Question 1

The price index was 92 in 2005 and,between 2005 and 2006,the inflation rate was 13 percent.The price index in 2006 was

Accepted Answer

A) 103.96. 
B) 105.00. 
C) 113.00. 
D) None of the above is correct. 
A) 103.96. 
B) 105.00. 
C) 113.00. 
D) None of the above is correct.

Question 2

If nominal interest rates rise,it must be because inflation increased.

Accepted Answer

A) True 
 B)False

Question 3

The goal of the consumer price index is to measure changes in the

Accepted Answer

A) costs of production 
B) cost of living. 
C) relative prices of consumer goods. 
D) production of consumer goods. 
A) costs of production 
B) cost of living. 
C) relative prices of consumer goods. 
D) production of consumer goods.

Question 4

Leslie is offered a job in Seattle that pays $50,000.She is also offered a job in Boston that pays $60,000.Which set of CPIs below would make the two salaries have almost the same purchasing power?

Accepted Answer

A) 83.3 in Seattle and 100 in Boston 
B) 89.3 in Seattle and 100 in Boston 
C) 100 in Seattle and 124.5 in Boston 
D) 100 in Seattle and 140 in Boston 
A) 83.3 in Seattle and 100 in Boston 
B) 89.3 in Seattle and 100 in Boston 
C) 100 in Seattle and 124.5 in Boston 
D) 100 in Seattle and 140 in Boston

Question 5

When we express Babe Ruth's 1931 salary in today's dollars and compare his salary to those of current New York Yankee players,we find that the current median salary of today's Yankees is

Accepted Answer

A) about 80 percent of Ruth's salary. 
B) about the same as Ruth's salary. 
C) about twice Ruth's salary. 
D) more than four times Ruth's salary. 
A) about 80 percent of Ruth's salary. 
B) about the same as Ruth's salary. 
C) about twice Ruth's salary. 
D) more than four times Ruth's salary.

Question 6

Suppose the nominal interest rate was 5 percent and the inflation rate was 3.5 percent.

Accepted Answer

A) The dollar value of savings increased at 1.5 percent, and the value of savings measured in goods increased at 3.5 percent. 
B) The dollar value of savings increased at 3.5 percent, and the value of savings measured in goods increased at 1.5 percent. 
C) The dollar value of savings increased at 3.5 percent, and the value of savings measured in goods increased at 5 percent. 
D) The dollar value of savings increased at 5 percent, and the value of savings measured in goods increased at 1.5 percent. 
A) The dollar value of savings increased at 1.5 percent, and the value of savings measured in goods increased at 3.5 percent. 
B) The dollar value of savings increased at 3.5 percent, and the value of savings measured in goods increased at 1.5 percent. 
C) The dollar value of savings increased at 3.5 percent, and the value of savings measured in goods increased at 5 percent. 
D) The dollar value of savings increased at 5 percent, and the value of savings measured in goods increased at 1.5 percent.

Question 7

For any given year,the CPI is the price of the basket of goods and services in the

Accepted Answer

A) given year divided by the price of the basket in the base year, then multiplied by 100. 
B) given year divided by the price of the basket in the previous year, then multiplied by 100. 
C) base year divided by the price of the basket in the given year, then multiplied by 100. 
D) previous year divided by the price of the basket in the given year, then multiplied by 100. 
A) given year divided by the price of the basket in the base year, then multiplied by 100. 
B) given year divided by the price of the basket in the previous year, then multiplied by 100. 
C) base year divided by the price of the basket in the given year, then multiplied by 100. 
D) previous year divided by the price of the basket in the given year, then multiplied by 100.

Question 8

The price of imported olives produced by a U.S.company operating in Spain increases.By itself,what effect will this price increase have on the GDP deflator and on the CPI?

Accepted Answer

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

Question 9

Which of the following statements best represents economists' beliefs about the bias in the CPI as a measure of the cost of living?

Accepted Answer

A) Economists agree that the bias in the CPI is a very serious problem. 
B) Economists agree that the bias in the CPI is not a serious problem. 
C) Economists agree on the severity of the CPI bias, but there is still debate on what to do about it. 
D) There is still debate among economists on the severity of the CPI bias and what to do about it. 
A) Economists agree that the bias in the CPI is a very serious problem. 
B) Economists agree that the bias in the CPI is not a serious problem. 
C) Economists agree on the severity of the CPI bias, but there is still debate on what to do about it. 
D) There is still debate among economists on the severity of the CPI bias and what to do about it.

Question 10

A COLA automatically raises the wage rate when

Accepted Answer

A) GDP increases. 
B) taxes increase. 
C) the consumer price index increases. 
D) the producer price index increases. 
A) GDP increases. 
B) taxes increase. 
C) the consumer price index increases. 
D) the producer price index increases.

Question 11

When the consumer price index rises,the typical family

Accepted Answer

A) has to spend more dollars to maintain the same standard of living. 
B) can spend fewer dollars to maintain the same standard of living. 
C) finds that its standard of living is not affected. 
D) can offset the effects of rising prices by saving more. 
A) has to spend more dollars to maintain the same standard of living. 
B) can spend fewer dollars to maintain the same standard of living. 
C) finds that its standard of living is not affected. 
D) can offset the effects of rising prices by saving more.

Question 12

Assume the consumer price index was 225 in 2006 and 234 in 2007.The nominal interest rate during this period was 6.5 percent.What was the real interest rate during this period?

Accepted Answer

A) 2.5 percent 
B) 4.0 percent 
C) 7.5 percent 
D) 10.5 percent 
A) 2.5 percent 
B) 4.0 percent 
C) 7.5 percent 
D) 10.5 percent

Question 13

The price index is 320 in one year and 360 in the next year.What was the inflation rate?

Accepted Answer

A) 6.7 percent 
B) 8 percent 
C) 12.5 percent 
D) 40 percent 
A) 6.7 percent 
B) 8 percent 
C) 12.5 percent 
D) 40 percent

Question 14

In 1972 in Sioux Falls,South Dakota,one could buy model rocket engines for $1.50 each.If those same engines cost $2.50 each today,which of the following pair of CPIs would make the engine prices in today's dollars the same for both years?

Accepted Answer

A) 60 in 1972 and 95 today 
B) 60 in 1972 and 120 today 
C) 90 in 1972 and 150 today 
D) None of the above is correct. 
A) 60 in 1972 and 95 today 
B) 60 in 1972 and 120 today 
C) 90 in 1972 and 150 today 
D) None of the above is correct.

Question 15

In the basket of goods that is used to compute the consumer price index,the three most important categories of consumer spending are

Accepted Answer

A) housing, transportation, and entertainment. 
B) housing, transportation, and food & beverages. 
C) housing, medical care, and food & beverages. 
D) education, medical care, and food & beverages. 
A) housing, transportation, and entertainment. 
B) housing, transportation, and food & beverages. 
C) housing, medical care, and food & beverages. 
D) education, medical care, and food & beverages.

Question 16

In the country of Shem, the CPI is calculated using a market basket consisting of 5 apples, 4 loaves of bread, 3 robes and 2 gallons of gasoline. The per-unit prices of these goods have been as follows:
Table 24-3
  
-Refer to Table 24-3.Using 2002 as the base year,what was the inflation rate between 2004 and 2005?

Accepted Answer

A) 40.00 percent 
B) 40.25 percent 
C) 46.46 percent 
D) 48.56 percent 
A) 40.00 percent 
B) 40.25 percent 
C) 46.46 percent 
D) 48.56 percent

Question 17

When box office receipts are corrected for inflation,the No.1 movie of all time is

Accepted Answer

A) Star Wars: The Phantom Menace. 
B) Spiderman. 
C) Gone With the Wind. 
D) The Sound of Music. 
A) Star Wars: The Phantom Menace. 
B) Spiderman. 
C) Gone With the Wind. 
D) The Sound of Music.

Question 18

The steps involved in calculating the consumer price index,in order,are as follows:

Accepted Answer

A) Choose a base year, fix the basket, compute the inflation rate, compute the basket's cost, and compute the index. 
B) Choose a base year, find the prices, fix the basket, compute the basket's cost, and compute the index. 
C) Fix the basket, find the prices, compute the basket's cost, choose a base year and compute the index. 
D) Fix the basket, find the prices, compute the inflation rate, choose a base year and compute the index. 
A) Choose a base year, fix the basket, compute the inflation rate, compute the basket's cost, and compute the index. 
B) Choose a base year, find the prices, fix the basket, compute the basket's cost, and compute the index. 
C) Fix the basket, find the prices, compute the basket's cost, choose a base year and compute the index. 
D) Fix the basket, find the prices, compute the inflation rate, choose a base year and compute the index.

Question 19

Suppose the price of gasoline increases rapidly,and that consumers respond by buying a smaller quantity of gasoline.The consumer price index

Accepted Answer

A) reflects this price increase accurately. 
B) understates the price increase due to the so-called income bias. 
C) overstates the price increase due to the so-called income bias. 
D) overstates the price increase due to the so-called substitution bias. 
A) reflects this price increase accurately. 
B) understates the price increase due to the so-called income bias. 
C) overstates the price increase due to the so-called income bias. 
D) overstates the price increase due to the so-called substitution bias.

Question 20

Expenditures on food and beverages,medical care,and apparel account for over 50 percent of the expenditures on goods and services in the CPI basket of goods.

Accepted Answer

A) True 
 B)False

Exam 24: Measuring the Cost of Living

The price index was 92 in 2005 and,between 2005 and 2006,the inflation rate was 13 percent.The price index in 2006 was

If nominal interest rates rise,it must be because inflation increased.

The goal of the consumer price index is to measure changes in the

Leslie is offered a job in Seattle that pays $50,000.She is also offered a job in Boston that pays $60,000.Which set of CPIs below would make the two salaries have almost the same purchasing power?

When we express Babe Ruth's 1931 salary in today's dollars and compare his salary to those of current New York Yankee players,we find that the current median salary of today's Yankees is

Suppose the nominal interest rate was 5 percent and the inflation rate was 3.5 percent.

For any given year,the CPI is the price of the basket of goods and services in the

The price of imported olives produced by a U.S.company operating in Spain increases.By itself,what effect will this price increase have on the GDP deflator and on the CPI?

Which of the following statements best represents economists' beliefs about the bias in the CPI as a measure of the cost of living?

A COLA automatically raises the wage rate when

When the consumer price index rises,the typical family

Assume the consumer price index was 225 in 2006 and 234 in 2007.The nominal interest rate during this period was 6.5 percent.What was the real interest rate during this period?

The price index is 320 in one year and 360 in the next year.What was the inflation rate?

In 1972 in Sioux Falls,South Dakota,one could buy model rocket engines for $1.50 each.If those same engines cost $2.50 each today,which of the following pair of CPIs would make the engine prices in today's dollars the same for both years?

In the basket of goods that is used to compute the consumer price index,the three most important categories of consumer spending are

When box office receipts are corrected for inflation,the No.1 movie of all time is

The steps involved in calculating the consumer price index,in order,are as follows:

Suppose the price of gasoline increases rapidly,and that consumers respond by buying a smaller quantity of gasoline.The consumer price index

Expenditures on food and beverages,medical care,and apparel account for over 50 percent of the expenditures on goods and services in the CPI basket of goods.

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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