Question 1

The inflation rate measures the

Accepted Answer

A) average price of the goods and services consumed by urban consumers. 
B) percentage change in the CPI from one year to the next year. 
C) cost of the CPI market basket at current period prices divided by the cost of the CPI market basket at base period prices. 
D) percentage change in the quantity of goods and services consumed by urban consumers. 
E) cost of the CPI market basket at base period prices divided by the cost of the CPI market basket at current period prices. 
A) average price of the goods and services consumed by urban consumers. 
B) percentage change in the CPI from one year to the next year. 
C) cost of the CPI market basket at current period prices divided by the cost of the CPI market basket at base period prices. 
D) percentage change in the quantity of goods and services consumed by urban consumers. 
E) cost of the CPI market basket at base period prices divided by the cost of the CPI market basket at current period prices.

Question 2

When the nominal price of a good increases over time, the real cost of buying the good

Accepted Answer

A) must increase. 
B) decreases because income also increases over time. 
C) does not change because income also increases over time. 
D) might increase, decrease, or stay the same depending on how much the CPI changed. 
E) might increase, decrease, or stay the same depending on how much income changed. 
A) must increase. 
B) decreases because income also increases over time. 
C) does not change because income also increases over time. 
D) might increase, decrease, or stay the same depending on how much the CPI changed. 
E) might increase, decrease, or stay the same depending on how much income changed.

Question 3

All of the following can create a bias in the CPI EXCEPT the

Accepted Answer

A) new goods bias. 
B) outlet substitution bias. 
C) commodity substitution bias. 
D) GDP price index bias. 
E) quality change bias. 
A) new goods bias. 
B) outlet substitution bias. 
C) commodity substitution bias. 
D) GDP price index bias. 
E) quality change bias.

Question 4

Because a third of government outlays are linked directly to the CPI, as time passes the CPI bias means that the government's outlays are

Accepted Answer

A) larger than needed to keep pace with the cost of living. 
B) smaller than needed to keep pace with the cost of living. 
C) exactly equal to the changes in the cost of living. 
D) larger than needed to keep pace with the cost of living if the CPI is falling from one year to the next, otherwise the outlays are smaller than needed to keep pace with the cost of living. 
E) smaller than needed to keep pace with the cost of living if the CPI is falling from one year to the next, otherwise the outlays are larger than needed to keep pace with the cost of living. 
A) larger than needed to keep pace with the cost of living. 
B) smaller than needed to keep pace with the cost of living. 
C) exactly equal to the changes in the cost of living. 
D) larger than needed to keep pace with the cost of living if the CPI is falling from one year to the next, otherwise the outlays are smaller than needed to keep pace with the cost of living. 
E) smaller than needed to keep pace with the cost of living if the CPI is falling from one year to the next, otherwise the outlays are larger than needed to keep pace with the cost of living.

Question 5

$$\begin{array} { c c c c } 
\text { Item } & \begin{array} { c } 
\text { Quantity } \
\mathbf { ( 2 0 1 1 ) }
\end{array} & \begin{array} { c } 
\text { Price } \
\mathbf { ( 2 0 1 1 ) }
\end{array} & \begin{array} { c } 
\text { Price } \
\mathbf { ( 2 0 1 2 ) }
\end{array} \
\hline \text { Salt } & 2 & \$ 1.00 & \$ 2.00 \
\text { Bread } & 20 & \$ 2.50 & \$ 3.00 \
\hline
\end{array}$$
-The data in the table above shows the consumption by families in a small (poor)economy. The families consume only salt and bread. The reference base period is 2011. The CPI in 2011 is

Accepted Answer

A) 100. 
B) 94.2. 
C) 106.2. 
D) 124. 
E) 140.5. 
A) 100. 
B) 94.2. 
C) 106.2. 
D) 124. 
E) 140.5.

Question 6

You borrow at a nominal interest rate of 10 percent. If the inflation rate is 4 percent, then the real interest rate is

Accepted Answer

A) the $10 in interest you have to pay. 
B) 16 percent. 
C) 2.5 percent. 
D) 6 percent. 
E) 14 percent. 
A) the $10 in interest you have to pay. 
B) 16 percent. 
C) 2.5 percent. 
D) 6 percent. 
E) 14 percent.

Question 7

The Consumer Price Index measures the average of the prices paid by urban consumers for a ________ of consumer goods and services.

Accepted Answer

A) random selection 
B) changing selection 
C) fixed market basket 
D) subjective selection 
E) least-cost market basket 
A) random selection 
B) changing selection 
C) fixed market basket 
D) subjective selection 
E) least-cost market basket

Question 8

A country's CPI was 84.5 last year and 100.0 this year. The inflation rate was

Accepted Answer

A) 84.5 percent. 
B) 18.3 percent. 
C) 15.5 percent. 
D) 7.29 percent. 
E) -18 percent. 
A) 84.5 percent. 
B) 18.3 percent. 
C) 15.5 percent. 
D) 7.29 percent. 
E) -18 percent.

Question 9

Since 1300, the inflation rate has been greater than 2 percent per year and reaching its highest peaks

Accepted Answer

A) primarily before 1400. 
B) primarily between 1400 and 1500. 
C) primarily between 1500 and 1700. 
D) primarily between 1700 and 1900. 
E) primarily after 1900. 
A) primarily before 1400. 
B) primarily between 1400 and 1500. 
C) primarily between 1500 and 1700. 
D) primarily between 1700 and 1900. 
E) primarily after 1900.

Question 10

Your starting salary is $35,000 per year. After one year, you are given a raise that increases your nominal salary. Which of the following salaries would you prefer the most?

Accepted Answer

A) a $36,000 salary with a CPI of 103.0 
B) a $38,000 salary with a CPI of 104.0 
C) a $39,000 salary with a CPI of 109.0 
D) a $39,000 salary with a CPI of 110.0 
E) a $37,000 salary with a CPI of 106.0 
A) a $36,000 salary with a CPI of 103.0 
B) a $38,000 salary with a CPI of 104.0 
C) a $39,000 salary with a CPI of 109.0 
D) a $39,000 salary with a CPI of 110.0 
E) a $37,000 salary with a CPI of 106.0

Question 11

Suppose a report from the Bureau of Labor Statistics states that the CPI for the year 2012 was 152. What is the percentage point increase in the prices of the goods and services since the reference base period?

Accepted Answer

A) 152 percent 
B) 52 percent 
C) 100 percent 
D) 48 percent 
E) 252 percent 
A) 152 percent 
B) 52 percent 
C) 100 percent 
D) 48 percent 
E) 252 percent

Question 12

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 13

If real GDP is greater than nominal GDP then the GDP price index ________.

Accepted Answer

A) is greater than 100 
B) is less than 100 
C) is equal to 100 
D) either equal to or greater than 100 
E) None of the above answers is correct because we need to choose a new base year. 
A) is greater than 100 
B) is less than 100 
C) is equal to 100 
D) either equal to or greater than 100 
E) None of the above answers is correct because we need to choose a new base year.

Question 14

The GDP price index equals i. nominal GDP divided by real GDP multiplied by 100.
Ii. a measure of the price level.
Iii. an average of current prices expressed as a percentage of base-year prices.

Accepted Answer

A) i only 
B) ii and iii 
C) iii only 
D) i and ii 
E) i, ii, and iii 
A) i only 
B) ii and iii 
C) iii only 
D) i and ii 
E) i, ii, and iii

Question 15

In constructing the CPI, the BLS has to deal with commodity substitution bias, which is defined as

Accepted Answer

A) consumers' substitution of discount stores for full service stores to avoid the higher prices in the full service stores. 
B) consumers' substitution of cheaper goods for goods whose prices increase. 
C) the bias from quality changes in existing products that cause prices to increase. 
D) the bias from new goods being introduced that are more expensive than older goods. 
E) the bias that arises because the BLS changes the CPI market basket each month. 
A) consumers' substitution of discount stores for full service stores to avoid the higher prices in the full service stores. 
B) consumers' substitution of cheaper goods for goods whose prices increase. 
C) the bias from quality changes in existing products that cause prices to increase. 
D) the bias from new goods being introduced that are more expensive than older goods. 
E) the bias that arises because the BLS changes the CPI market basket each month.

Question 16

If we look at the nominal versus real wage rates paid to Presidents over time, we find that

Accepted Answer

A) George Washington was paid a higher real wage rate than Bill Clinton. 
B) George W. Bush is the highest paid according to real wage rates. 
C) the real wage rate has steadily increased to $400,000 per year. 
D) the nominal wage has increased and decreased at different times because of inflation. 
E) George W. Bush's nominal wage is about equal to the average nominal wage paid all presidents. 
A) George Washington was paid a higher real wage rate than Bill Clinton. 
B) George W. Bush is the highest paid according to real wage rates. 
C) the real wage rate has steadily increased to $400,000 per year. 
D) the nominal wage has increased and decreased at different times because of inflation. 
E) George W. Bush's nominal wage is about equal to the average nominal wage paid all presidents.

Question 17

If the price of a soda was 15 cents in 1970, when the CPI was 50, and 50 cents in 2007 when the CPI was 172, then the real price of

Accepted Answer

A) a soda has risen 567 percent. 
B) a soda has risen 350 percent. 
C) the 1970 soda in 2007 dollars is 52 cents. 
D) the 2007 soda in 1970 dollars is $3.44. 
E) the soda was 15 cents in 1970 and 50 cents in 2007. 
A) a soda has risen 567 percent. 
B) a soda has risen 350 percent. 
C) the 1970 soda in 2007 dollars is 52 cents. 
D) the 2007 soda in 1970 dollars is $3.44. 
E) the soda was 15 cents in 1970 and 50 cents in 2007.

Question 18

The real interest rate is negative if the inflation rate

Accepted Answer

A) exceeds the nominal interest rate. 
B) exceeds the real interest rate. 
C) is equal to the nominal interest rate. 
D) is less than the nominal interest rate. 
E) equals zero. 
A) exceeds the nominal interest rate. 
B) exceeds the real interest rate. 
C) is equal to the nominal interest rate. 
D) is less than the nominal interest rate. 
E) equals zero.

Question 19

If the real interest rate is 7 percent when the nominal interest is 12 rate is percent, the inflation rate is

Accepted Answer

A) -5 percent. 
B) 5 percent. 
C) 19 percent. 
D) 1.7 percent. 
E) 7 percent. 
A) -5 percent. 
B) 5 percent. 
C) 19 percent. 
D) 1.7 percent. 
E) 7 percent.

Question 20

Mark has a two-year wage contract with his employer. Mark's wage contract specifies a $50,000 salary for the first year, and specifies a salary increase equal to the percentage increase in the CPI during the second year. The percentage increase in the CPI during the year was 4.0 percentage points. If the CPI overstates inflation by 1.0 percentage point, at the end of the first year Mark's salary increased by ________ more than it would have without the upward bias.

Accepted Answer

A) $50 
B) $3000 
C) $500 
D) $1500 
E) $2000 
A) $50 
B) $3000 
C) $500 
D) $1500 
E) $2000

The inflation rate measures the

When the nominal price of a good increases over time, the real cost of buying the good

All of the following can create a bias in the CPI EXCEPT the

Because a third of government outlays are linked directly to the CPI, as time passes the CPI bias means that the government's outlays are

Item Quantity Price Price Salt 2 \ 1.00 \ 2.00 Bread 20 \ 2.50 \ 3.00 -The data in the table above shows the consumption by families in a small (poor)economy. The families consume only salt and bread. The reference base period is 2011. The CPI in 2011 is

You borrow at a nominal interest rate of 10 percent. If the inflation rate is 4 percent, then the real interest rate is

The Consumer Price Index measures the average of the prices paid by urban consumers for a ________ of consumer goods and services.

A country's CPI was 84.5 last year and 100.0 this year. The inflation rate was

Since 1300, the inflation rate has been greater than 2 percent per year and reaching its highest peaks

Your starting salary is $35,000 per year. After one year, you are given a raise that increases your nominal salary. Which of the following salaries would you prefer the most?

Suppose a report from the Bureau of Labor Statistics states that the CPI for the year 2012 was 152. What is the percentage point increase in the prices of the goods and services since the reference base period?

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

If real GDP is greater than nominal GDP then the GDP price index ________.

The GDP price index equals i. nominal GDP divided by real GDP multiplied by 100. Ii. a measure of the price level. Iii. an average of current prices expressed as a percentage of base-year prices.

In constructing the CPI, the BLS has to deal with commodity substitution bias, which is defined as

If we look at the nominal versus real wage rates paid to Presidents over time, we find that

If the price of a soda was 15 cents in 1970, when the CPI was 50, and 50 cents in 2007 when the CPI was 172, then the real price of

The real interest rate is negative if the inflation rate

If the real interest rate is 7 percent when the nominal interest is 12 rate is percent, the inflation rate is

Getting Started

The Us and Global Economies

The Economic Problem

Demand and Supply

Elasticities of Demand and Supply

Efficiency and Fairness of Markets

Government Actions in Markets

Global Markets in Action

Externalities: Pollution, Education, and Health Care

Production and Cost

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

Potential Gdp and Economic Growth

Money and the Monetary System

Aggregate Supply and Aggregate Demand

Fiscal Policy and Monetary Policy

Filters

Exam 16: The Cpi and the Cost of Living

The inflation rate measures the

When the nominal price of a good increases over time, the real cost of buying the good

All of the following can create a bias in the CPI EXCEPT the

Because a third of government outlays are linked directly to the CPI, as time passes the CPI bias means that the government's outlays are

Item Quantity Price Price Salt 2 \ 1.00 \ 2.00 Bread 20 \ 2.50 \ 3.00 -The data in the table above shows the consumption by families in a small (poor)economy. The families consume only salt and bread. The reference base period is 2011. The CPI in 2011 is

You borrow at a nominal interest rate of 10 percent. If the inflation rate is 4 percent, then the real interest rate is

The Consumer Price Index measures the average of the prices paid by urban consumers for a ________ of consumer goods and services.

A country's CPI was 84.5 last year and 100.0 this year. The inflation rate was

Since 1300, the inflation rate has been greater than 2 percent per year and reaching its highest peaks

Your starting salary is $35,000 per year. After one year, you are given a raise that increases your nominal salary. Which of the following salaries would you prefer the most?

Suppose a report from the Bureau of Labor Statistics states that the CPI for the year 2012 was 152. What is the percentage point increase in the prices of the goods and services since the reference base period?

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

If real GDP is greater than nominal GDP then the GDP price index ________.

The GDP price index equals i. nominal GDP divided by real GDP multiplied by 100. Ii. a measure of the price level. Iii. an average of current prices expressed as a percentage of base-year prices.

In constructing the CPI, the BLS has to deal with commodity substitution bias, which is defined as

If we look at the nominal versus real wage rates paid to Presidents over time, we find that

If the price of a soda was 15 cents in 1970, when the CPI was 50, and 50 cents in 2007 when the CPI was 172, then the real price of

The real interest rate is negative if the inflation rate

If the real interest rate is 7 percent when the nominal interest is 12 rate is percent, the inflation rate is

Getting Started

The Us and Global Economies

The Economic Problem

Demand and Supply

Elasticities of Demand and Supply

Efficiency and Fairness of Markets

Government Actions in Markets

Global Markets in Action

Externalities: Pollution, Education, and Health Care

Production and Cost

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

Potential Gdp and Economic Growth

Money and the Monetary System

Aggregate Supply and Aggregate Demand

Fiscal Policy and Monetary Policy

Filters