Question 1

Which of the following formulas is used to calculate the inflation rate?

Accepted Answer

A)  inflation rate = 100 × $\left( \frac { \text { CPI in current year } } { \text { CPI in baseperiod } } \right)$ 
B)  inflation rate = 100 × $\left( \frac { \text { CPI in prev ious year } } { \text { CPI in current year } } \right)$ 
C)  Inflation rate = 100 × $\left( \frac { \text { CPI in current year - CPI in prev ious year } } { \text { CPI in previous year } } \right)$ 
D)  Inflation rate = 100 × $\left( \frac { \text { CPI in previous year - CPI in current year } } { \text { CPI in current year } } \right)$ 
E)  inflation rate = 100 × $\left( \frac { \text { CPI in base year } } { \text { CPI in current year } } \right)$ 
A)  inflation rate = 100 × $\left( \frac { \text { CPI in current year } } { \text { CPI in baseperiod } } \right)$ 
B)  inflation rate = 100 × $\left( \frac { \text { CPI in prev ious year } } { \text { CPI in current year } } \right)$ 
C)  Inflation rate = 100 × $\left( \frac { \text { CPI in current year - CPI in prev ious year } } { \text { CPI in previous year } } \right)$ 
D)  Inflation rate = 100 × $\left( \frac { \text { CPI in previous year - CPI in current year } } { \text { CPI in current year } } \right)$ 
E)  inflation rate = 100 × $\left( \frac { \text { CPI in base year } } { \text { CPI in current year } } \right)$

Question 2

Suppose that last year, the price of strawberries was $2 and the price of milk was $1.This year, the price of milk is $2 and the price of strawberries is $1.Which of the following statements is true?

Accepted Answer

A)  The CPI does not change because the change in the two prices is the same. 
B)  The CPI increases because milk is more expensive. 
C)  The CPI decreases because strawberries are cheaper. 
D)  The CPI might increase or decrease depending on the quantities in the CPI market basket. 
E)  The change in the CPI depends how the market basket changed between the two years. 
A)  The CPI does not change because the change in the two prices is the same. 
B)  The CPI increases because milk is more expensive. 
C)  The CPI decreases because strawberries are cheaper. 
D)  The CPI might increase or decrease depending on the quantities in the CPI market basket. 
E)  The change in the CPI depends how the market basket changed between the two years.

Question 3

The Consumer Price Index (CPI) measures the changes of the

Accepted Answer

A)  prices paid by consumers for a fixed market basket of consumer goods and services. 
B)  quantities of a fixed market basket of goods produced by businesses. 
C)  lowest prices paid by consumers for a fixed market basket of consumer goods and services. 
D)  prices paid by all businesses for a fixed market basket of production resources. 
E)  prices paid by consumers and businesses for a fixed market basket of goods and services. 
A)  prices paid by consumers for a fixed market basket of consumer goods and services. 
B)  quantities of a fixed market basket of goods produced by businesses. 
C)  lowest prices paid by consumers for a fixed market basket of consumer goods and services. 
D)  prices paid by all businesses for a fixed market basket of production resources. 
E)  prices paid by consumers and businesses for a fixed market basket of goods and services.

Question 4

When economists speak of the CPI bias, they are referring to

Accepted Answer

A)  the tendency for the CPI to overstate price changes. 
B)  the tendency for the CPI to understate price changes. 
C)  the tendency for the CPI to understate inflation. 
D)  errors in measuring the prices used in the CPI. 
E)  the tendency for government officials to impose their values on the data. 
A)  the tendency for the CPI to overstate price changes. 
B)  the tendency for the CPI to understate price changes. 
C)  the tendency for the CPI to understate inflation. 
D)  errors in measuring the prices used in the CPI. 
E)  the tendency for government officials to impose their values on the data.

Question 5

$$\begin{array} { c c } 
\text { Year } & \text { CPI } \
\hline 1994 & 90.0 \
1996 & 95.5 \
1998 - 2000 & 100.0 \
2002 & 104.0
\end{array}$$
-The table above gives the CPI for a nation.Based on the table, we can determine that the reference base period is

Accepted Answer

A)  1994. 
B)  1996. 
C)  1998-2000. 
D)  2002. 
E)  More information about when the Consumer Expenditure Survey was undertaken is needed to answer the question. 
A)  1994. 
B)  1996. 
C)  1998-2000. 
D)  2002. 
E)  More information about when the Consumer Expenditure Survey was undertaken is needed to answer the question.

Question 6

For the CPI to provide an accurate measure of the prices paid by urban consumers, it is necessary to

Accepted Answer

A)  assign equal weights to all the goods and services included in the market basket surveyed so that nothing is over-weighted. 
B)  have a market basket that is consistent and corresponds to what households actually purchase. 
C)  have prices stated in dollars so consumers can compare what they spend. 
D)  change the market basket each month to reflect the changes that consumers make. 
E)  make certain that the incomes of the consumers surveyed do not change because such a change would affect the market basket of the goods and services they buy. 
A)  assign equal weights to all the goods and services included in the market basket surveyed so that nothing is over-weighted. 
B)  have a market basket that is consistent and corresponds to what households actually purchase. 
C)  have prices stated in dollars so consumers can compare what they spend. 
D)  change the market basket each month to reflect the changes that consumers make. 
E)  make certain that the incomes of the consumers surveyed do not change because such a change would affect the market basket of the goods and services they buy.

Question 7

$$\begin{array} { l c c c } 
 { \text { Item } } & \begin{array} { c } 
\text { Quantity } \
( 2000 )
\end{array} & \begin{array} { c } 
\text { Price } \
( 2000 )
\end{array} & \begin{array} { l } 
\text { Price } \
( 2010 )
\end{array} \
\hline \text { Movie tickets } & 4 & \$ 5.00 & \$ 7.50 \
\text { Bags of popcorn } & 2 & \$ 3.00 & \$ 3.00 \
\text { Cups of Mt. Dew } & 4 & \$ 1.00 & \$ 1.50 \
\hline
\end{array}$$
-The information in the above table gives the 2000 base period market basket and prices used to construct the CPI for a small nation.The table also has 2010 prices.What is the value of the CPI for 2010?

Accepted Answer

A)  140 
B)  133 
C)  100 
D)  71.4 
E)  142 
A)  140 
B)  133 
C)  100 
D)  71.4 
E)  142

Question 8

$$\begin{array} { c c } 
\text { Year } & \text { CPI } \
\hline 1997 & 152.5 \
1998 & 157.0 \
1999 & 160.6 \
2000 & 163.1 \
2001 & 166.7 \
2002 & 172.3 \
\hline
\end{array}$$
-The table above gives the U.S.CPI for six years.Calculate the inflation rates between 1997 to 1998, 1998 to 1999, 1999 to 2000, 2000 to 2001, and 2001 to 2002.

Accepted Answer

Between 1997 to 1998, the inflation rate

Question 9

$$\begin{array} { | l | c | c | c | c | } 
\hline \text { Item } & \begin{array} { c } 
\text { Quantity } \
( 2009 )
\end{array} & \text { Price (2009) } & \begin{array} { c } 
\text { Quantity } \
( 2010 )
\end{array} & \text { Price (2010) } \
\hline \text { Magazines } & 400 & \$ 5.00 & 450 & \$ 4.50 \
\hline \text { Movie tickets } & 50 & \$ 6.00 & 200 & \$ 8.00 \
\hline \text { Pizzas } & 100 & \$ 10.00 & 120 & \$ 10.50 \
\hline
\end{array}$$ 
The data in the table above shows the consumption by families in an economy.The year 2009 is the reference base period.
-Based on the table above, between 2009 and 2010, the inflation rate in this country was

Accepted Answer

A)  -1.5 percent. 
B)  105.1 percent. 
C)  2.5 percent. 
D)  98.5 percent. 
E)  -2.5 percent. 
A)  -1.5 percent. 
B)  105.1 percent. 
C)  2.5 percent. 
D)  98.5 percent. 
E)  -2.5 percent.

Question 10

Citicorp charges a 11 percent interest rate on all new car loans.If the inflation rate is 6 percent, Citicorp receives a real interest rate of

Accepted Answer

A)  11 percent. 
B)  6 percent. 
C)  1.83 percent. 
D)  5 percent. 
E)  0.54 percent. 
A)  11 percent. 
B)  6 percent. 
C)  1.83 percent. 
D)  5 percent. 
E)  0.54 percent.

Question 11

The commodity substitution bias is most likely to put ________ into the CPI and so ________ the inflation rate.

Accepted Answer

A)  a downward bias; understate 
B)  an upward bias; understate 
C)  an upward bias; overstate 
D)  a downward bias; overstate 
E)  a random bias; randomly overstate or understate 
A)  a downward bias; understate 
B)  an upward bias; understate 
C)  an upward bias; overstate 
D)  a downward bias; overstate 
E)  a random bias; randomly overstate or understate

Question 12

Since 1305, of the following centuries the inflation rate has been the highest during the

Accepted Answer

A)  17th century. 
B)  16th century. 
C)  20th century. 
D)  14th century. 
E)  15th century. 
A)  17th century. 
B)  16th century. 
C)  20th century. 
D)  14th century. 
E)  15th century.

Question 13

When a good gets better from one year to the next, the CPI has a what is called

Accepted Answer

A)  new goods bias. 
B)  quality change bias. 
C)  commodity substitution bias. 
D)  outlet substitution bias. 
E)  magnitude of change bias. 
A)  new goods bias. 
B)  quality change bias. 
C)  commodity substitution bias. 
D)  outlet substitution bias. 
E)  magnitude of change bias.

Question 14

The formula for the CPI is

Accepted Answer

A)  (Cost of CPI market basket at current period prices ÷ Cost of CPI market basket at next year's prices) × 100. 
B)  (Cost of CPI market basket at current period prices ÷ Cost of CPI market basket at base period prices) × 100. 
C)  (Cost of CPI market basket at base period prices ÷ Cost of CPI market basket at current period prices) × 100. 
D)  (Cost of CPI market basket this year × Cost of CPI market basket at base period prices) ÷ 100. 
E)  (Cost of CPI market basket this year × Cost of CPI market basket at base period prices) × 100. 
A)  (Cost of CPI market basket at current period prices ÷ Cost of CPI market basket at next year's prices) × 100. 
B)  (Cost of CPI market basket at current period prices ÷ Cost of CPI market basket at base period prices) × 100. 
C)  (Cost of CPI market basket at base period prices ÷ Cost of CPI market basket at current period prices) × 100. 
D)  (Cost of CPI market basket this year × Cost of CPI market basket at base period prices) ÷ 100. 
E)  (Cost of CPI market basket this year × Cost of CPI market basket at base period prices) × 100.

Question 15

$$\begin{array} { l c c c c } 
 { \text { Item } } & \begin{array} { c } 
\text { Quantity } \
( 2009 )
\end{array} & \begin{array} { c } 
\text { Price } \
( 2009 )
\end{array} & \begin{array} { c } 
\text { Quantity } \
( 2010 )
\end{array} & \begin{array} { c } 
\text { Price } \
\mathbf { ( 2 0 1 0 ) }
\end{array} \
\hline \text { Sneakers } & 2 & \$ 55 & 2 & \$ 60 \
\text { Manicures } & 1 & \$ 35 & 1 & \$ 40 \
\hline
\end{array}$$
-Consumers in a country buy only two goods, sneakers and manicures.The prices and quantities purchased by urban households are in the table above.The reference base year is 2009.For these data, the CPI for 2010 is

Accepted Answer

A)  145. 
B)  100. 
C)  160. 
D)  10. 
E)  110. 
A)  145. 
B)  100. 
C)  160. 
D)  10. 
E)  110.

Question 16

$$\begin{array} { l c c c } 
{ \text { Item } } & \begin{array} { c } 
\text { Quantity } \
( 2008 )
\end{array} & \begin{array} { c } 
\text { Price } \
( 2008 )
\end{array} & \begin{array} { c } 
\text { Price } \
( 2009 )
\end{array} \
\hline \text { Oranges } & 50 & \$ 0.90 & \$ 0.75 \
\text { Bananas } & 100 & \$ 0.50 & \$ 0.95 \
\text { Chicken } & 200 & \$ 2.00 & \$ 2.50 \
\text { Beef } & 100 & \$ 5.00 & \$ 4.80 \
\text { Bread } & 300 & \$ 1.75 & \$ 2.00 \
\hline
\end{array}$$
-The table above gives the CPI market basket for 2008 and 2009.Suppose that 2008 is the reference base period.
a. What is the cost of the CPI market basket in 2008?
b. What is the cost of the CPI market basket in 2009?
c. What is the CPI for 2008?
d. What is the CPI for 2009?

Accepted Answer

a. The cost of the CPI market basket in

Question 17

The reference base period for the CPI has an index number of

Accepted Answer

A)  100. 
B)  1. 
C)  0. 
D)  10. 
E)  1,000. 
A)  100. 
B)  1. 
C)  0. 
D)  10. 
E)  1,000.

Question 18

$$\begin{array} { l c c c c } 
{ \text { Item } } & \begin{array} { c } 
\text { Quantity } \
( 2009 )
\end{array} & \begin{array} { c } 
\text { Price } \
( 2009 )
\end{array} & \begin{array} { c } 
\text { Quantity } \
( 2010 )
\end{array} & \begin{array} { c } 
\text { Price } \
\mathbf { ( 2 0 1 0 ) }
\end{array} \
\hline \text { Pens } & 400 & \$ 1.00 & 400 & \$ 1.02 \
\text { CDs } & 200 & \$ 15.00 & 200 & \$ 15.90 \
\hline
\end{array}$$
-Consumers in a country buy only two goods, pens and CDs.The prices and quantities purchased by urban households are in the table above.The reference base year is 2009.If the current year is 2010, the cost of the CPI market basket in 2010 is

Accepted Answer

A)  $3,400. 
B)  $3,588. 
C)  $3,580. 
D)  $3,508. 
E)  $3,500. 
A)  $3,400. 
B)  $3,588. 
C)  $3,580. 
D)  $3,508. 
E)  $3,500.

Question 19

If your nominal income is $75,000 and your real income in base year prices is $60,000, what is the CPI?

Accepted Answer

A)  100 
B)  125 
C)  80 
D)  250 
E)  200 
A)  100 
B)  125 
C)  80 
D)  250 
E)  200

Question 20

The inflation rate is the

Accepted Answer

A)  percentage change in the composition of the CPI market basket from the base year to the next year. 
B)  percentage change in the CPI from one year to the next year. 
C)  difference between the current period CPI and the base period CPI. 
D)  difference between the base period CPI and the current period CPI. 
E)  difference in the price level from one year to the next multiplied by 100. 
A)  percentage change in the composition of the CPI market basket from the base year to the next year. 
B)  percentage change in the CPI from one year to the next year. 
C)  difference between the current period CPI and the base period CPI. 
D)  difference between the base period CPI and the current period CPI. 
E)  difference in the price level from one year to the next multiplied by 100.

Which of the following formulas is used to calculate the inflation rate?

Suppose that last year, the price of strawberries was $2 and the price of milk was $1.This year, the price of milk is $2 and the price of strawberries is $1.Which of the following statements is true?

The Consumer Price Index (CPI) measures the changes of the

When economists speak of the CPI bias, they are referring to

Year CPI 1994 90.0 1996 95.5 1998-2000 100.0 2002 104.0 -The table above gives the CPI for a nation.Based on the table, we can determine that the reference base period is

For the CPI to provide an accurate measure of the prices paid by urban consumers, it is necessary to

Year CPI 1997 152.5 1998 157.0 1999 160.6 2000 163.1 2001 166.7 2002 172.3 -The table above gives the U.S.CPI for six years.Calculate the inflation rates between 1997 to 1998, 1998 to 1999, 1999 to 2000, 2000 to 2001, and 2001 to 2002.

Citicorp charges a 11 percent interest rate on all new car loans.If the inflation rate is 6 percent, Citicorp receives a real interest rate of

The commodity substitution bias is most likely to put into the CPI and so the inflation rate.

Since 1305, of the following centuries the inflation rate has been the highest during the

When a good gets better from one year to the next, the CPI has a what is called

The formula for the CPI is

The reference base period for the CPI has an index number of

If your nominal income is $75,000 and your real income in base year prices is $60,000, what is the CPI?

The inflation rate is the

Getting Started

The Usand Global Economies

The Economic Problem

Demand and Supply

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

Potential Gdp and the Natural Unemployment Rate

Economic Growth

Finance, Saving, and Investment

The Monetary System

Money, Interest, and Inflation

Aggregate Supply and Aggregate Demand

Aggregate Expenditure Multiplier

The Short-Run Policy Tradeoff

Fiscal Policy

Monetary Policy

International Trade Policy

International Finance

Filters

Exam 7: The Cpi and the Cost of Living

Which of the following formulas is used to calculate the inflation rate?

Suppose that last year, the price of strawberries was $2 and the price of milk was $1.This year, the price of milk is $2 and the price of strawberries is $1.Which of the following statements is true?

The Consumer Price Index (CPI) measures the changes of the

When economists speak of the CPI bias, they are referring to

Year CPI 1994 90.0 1996 95.5 1998-2000 100.0 2002 104.0 -The table above gives the CPI for a nation.Based on the table, we can determine that the reference base period is

For the CPI to provide an accurate measure of the prices paid by urban consumers, it is necessary to

Year CPI 1997 152.5 1998 157.0 1999 160.6 2000 163.1 2001 166.7 2002 172.3 -The table above gives the U.S.CPI for six years.Calculate the inflation rates between 1997 to 1998, 1998 to 1999, 1999 to 2000, 2000 to 2001, and 2001 to 2002.

Citicorp charges a 11 percent interest rate on all new car loans.If the inflation rate is 6 percent, Citicorp receives a real interest rate of

The commodity substitution bias is most likely to put ________ into the CPI and so ________ the inflation rate.

Since 1305, of the following centuries the inflation rate has been the highest during the

When a good gets better from one year to the next, the CPI has a what is called

The formula for the CPI is

The reference base period for the CPI has an index number of

If your nominal income is $75,000 and your real income in base year prices is $60,000, what is the CPI?

The inflation rate is the

Getting Started

The Usand Global Economies

The Economic Problem

Demand and Supply

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

Potential Gdp and the Natural Unemployment Rate

Economic Growth

Finance, Saving, and Investment

The Monetary System

Money, Interest, and Inflation

Aggregate Supply and Aggregate Demand

Aggregate Expenditure Multiplier

The Short-Run Policy Tradeoff

Fiscal Policy

Monetary Policy

International Trade Policy

International Finance

Filters

The commodity substitution bias is most likely to put into the CPI and so the inflation rate.