Question 1

The CPI market basket

Accepted Answer

A) contains one unit of each good purchased by the average consumer. 
B) weights the goods and services according to the budget of an average urban household. 
C) is comprised of a representative sample of the goods that the government guesses people buy. 
D) includes only goods and not services. 
E) includes only U.S.-produced goods and services. 
A) contains one unit of each good purchased by the average consumer. 
B) weights the goods and services according to the budget of an average urban household. 
C) is comprised of a representative sample of the goods that the government guesses people buy. 
D) includes only goods and not services. 
E) includes only U.S.-produced goods and services.

Question 2

Which of the following is true?

Accepted Answer

A) The real interest rate is always positive. 
B) The nominal interest rate is usually negative. 
C) The real interest rate can be negative. 
D) The real interest rate can never be zero. 
E) The nominal interest rate is usually less than the real interest rate. 
A) The real interest rate is always positive. 
B) The nominal interest rate is usually negative. 
C) The real interest rate can be negative. 
D) The real interest rate can never be zero. 
E) The nominal interest rate is usually less than the real interest rate.

Question 3

Suppose the CPI last year was 82.3 and this year is 90.9. Based on this information, we can calculate that the inflation rate in 1981 was

Accepted Answer

A) 10.4 percent. 
B) 8.6 percent. 
C) 90.9 percent. 
D) 82.3 percent. 
E) 9.09 percent. 
A) 10.4 percent. 
B) 8.6 percent. 
C) 90.9 percent. 
D) 82.3 percent. 
E) 9.09 percent.

Question 4

The GDP deflator is a measure of

Accepted Answer

A) taxes and subsidies. 
B) changes in quantities. 
C) prices. 
D) depreciation. 
E) changes in nominal GDP. 
A) taxes and subsidies. 
B) changes in quantities. 
C) prices. 
D) depreciation. 
E) changes in nominal GDP.

Question 5

The reference base period for the CPI is

Accepted Answer

A) the previous year. 
B) whatever the political party that is in control of Congress decides. 
C) currently 1913. 
D) currently 1982 to 1984. 
E) currently 2005. 
A) the previous year. 
B) whatever the political party that is in control of Congress decides. 
C) currently 1913. 
D) currently 1982 to 1984. 
E) currently 2005.

Question 6

The Consumer Price Index market basket contains

Accepted Answer

A) the minimal dietary requirements of an average urban household. 
B) the U.S.-produced goods and services purchased by an average urban household. 
C) the ideal calorie intake of each member of an average urban household. 
D) the goods and services purchased by an average urban household. 
E) the goods and services that the economists working for the BLS believes consumers should buy. 
A) the minimal dietary requirements of an average urban household. 
B) the U.S.-produced goods and services purchased by an average urban household. 
C) the ideal calorie intake of each member of an average urban household. 
D) the goods and services purchased by an average urban household. 
E) the goods and services that the economists working for the BLS believes consumers should buy.

Question 7

In a small, agricultural nation, consumers buy only steak and potatoes. In 2009, the base year, the typical consumer spent $potatoes on strawberries and $100 on steak. The price of potatoes is $1 and the price of steak is $2 in 2009. In 2009, the price of potatoes is $2 and the price of steak is $1. The CPI for 2010 is

Accepted Answer

A) 80. 
B) 125. 
C) 100. 
D) 110. 
E) 25 percent. 
A) 80. 
B) 125. 
C) 100. 
D) 110. 
E) 25 percent.

Question 8

$$\begin{array} { l c c l } 
 { \text { Item } } & \begin{array} { c } 
\text { Quantity } \
\mathbf { ( 2 0 0 0 ) }
\end{array} & \begin{array} { c } 
\text { Price } \
\mathbf { ( 2 0 0 0 ) }
\end{array} & \begin{array} { l } 
\text { Price } \
\mathbf { ( 2 0 1 0 ) }
\end{array} \
\hline \text { Movie tickets } & 4 & \$ 5.00 & \$ 7.50 \
\text { Bags of popcorn } & 2 & \$ 3.00 & \$ 3.00 \
\text { Cups of Mt. Dew } & 4 & \$ 1.00 & \$ 1.50 \
\hline
\end{array}$$
-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 the base period 2000?

Accepted Answer

A) 140 
B) 133 
C) 100 
D) 75 
E) 30 
A) 140 
B) 133 
C) 100 
D) 75 
E) 30

Question 9

Nominal GDP is $12.1 trillion and real GDP is $11.0 trillion. The GDP price index is

Accepted Answer

A) 90.1. 
B) 121. 
C) 1.10. 
D) 91.0. 
E) 110. 
A) 90.1. 
B) 121. 
C) 1.10. 
D) 91.0. 
E) 110.

Question 10

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 11

In 1970, the CPI was 39 and in 2000 it was 172. A local phone call cost $0.10 in 1970. What is the price of this phone call in 2000 dollars?

Accepted Answer

A) $1.42 
B) $0.39 
C) $1.72 
D) $0.44 
E) $0.23 
A) $1.42 
B) $0.39 
C) $1.72 
D) $0.44 
E) $0.23

Question 12

In the 1970s, a period of a high rate of inflation, a news magazine article listed people who were losing from inflation because their real purchasing power was falling. Those who lost the most were university professors. Which of the following explains this?

Accepted Answer

A) The marginal benefit of their work was falling. 
B) Their wage rates did not increase as much as the CPI. 
C) Their wage rates increased more rapidly than the CPI. 
D) The professors suffered from the CPI bias. 
E) The professors' market basket was different than the market basket used to calculate the CPI. 
A) The marginal benefit of their work was falling. 
B) Their wage rates did not increase as much as the CPI. 
C) Their wage rates increased more rapidly than the CPI. 
D) The professors suffered from the CPI bias. 
E) The professors' market basket was different than the market basket used to calculate the CPI.

Question 13

The GDP price index

Accepted Answer

A) can be interpreted as 100 multiplied by real GDP divided by nominal GDP. 
B) is the difference between nominal GDP and real GDP. 
C) measures the average price level. 
D) can be interpreted as real GDP minus nominal GDP and the resulting difference then multiplied by 100. 
E) is equal to between real GDP minus nominal GDP. 
A) can be interpreted as 100 multiplied by real GDP divided by nominal GDP. 
B) is the difference between nominal GDP and real GDP. 
C) measures the average price level. 
D) can be interpreted as real GDP minus nominal GDP and the resulting difference then multiplied by 100. 
E) is equal to between real GDP minus nominal GDP.

Question 14

The change in the quantity of goods and services that an hour's work can buy is measured by the

Accepted Answer

A) nominal wage. 
B) real wage. 
C) CPI. 
D) real interest rate. 
E) inflation rate. 
A) nominal wage. 
B) real wage. 
C) CPI. 
D) real interest rate. 
E) inflation rate.

Question 15

Each month the CPI is calculated by

Accepted Answer

A) recording the new prices and making no other calculation. 
B) multiplying the current cost of the CPI market basket by the base period cost and then dividing by 100. 
C) subtracting the base period cost of the CPI market basket from the current cost and then dividing by 100. 
D) dividing the current cost of the CPI market basket by the base period cost and then multiplying by 100. 
E) subtracting the current period cost of the CPI market basket from the base period cost and then multiplying by 100. 
A) recording the new prices and making no other calculation. 
B) multiplying the current cost of the CPI market basket by the base period cost and then dividing by 100. 
C) subtracting the base period cost of the CPI market basket from the current cost and then dividing by 100. 
D) dividing the current cost of the CPI market basket by the base period cost and then multiplying by 100. 
E) subtracting the current period cost of the CPI market basket from the base period cost and then multiplying by 100.

Question 16

The fact the consumers substitute one good for another when prices change is

Accepted Answer

A) taken into account by the fixed market basket used in calculating the CPI. 
B) not taken into account by the fixed market basket used in calculating the CPI. 
C) not important to economists. 
D) a reason why the CPI is used to calculate inflation rates. 
E) a reason why the CPI understates the actual change in the cost of living. 
A) taken into account by the fixed market basket used in calculating the CPI. 
B) not taken into account by the fixed market basket used in calculating the CPI. 
C) not important to economists. 
D) a reason why the CPI is used to calculate inflation rates. 
E) a reason why the CPI understates the actual change in the cost of living.

Question 17

If the GDP price index is 125 and nominal GDP is $130 billion, then real GDP equals ________ billion.

Accepted Answer

A) $104.00 
B) $162.50 
C) $96 
D) $1.04 
E) $9.6 
A) $104.00 
B) $162.50 
C) $96 
D) $1.04 
E) $9.6

Question 18

Sharisse brags to her mother that her starting salary as a management trainee is $36,000, much higher than her mother's starting salary of $21,000 as a management trainee several years ago. If the CPI the year Sharisse begins work is 181.2 and the CPI the year her mother started work was 109.1, Sharisse is

Accepted Answer

A) wrong. Adjusting for price changes, her salary is less than her mother's salary. 
B) wrong. Adjusting for quantity changes, her salary is less than her mother's salary. 
C) correct. Adjusting for price changes, her salary is more than her mother's salary. 
D) correct. Adjusting for quantity changes, her salary is more than her mother's salary. 
E) maybe wrong and maybe right. Adjusting for quantity changes, her salary is less than her mother's salary but with the information given we are unable to further adjust for price changes. 
A) wrong. Adjusting for price changes, her salary is less than her mother's salary. 
B) wrong. Adjusting for quantity changes, her salary is less than her mother's salary. 
C) correct. Adjusting for price changes, her salary is more than her mother's salary. 
D) correct. Adjusting for quantity changes, her salary is more than her mother's salary. 
E) maybe wrong and maybe right. Adjusting for quantity changes, her salary is less than her mother's salary but with the information given we are unable to further adjust for price changes.

Question 19

According to the historical record of inflation since the 1300s, the inflation rate

Accepted Answer

A) became highest in the twentieth century. 
B) was at its lowest after Columbus arrived to America. 
C) was at its highest during the Industrial Revolution. 
D) has always been consistently high. 
E) was higher in the 1300s than in the 1900s. 
A) became highest in the twentieth century. 
B) was at its lowest after Columbus arrived to America. 
C) was at its highest during the Industrial Revolution. 
D) has always been consistently high. 
E) was higher in the 1300s than in the 1900s.

Question 20

The presence of new goods that are of higher quality than the old goods leads the BLS to

Accepted Answer

A) update the market basket every time a new good is available. 
B) do nothing because at least some people still buy the old goods. 
C) try to separate price differences from improvements in quality. 
D) actually understate the cost of living when calculating the CPI. 
E) immediately update the reference base period used in calculating the CPI. 
A) update the market basket every time a new good is available. 
B) do nothing because at least some people still buy the old goods. 
C) try to separate price differences from improvements in quality. 
D) actually understate the cost of living when calculating the CPI. 
E) immediately update the reference base period used in calculating the CPI.

The CPI market basket

Which of the following is true?

Suppose the CPI last year was 82.3 and this year is 90.9. Based on this information, we can calculate that the inflation rate in 1981 was

The GDP deflator is a measure of

The reference base period for the CPI is

The Consumer Price Index market basket contains

Nominal GDP is $12.1 trillion and real GDP is $11.0 trillion. The GDP price index is

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

In 1970, the CPI was 39 and in 2000 it was 172. A local phone call cost $0.10 in 1970. What is the price of this phone call in 2000 dollars?

In the 1970s, a period of a high rate of inflation, a news magazine article listed people who were losing from inflation because their real purchasing power was falling. Those who lost the most were university professors. Which of the following explains this?

The GDP price index

The change in the quantity of goods and services that an hour's work can buy is measured by the

Each month the CPI is calculated by

The fact the consumers substitute one good for another when prices change is

If the GDP price index is 125 and nominal GDP is $130 billion, then real GDP equals ________ billion.

According to the historical record of inflation since the 1300s, the inflation rate

The presence of new goods that are of higher quality than the old goods leads the BLS to

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 CPI market basket

Which of the following is true?

Suppose the CPI last year was 82.3 and this year is 90.9. Based on this information, we can calculate that the inflation rate in 1981 was

The GDP deflator is a measure of

The reference base period for the CPI is

The Consumer Price Index market basket contains

Nominal GDP is $12.1 trillion and real GDP is $11.0 trillion. The GDP price index is

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

In 1970, the CPI was 39 and in 2000 it was 172. A local phone call cost $0.10 in 1970. What is the price of this phone call in 2000 dollars?

In the 1970s, a period of a high rate of inflation, a news magazine article listed people who were losing from inflation because their real purchasing power was falling. Those who lost the most were university professors. Which of the following explains this?

The GDP price index

The change in the quantity of goods and services that an hour's work can buy is measured by the

Each month the CPI is calculated by

The fact the consumers substitute one good for another when prices change is

If the GDP price index is 125 and nominal GDP is $130 billion, then real GDP equals ________ billion.

According to the historical record of inflation since the 1300s, the inflation rate

The presence of new goods that are of higher quality than the old goods leads the BLS to

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

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