Question 1

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

Accepted Answer

A) prices on average have increased 567 percent. 
B) prices on average have increased 244 percent. 
C) the price of the soda was greater in real value in 1970 than in 2007. 
D) the price of a soda has increased a greater percentage than the CPI. 
E) the real price of a soda is the same in 1970 and 2007. 
A) prices on average have increased 567 percent. 
B) prices on average have increased 244 percent. 
C) the price of the soda was greater in real value in 1970 than in 2007. 
D) the price of a soda has increased a greater percentage than the CPI. 
E) the real price of a soda is the same in 1970 and 2007.

Question 2

A country reports the total expenditures on the fixed CPI basket for the past three years. The cost of the CPI basket in 2010 was $23,000, the cost of the CPI basket for the reference base period, 2011, was $23,805, and the cost of the CPI basket in 2012 was $24,500. The CPI for 2012 is

Accepted Answer

A) 93.9. 
B) 97.2. 
C) 102.9. 
D) 106.5. 
E) 245.0. 
A) 93.9. 
B) 97.2. 
C) 102.9. 
D) 106.5. 
E) 245.0.

Question 3

Because the CPI overstates inflation,

Accepted Answer

A) when wages are linked to the CPI, workers' wages become too low as time passes. 
B) as time passes, government payments are increasingly lower than intended. 
C) as time passes, government outlays are increased by more than necessary to compensate for inflation. 
D) workers do not receive adequate compensation for price changes. 
E) most contracts use the GDP deflator to measure inflation. 
A) when wages are linked to the CPI, workers' wages become too low as time passes. 
B) as time passes, government payments are increasingly lower than intended. 
C) as time passes, government outlays are increased by more than necessary to compensate for inflation. 
D) workers do not receive adequate compensation for price changes. 
E) most contracts use the GDP deflator to measure inflation.

Question 4

$$\begin{array} { | l | c | c | c | c | } 
\hline \text { Item } & \begin{array} { c } 
\text { Quantity } \
( 2011 )
\end{array} & \text { Price (2011) } & \begin{array} { c } 
\text { Quantity } \
( 2012 )
\end{array} & \text { Price (2012) } \
\hline \text { Magazines } & 400 & \$ 5.00 & 450 & \$ 4.50 \
\hline \text { Movie tickets } & 50 & \$ 6.00 & 200 & \$ 8.00 \
\hline \text { Pizzas } & 100 & \$ 10.00 & 120 & \$ 10.50 \
\hline
\end{array}$$ 
The data in the table above shows the consumption by families in an economy. The year 2011 is the reference base period.
-Based on the table above, the cost of the base period market basket in the base period is

Accepted Answer

A) $3,300. 
B) $21.00. 
C) $3,250. 
D) $4,650. 
E) $4,885. 
A) $3,300. 
B) $21.00. 
C) $3,250. 
D) $4,650. 
E) $4,885.

Question 5

A country reports the total expenditures on the fixed CPI basket for the past three years. The cost of the CPI basket in 2010 was $23,000, the cost of the CPI basket for the reference base period, 2011, was $23,805, and the cost of the CPI basket in 2012 was $24,500. The CPI for 2010 is

Accepted Answer

A) 96.6. 
B) 100.0. 
C) 103.5. 
D) 106.5. 
E) 23.0. 
A) 96.6. 
B) 100.0. 
C) 103.5. 
D) 106.5. 
E) 23.0.

Question 6

If we compare the last 30 years of inflation as recorded by the CPI and the PCE price index we find that the

Accepted Answer

A) two measures fluctuate together. 
B) CPI inflation rate has consistently been at least 5 percentage points above the PCE price index inflation rate. 
C) PCE price index inflation rate has consistently been at least 5 percentage points above the CPI inflation rate. 
D) two measures give very different inflation rates for most years. 
E) the CPI inflation rate was always positive, but the PCE price index inflation rate was frequently negative. 
A) two measures fluctuate together. 
B) CPI inflation rate has consistently been at least 5 percentage points above the PCE price index inflation rate. 
C) PCE price index inflation rate has consistently been at least 5 percentage points above the CPI inflation rate. 
D) two measures give very different inflation rates for most years. 
E) the CPI inflation rate was always positive, but the PCE price index inflation rate was frequently negative.

Question 7

An example of the quality change bias, and not a new goods bias, in the calculation of the CPI is a price increase in

Accepted Answer

A) Coke versus Pepsi. 
B) DVDs purchased on Craigslist, an online classified website. 
C) a 2011 GPS unit versus a 2008 GPS unit. 
D) etexts versus used books . 
E) pants purchased by a first-time shopper at Aeropostale. 
A) Coke versus Pepsi. 
B) DVDs purchased on Craigslist, an online classified website. 
C) a 2011 GPS unit versus a 2008 GPS unit. 
D) etexts versus used books . 
E) pants purchased by a first-time shopper at Aeropostale.

Question 8

"The new goods bias puts a downward bias into the CPI and its measure of the inflation rate." Is the previous sentence correct or not?
 Explain your answer.

Accepted Answer

The sentence is false because the new go

Question 9

$$\begin{array} { c c c c } 
\text { Item } & \begin{array} { c } 
\text { Quantity } \
\mathbf { ( 2 0 1 1 ) }
\end{array} & \begin{array} { c } 
\text { Price } \
\mathbf { ( 2 0 1 1 ) }
\end{array} & \begin{array} { c } 
\text { Price } \
\mathbf { ( 2 0 1 2 ) }
\end{array} \
\hline \text { Salt } & 2 & \$ 1.00 & \$ 2.00 \
\text { Bread } & 20 & \$ 2.50 & \$ 3.00 \
\hline
\end{array}$$
-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 cost of the CPI market basket in 2011 is

Accepted Answer

A) $64.00 
B) $3.50 
C) $52.00. 
D) $5.00 
E) 100. 
A) $64.00 
B) $3.50 
C) $52.00. 
D) $5.00 
E) 100.

Question 10

The Consumer Price Index measures the average prices paid by

Accepted Answer

A) businesses for a fixed market basket of resources. 
B) businesses for the most frequently used basket of resources. 
C) urban consumers for a fixed market basket of goods and services. 
D) urban consumers for the goods and services that most frequently change in price. 
E) businesses and consumers for a market basket of goods and services. 
A) businesses for a fixed market basket of resources. 
B) businesses for the most frequently used basket of resources. 
C) urban consumers for a fixed market basket of goods and services. 
D) urban consumers for the goods and services that most frequently change in price. 
E) businesses and consumers for a market basket of goods and services.

Question 11

Explain the CPI bias and how it can distort private contracts and increase government outlays.

Accepted Answer

The CPI bias is the point that the CPI o

Question 12

If prices have increased since the base period, then

Accepted Answer

A) real GDP is smaller than nominal GDP. 
B) real GDP is larger than nominal GDP. 
C) real GDP is equal to nominal GDP. 
D) there is no way to adjust nominal GDP so that it equals real GDP. 
E) real GDP can no longer be compared to nominal GDP. 
A) real GDP is smaller than nominal GDP. 
B) real GDP is larger than nominal GDP. 
C) real GDP is equal to nominal GDP. 
D) there is no way to adjust nominal GDP so that it equals real GDP. 
E) real GDP can no longer be compared to nominal GDP.

Question 13

If a country had a CPI of 105.0 last year and a CPI of 102.0 this year, then

Accepted Answer

A) the average prices of goods and services increased between last year and this year. 
B) the average prices of goods and services decreased between last year and this year. 
C) the average quality of goods and services decreased between last year and this year. 
D) there was an error when calculating the CPI this year. 
E) the quantity of consumer goods and services produced decreased between last year and this year. 
A) the average prices of goods and services increased between last year and this year. 
B) the average prices of goods and services decreased between last year and this year. 
C) the average quality of goods and services decreased between last year and this year. 
D) there was an error when calculating the CPI this year. 
E) the quantity of consumer goods and services produced decreased between last year and this year.

Question 14

If you have a mortgage on your house at 6 percent and the inflation rate when the mortgage was acquired was 3 percent but has since increased and is now 8 percent per year; the current real interest rate is

Accepted Answer

A) 14 percent per year. 
B) 6 percent per year. 
C) 0 percent per year. 
D) -2 percent per year. 
E) 8 percent per year. 
A) 14 percent per year. 
B) 6 percent per year. 
C) 0 percent per year. 
D) -2 percent per year. 
E) 8 percent per year.

Question 15

The bias in the CPI affects government outlays because the overstatement of inflation

Accepted Answer

A) increases fiscal pressure. 
B) increases government outlays by more than what is justified. 
C) decreases social welfare benefits. 
D) decreases government outlays by more than what is justified. 
E) means that tax receipts are less than what is needed to cover government outlays. 
A) increases fiscal pressure. 
B) increases government outlays by more than what is justified. 
C) decreases social welfare benefits. 
D) decreases government outlays by more than what is justified. 
E) means that tax receipts are less than what is needed to cover government outlays.

Question 16

$$\begin{array} { c c c c } 
\text { Item } & \begin{array} { c } 
\text { Quantity } \
\mathbf { ( 2 0 1 1 ) }
\end{array} & \begin{array} { c } 
\text { Price } \
\mathbf { ( 2 0 1 1 ) }
\end{array} & \begin{array} { c } 
\text { Price } \
\mathbf { ( 2 0 1 2 ) }
\end{array} \
\hline \text { Salt } & 2 & \$ 1.00 & \$ 2.00 \
\text { Bread } & 20 & \$ 2.50 & \$ 3.00 \
\hline
\end{array}$$
-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 cost of the CPI market basket in 2010 is

Accepted Answer

A) $5.00. 
B) $64.00. 
C) $8.50. 
D) $52.00. 
E) unable to be calculated because information is needed about the quantities purchased in 2010. 
A) $5.00. 
B) $64.00. 
C) $8.50. 
D) $52.00. 
E) unable to be calculated because information is needed about the quantities purchased in 2010.

Question 17

If the base year CPI market basket costs $250 and next year the CPI market basket costs $275, what is next year's CPI?

Accepted Answer

The CPI eq

Question 18

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 19

February 2010, the price of gasoline in the Florida was $2.629 per gallon and the CPI was 202.4 with a base period of 1982 to 1984. What was the real price of gasoline per gallon in base period dollars?

Accepted Answer

A) $2.629 per gallon 
B) $1.00 per gallon 
C) $1.29 per gallon 
D) $5.32 per gallon 
E) $1.809 per gallon 
A) $2.629 per gallon 
B) $1.00 per gallon 
C) $1.29 per gallon 
D) $5.32 per gallon 
E) $1.809 per gallon

Question 20

If the CPI is used as a cost of living index, incomes that are adjusted to reflect the changes in the CPI will

Accepted Answer

A) increase by more than the actual change in the cost of living. 
B) decrease by more than the actual change in the cost of living. 
C) increase by more than the actual change in quantities. 
D) decrease by more than the actual change in quantities. 
E) generally rise by about 2 percent a year because the standard of living generally rises by about 2 percent a year. 
A) increase by more than the actual change in the cost of living. 
B) decrease by more than the actual change in the cost of living. 
C) increase by more than the actual change in quantities. 
D) decrease by more than the actual change in quantities. 
E) generally rise by about 2 percent a year because the standard of living generally rises by about 2 percent a year.

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

A country reports the total expenditures on the fixed CPI basket for the past three years. The cost of the CPI basket in 2010 was $23,000, the cost of the CPI basket for the reference base period, 2011, was $23,805, and the cost of the CPI basket in 2012 was $24,500. The CPI for 2012 is

Because the CPI overstates inflation,

A country reports the total expenditures on the fixed CPI basket for the past three years. The cost of the CPI basket in 2010 was $23,000, the cost of the CPI basket for the reference base period, 2011, was $23,805, and the cost of the CPI basket in 2012 was $24,500. The CPI for 2010 is

If we compare the last 30 years of inflation as recorded by the CPI and the PCE price index we find that the

An example of the quality change bias, and not a new goods bias, in the calculation of the CPI is a price increase in

"The new goods bias puts a downward bias into the CPI and its measure of the inflation rate." Is the previous sentence correct or not? Explain your answer.

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 cost of the CPI market basket in 2011 is

The Consumer Price Index measures the average prices paid by

Explain the CPI bias and how it can distort private contracts and increase government outlays.

If prices have increased since the base period, then

If a country had a CPI of 105.0 last year and a CPI of 102.0 this year, then

If you have a mortgage on your house at 6 percent and the inflation rate when the mortgage was acquired was 3 percent but has since increased and is now 8 percent per year; the current real interest rate is

The bias in the CPI affects government outlays because the overstatement of inflation

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 cost of the CPI market basket in 2010 is

If the base year CPI market basket costs $250 and next year the CPI market basket costs $275, what is next year's CPI?

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

February 2010, the price of gasoline in the Florida was $2.629 per gallon and the CPI was 202.4 with a base period of 1982 to 1984. What was the real price of gasoline per gallon in base period dollars?

If the CPI is used as a cost of living index, incomes that are adjusted to reflect the changes in the CPI will

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

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

A country reports the total expenditures on the fixed CPI basket for the past three years. The cost of the CPI basket in 2010 was $23,000, the cost of the CPI basket for the reference base period, 2011, was $23,805, and the cost of the CPI basket in 2012 was $24,500. The CPI for 2012 is

Because the CPI overstates inflation,

A country reports the total expenditures on the fixed CPI basket for the past three years. The cost of the CPI basket in 2010 was $23,000, the cost of the CPI basket for the reference base period, 2011, was $23,805, and the cost of the CPI basket in 2012 was $24,500. The CPI for 2010 is

If we compare the last 30 years of inflation as recorded by the CPI and the PCE price index we find that the

An example of the quality change bias, and not a new goods bias, in the calculation of the CPI is a price increase in

"The new goods bias puts a downward bias into the CPI and its measure of the inflation rate." Is the previous sentence correct or not? Explain your answer.

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 cost of the CPI market basket in 2011 is

The Consumer Price Index measures the average prices paid by

Explain the CPI bias and how it can distort private contracts and increase government outlays.

If prices have increased since the base period, then

If a country had a CPI of 105.0 last year and a CPI of 102.0 this year, then

If you have a mortgage on your house at 6 percent and the inflation rate when the mortgage was acquired was 3 percent but has since increased and is now 8 percent per year; the current real interest rate is

The bias in the CPI affects government outlays because the overstatement of inflation

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 cost of the CPI market basket in 2010 is

If the base year CPI market basket costs $250 and next year the CPI market basket costs $275, what is next year's CPI?

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

February 2010, the price of gasoline in the Florida was $2.629 per gallon and the CPI was 202.4 with a base period of 1982 to 1984. What was the real price of gasoline per gallon in base period dollars?

If the CPI is used as a cost of living index, incomes that are adjusted to reflect the changes in the CPI will

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