Question 1

Your wage this year is $15 per hour and the CPI is 178. Next year you get a raise to $17 and the CPI rises to 185. What has happened?

Accepted Answer

A) Your real wage has increased but by a smaller percentage than your nominal wage. 
B) Your nominal wage has increased but your real wage has declined. 
C) Your real wage rate has increased by a larger percentage than your nominal wage. 
D) Your real and nominal wages have each increased by the same percentage. 
E) Your nominal wage has increased but your real wage has not changed. 
A) Your real wage has increased but by a smaller percentage than your nominal wage. 
B) Your nominal wage has increased but your real wage has declined. 
C) Your real wage rate has increased by a larger percentage than your nominal wage. 
D) Your real and nominal wages have each increased by the same percentage. 
E) Your nominal wage has increased but your real wage has not changed.

Question 2

Suppose that in 2012, real GDP is larger than nominal GDP. The GDP price index in 2012 is definitely

Accepted Answer

A) negative. 
B) larger than the GDP price index in 2012. 
C) less than the GDP price index in 2012. 
D) greater than 100. 
E) less than 100. 
A) negative. 
B) larger than the GDP price index in 2012. 
C) less than the GDP price index in 2012. 
D) greater than 100. 
E) less than 100.

Question 3

If the prices of the goods and services contained in the CPI market basket increase from the base period to the next year, we know that

Accepted Answer

A) the inflation rate is falling. 
B) the next year's CPI will be above 100. 
C) the next year's CPI will be below 100. 
D) the cost of the CPI market basket at next year's prices is lower than the cost of the CPI market basket at base period prices. 
E) the market basket used by the BLS must be changed next year to reflect consumers' new expenditures. 
A) the inflation rate is falling. 
B) the next year's CPI will be above 100. 
C) the next year's CPI will be below 100. 
D) the cost of the CPI market basket at next year's prices is lower than the cost of the CPI market basket at base period prices. 
E) the market basket used by the BLS must be changed next year to reflect consumers' new expenditures.

Question 4

In the United States between 1971 and 2011, the inflation rate

Accepted Answer

A) increased every year. 
B) only decreased during the late 1990s. 
C) only increased during the late 1970s and 1980. 
D) peaked during the late 1970s and 1980 and was at its generally lowest in the 1990s and 2000s. 
E) has been relatively constant at approximately 4 percent to 6 percent per year. 
A) increased every year. 
B) only decreased during the late 1990s. 
C) only increased during the late 1970s and 1980. 
D) peaked during the late 1970s and 1980 and was at its generally lowest in the 1990s and 2000s. 
E) has been relatively constant at approximately 4 percent to 6 percent per year.

Question 5

If we compare the CPI to a perfect cost of living index, we find that they are

Accepted Answer

A) the same thing. 
B) different because the cost of living has nothing to do with prices. 
C) different because the CPI does not measure prices. 
D) different because the CPI uses a fixed basket and has some measurement difficulties. 
E) not the same because the CPI has a fixed reference base period. 
A) the same thing. 
B) different because the cost of living has nothing to do with prices. 
C) different because the CPI does not measure prices. 
D) different because the CPI uses a fixed basket and has some measurement difficulties. 
E) not the same because the CPI has a fixed reference base period.

Question 6

$$\begin{array} { c c } 
\text { Year } & \text { CPI } \
\hline 2008 & 100.0 \
2009 & 102.5 \
2010 & 106.0 \
2011 & 111.0
\end{array}$$
-Scott worked in a large foreign country. He retired in 2008 and his pension income is fixed at $1,500 per month. The table above gives the CPI in this country. What is the real monthly value of his pension in the years between 2008 and 2011?

Accepted Answer

To calculate the real value of the pensi

Question 7

If the cost of the CPI market basket at current period prices is $275 and the cost of the CPI market basket at base period prices is $350, the CPI is

Accepted Answer

A) 79. 
B) 100. 
C) 127. 
D) 350. 
E) 275. 
A) 79. 
B) 100. 
C) 127. 
D) 350. 
E) 275.

Question 8

The GDP deflator measures

Accepted Answer

A) the price level. 
B) the quantity level. 
C) real GDP. 
D) nominal GDP. 
E) the quality of the goods and services in GDP. 
A) the price level. 
B) the quantity level. 
C) real GDP. 
D) nominal GDP. 
E) the quality of the goods and services in GDP.

Question 9

In the United States, the good or service given the most weight in the CPI basket when calculating the CPI is

Accepted Answer

A) food and beverages. 
B) taxes. 
C) housing. 
D) medical care. 
E) recreation. 
A) food and beverages. 
B) taxes. 
C) housing. 
D) medical care. 
E) recreation.

Question 10

The price of dishwashers has remained relatively constant while the quality of dishwashers has improved. The CPI

Accepted Answer

A) is adjusted monthly to reflect the improvement in quality. 
B) is increased monthly to reflect the increased quality of dishwashers. 
C) has an upward bias if it is not adjusted to take account of the higher quality. 
D) has an upward bias because it does not reflect the increased production of dishwashers. 
E) should not take account of any quality changes because it is a price index not a quality index. 
A) is adjusted monthly to reflect the improvement in quality. 
B) is increased monthly to reflect the increased quality of dishwashers. 
C) has an upward bias if it is not adjusted to take account of the higher quality. 
D) has an upward bias because it does not reflect the increased production of dishwashers. 
E) should not take account of any quality changes because it is a price index not a quality index.

Question 11

What is the difference between nominal variables and real variables?
 Discuss the calculations undertaken to determine the real wage rate and the real interest rate. Explain why the real wage rate and real interest rate are real variables.

Accepted Answer

Nominal variables are measured using cur

Question 12

If the CPI is 170 at the beginning of the year and 181 at the end, and a bank is paying a nominal interest rate of 6 percent, we see that

Accepted Answer

A) the real interest rate is negative. 
B) the interest nominal rate is negative. 
C) the real interest rate is positive and is less than 1 percent. 
D) the real interest rate is positive and is larger than 1 percent. 
E) the real interest rate is equal to zero. 
A) the real interest rate is negative. 
B) the interest nominal rate is negative. 
C) the real interest rate is positive and is less than 1 percent. 
D) the real interest rate is positive and is larger than 1 percent. 
E) the real interest rate is equal to zero.

Question 13

A consequence of the CPI bias is that it

Accepted Answer

A) decreases government outlays. 
B) increases international trade. 
C) reduces outlet substitution bias. 
D) distorts private contracts. 
E) means that it is impossible to measure the inflation rate. 
A) decreases government outlays. 
B) increases international trade. 
C) reduces outlet substitution bias. 
D) distorts private contracts. 
E) means that it is impossible to measure the inflation rate.

Question 14

Economists agree that the CPI

Accepted Answer

A) is a near perfect measure of the cost of living. 
B) has no relation to the cost of living. 
C) is a possibly biased measure of the cost of living. 
D) almost always shows the cost of living rising less rapidly than is the case in reality. 
E) overstates inflation by about 4.1 percentage points a year. 
A) is a near perfect measure of the cost of living. 
B) has no relation to the cost of living. 
C) is a possibly biased measure of the cost of living. 
D) almost always shows the cost of living rising less rapidly than is the case in reality. 
E) overstates inflation by about 4.1 percentage points a year.

Question 15

To compare the price of a loaf of bread produced in 1993 with the price of a loaf produced in this year, you should compare the value of the bread in

Accepted Answer

A) real prices. 
B) nominal prices. 
C) real quantity. 
D) nominal quantity. 
E) CPI quantity. 
A) real prices. 
B) nominal prices. 
C) real quantity. 
D) nominal quantity. 
E) CPI quantity.

Question 16

To find the cost of the CPI market basket in the current period we have to multiply the

Accepted Answer

A) quantities in the CPI market basket by the base period prices. 
B) quantities in the CPI market basket by the current period prices. 
C) current period quantities in the CPI market basket by the base period prices. 
D) current period quantities in the CPI market basket by the current period prices. 
E) quantities in the CPI market basket by the base period prices and then multiply by 100. 
A) quantities in the CPI market basket by the base period prices. 
B) quantities in the CPI market basket by the current period prices. 
C) current period quantities in the CPI market basket by the base period prices. 
D) current period quantities in the CPI market basket by the current period prices. 
E) quantities in the CPI market basket by the base period prices and then multiply by 100.

Question 17

Suppose Mack's wage was $7.00 an hour in 2001 and was $12.00 per hour in 2012. The CPI was 94 in 2001 and 201 in 2012. The 2001 wage in terms of 2012 dollars is

Accepted Answer

A) $14.97. 
B) $14.07. 
C) $3.48. 
D) $13.16. 
E) $7.00 
A) $14.97. 
B) $14.07. 
C) $3.48. 
D) $13.16. 
E) $7.00

Question 18

$$\begin{array} { l c c c c } 
\text { Item } & \begin{array} { c } 
\text { Quantity } \
\mathbf { ( 2 0 1 1 ) }
\end{array} & \begin{array} { c } 
\text { Price } \
\mathbf { ( 2 0 1 1 ) }
\end{array} & \begin{array} { c } 
\text { Quantity } \
\mathbf { ( 2 0 1 2 ) }
\end{array} & \begin{array} { l } 
\text { Price } \
\mathbf { ( 2 0 1 2 ) }
\end{array} \
\hline \text { Pens } & 400 & \$ 1.00 & 400 & \$ 1.02 \
\text { CDs } & 200 & \$ 15.00 & 200 & \$ 15.90 \
\hline
\end{array}$$
-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 2011. If the current year is 2012, the cost of the CPI market basket in 2012 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

Last year the CPI was 177.1 and this year the CPI was 180.9. What is the inflation rate between these two years?

Accepted Answer

The inflation rate e

Question 20

When comparing the annual inflation rate in the United States based on the CPI with the annual inflation rate based on the PCE price index, the data show that the

Accepted Answer

A) CPI measure tends to exceed the PCE price index measure. 
B) PCE price index measure tends to exceed the CPI measure. 
C) CPI measure and the PCE price index measure are equal. 
D) CPI measure and PCE price index measure move in opposite directions. 
E) CPI deflator and PCE price index cannot be compared because they measure prices of different baskets of goods and services. 
A) CPI measure tends to exceed the PCE price index measure. 
B) PCE price index measure tends to exceed the CPI measure. 
C) CPI measure and the PCE price index measure are equal. 
D) CPI measure and PCE price index measure move in opposite directions. 
E) CPI deflator and PCE price index cannot be compared because they measure prices of different baskets of goods and services.

Your wage this year is $15 per hour and the CPI is 178. Next year you get a raise to $17 and the CPI rises to 185. What has happened?

Suppose that in 2012, real GDP is larger than nominal GDP. The GDP price index in 2012 is definitely

If the prices of the goods and services contained in the CPI market basket increase from the base period to the next year, we know that

In the United States between 1971 and 2011, the inflation rate

If we compare the CPI to a perfect cost of living index, we find that they are

Year CPI 2008 100.0 2009 102.5 2010 106.0 2011 111.0 -Scott worked in a large foreign country. He retired in 2008 and his pension income is fixed at $1,500 per month. The table above gives the CPI in this country. What is the real monthly value of his pension in the years between 2008 and 2011?

If the cost of the CPI market basket at current period prices is $275 and the cost of the CPI market basket at base period prices is $350, the CPI is

The GDP deflator measures

In the United States, the good or service given the most weight in the CPI basket when calculating the CPI is

The price of dishwashers has remained relatively constant while the quality of dishwashers has improved. The CPI

What is the difference between nominal variables and real variables? Discuss the calculations undertaken to determine the real wage rate and the real interest rate. Explain why the real wage rate and real interest rate are real variables.

If the CPI is 170 at the beginning of the year and 181 at the end, and a bank is paying a nominal interest rate of 6 percent, we see that

A consequence of the CPI bias is that it

Economists agree that the CPI

To compare the price of a loaf of bread produced in 1993 with the price of a loaf produced in this year, you should compare the value of the bread in

To find the cost of the CPI market basket in the current period we have to multiply the

Suppose Mack's wage was $7.00 an hour in 2001 and was $12.00 per hour in 2012. The CPI was 94 in 2001 and 201 in 2012. The 2001 wage in terms of 2012 dollars is

Last year the CPI was 177.1 and this year the CPI was 180.9. What is the inflation rate between these two years?

When comparing the annual inflation rate in the United States based on the CPI with the annual inflation rate based on the PCE price index, the data show that the

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

Your wage this year is $15 per hour and the CPI is 178. Next year you get a raise to $17 and the CPI rises to 185. What has happened?

Suppose that in 2012, real GDP is larger than nominal GDP. The GDP price index in 2012 is definitely

If the prices of the goods and services contained in the CPI market basket increase from the base period to the next year, we know that

In the United States between 1971 and 2011, the inflation rate

If we compare the CPI to a perfect cost of living index, we find that they are

Year CPI 2008 100.0 2009 102.5 2010 106.0 2011 111.0 -Scott worked in a large foreign country. He retired in 2008 and his pension income is fixed at $1,500 per month. The table above gives the CPI in this country. What is the real monthly value of his pension in the years between 2008 and 2011?

If the cost of the CPI market basket at current period prices is $275 and the cost of the CPI market basket at base period prices is $350, the CPI is

The GDP deflator measures

In the United States, the good or service given the most weight in the CPI basket when calculating the CPI is

The price of dishwashers has remained relatively constant while the quality of dishwashers has improved. The CPI

What is the difference between nominal variables and real variables? Discuss the calculations undertaken to determine the real wage rate and the real interest rate. Explain why the real wage rate and real interest rate are real variables.

If the CPI is 170 at the beginning of the year and 181 at the end, and a bank is paying a nominal interest rate of 6 percent, we see that

A consequence of the CPI bias is that it

Economists agree that the CPI

To compare the price of a loaf of bread produced in 1993 with the price of a loaf produced in this year, you should compare the value of the bread in

To find the cost of the CPI market basket in the current period we have to multiply the

Suppose Mack's wage was $7.00 an hour in 2001 and was $12.00 per hour in 2012. The CPI was 94 in 2001 and 201 in 2012. The 2001 wage in terms of 2012 dollars is

Last year the CPI was 177.1 and this year the CPI was 180.9. What is the inflation rate between these two years?

When comparing the annual inflation rate in the United States based on the CPI with the annual inflation rate based on the PCE price index, the data show that the

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