-made shoes imported into the United States increase,then,as a result,

The CPI is a measure of the overall cost of

The price index in 2006 is 120,and in 2007 it is 127.2.What is the inflation rate?

Table 24-1 -Refer to Table 24-1.Suppose the typical consumer basket consists of 10 bushels of peaches and 15 bushels of pecans.Using 2005 as the base year,what was the inflation rate in 2006?

Scenario 24-1 Grant Smith was a doctor in 1944 and earned $12,000 that year. His daughter, Lisa Smith, is a doctor today and she earned $210,000 in 2005. The price index in 1944 was 17.6 and the price index in 2005 was 184. -Refer to Scenario 24-1.Grant Smith's 1944 income in 2005 dollars is about

The consumer price index and the GDP deflator are two alternative measures of the overall price level.Which of the following statements about the two measures is correct?

A German automobile company produces cars in the United States,with some of those cars being exported to other nations and some of them being sold within the United States.If the prices of these cars increase,then

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Applications

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

Oligopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Production and Growth

Saving, investment, and the Financial System

The Basic Tools of Finance

Unemployment

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 Trade Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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