Question 1

Consumer price index = $\frac{Price of basket of goods and services in base year}{Price of basket in current year}$ *100.

Accepted Answer

A) True 
 B)False

Question 2

In the United States, if the price of imported oil rises so that the prices of gasoline and heating oil rise, then the

Accepted Answer

A) GDP deflator rises much more than does the consumer price index. 
B) consumer price index rises much more than does the GDP deflator. 
C) GDP deflator and the consumer price index rise by about the same amount. 
D) consumer price index rises slightly more than does the GDP deflator. 
A) GDP deflator rises much more than does the consumer price index. 
B) consumer price index rises much more than does the GDP deflator. 
C) GDP deflator and the consumer price index rise by about the same amount. 
D) consumer price index rises slightly more than does the GDP deflator.

Question 3

Which of the following statements is true?

Accepted Answer

A) Even if we know the values of the consumer price index for the years 2009 and 2010, we cannot calculate the inflation rate for 2010 if we do not know which year is the base year. 
B) If we know the base year is 1990, and if we know the value of the consumer price index for the year 2010, then we have all the information we need to calculate the inflation rate for 2010. 
C) If we know the base year is 2000, and if we know the value of the consumer price index for the year 1995, then we have all the information we need to calculate the inflation rate for 1995. 
D) If we know the base year is 2000, and if we know the value of the consumer price index for the year 1995, then we have all the information we need to calculate the percentage change in the cost of living between 1995 and 2000. 
A) Even if we know the values of the consumer price index for the years 2009 and 2010, we cannot calculate the inflation rate for 2010 if we do not know which year is the base year. 
B) If we know the base year is 1990, and if we know the value of the consumer price index for the year 2010, then we have all the information we need to calculate the inflation rate for 2010. 
C) If we know the base year is 2000, and if we know the value of the consumer price index for the year 1995, then we have all the information we need to calculate the inflation rate for 1995. 
D) If we know the base year is 2000, and if we know the value of the consumer price index for the year 1995, then we have all the information we need to calculate the percentage change in the cost of living between 1995 and 2000.

Question 4

The relative importance of housing in the breakdown of consumer spending is

Accepted Answer

A) 43 percent. 
B) 15 percent. 
C) 6 percent. 
D) 4 percent. 
A) 43 percent. 
B) 15 percent. 
C) 6 percent. 
D) 4 percent.

Question 5

Changes in the consumer price index are useful in predicting changes in the producer price index.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is not correct?

Accepted Answer

A) The U.S. economy has never experienced deflation. 
B) Since 1965, the U.S. nominal interest rate has exceeded the U.S. real interest rate. 
C) Since 1965, the U.S. economy has experienced rising consumer prices in most years. 
D) During deflation, the real interest rate exceeds the nominal interest rate. 
A) The U.S. economy has never experienced deflation. 
B) Since 1965, the U.S. nominal interest rate has exceeded the U.S. real interest rate. 
C) Since 1965, the U.S. economy has experienced rising consumer prices in most years. 
D) During deflation, the real interest rate exceeds the nominal interest rate.

Question 7

In general, if a consumer good is produced domestically and consumed domestically, an increase in its price will have which of the following effects?

Accepted Answer

A) The consumer price index will increase relatively more than will the GDP deflator. 
B) The consumer price index and the GDP deflator will increase by the same amount. 
C) The consumer price index will increase relatively less than will the GDP deflator. 
D) One cannot generalize about the increase in the consumer price index relative to the increase in the GDP deflator. 
A) The consumer price index will increase relatively more than will the GDP deflator. 
B) The consumer price index and the GDP deflator will increase by the same amount. 
C) The consumer price index will increase relatively less than will the GDP deflator. 
D) One cannot generalize about the increase in the consumer price index relative to the increase in the GDP deflator.

Question 8

With respect to the consumer price index, the substitution bias arises because

Accepted Answer

A) prices of goods and services do not change in the same proportion from year to year. 
B) consumers are slow to adjust their buying patterns from year to year in response to price changes. 
C) consumers are eager to buy new products as they are introduced, despite their lack of full information about the quality of those products until they buy and use them. 
D) All of the above are correct. 
A) prices of goods and services do not change in the same proportion from year to year. 
B) consumers are slow to adjust their buying patterns from year to year in response to price changes. 
C) consumers are eager to buy new products as they are introduced, despite their lack of full information about the quality of those products until they buy and use them. 
D) All of the above are correct.

Question 9

Janelle earned a salary of $40,000 in 1996 and $65,000 in 2006. The consumer price index was 160 in 1996 and 266 in 2006. Janelle's 1996 salary in 2006 dollars is

Accepted Answer

A) $24,060.15. 
B) $42,400.00. 
C) $43,655.17. 
D) $66,500.00. 
A) $24,060.15. 
B) $42,400.00. 
C) $43,655.17. 
D) $66,500.00.

Question 10

If the nominal interest rate is 8 percent and the real interest rate is 5.5 percent, then the inflation rate is

Accepted Answer

A) -2.5 percent. 
B) 0.45 percent. 
C) 2.5 percent. 
D) 13.5 percent. 
A) -2.5 percent. 
B) 0.45 percent. 
C) 2.5 percent. 
D) 13.5 percent.

Question 11

Consumer price index = $\frac{Price of basket of goods and services in base year}{Price of basket in current year}$* 100.

Accepted Answer

A) True 
 B)False

Question 12

In a period of inflation real interest rates will be greater than nominal interest rates.

Accepted Answer

A) True 
 B)False

Question 13

In general, if a consumer good is produced domestically and consumed domestically, a decrease in its price will have which of the following effects?

Accepted Answer

A) The consumer price index will decrease relatively more than will the GDP deflator. 
B) The consumer price index and the GDP deflator will decrease by the same amount. 
C) The consumer price index will decrease relatively less than will the GDP deflator. 
D) One cannot generalize about the decrease in the consumer price index relative to the decrease in the GDP deflator. 
A) The consumer price index will decrease relatively more than will the GDP deflator. 
B) The consumer price index and the GDP deflator will decrease by the same amount. 
C) The consumer price index will decrease relatively less than will the GDP deflator. 
D) One cannot generalize about the decrease in the consumer price index relative to the decrease in the GDP deflator.

Question 14

If the cost of food & beverages increases by 10 percent, then, other things the same, the CPI is likely to increase by about

Accepted Answer

A) 1.5 percent. 
B) 7.5 percent. 
C) 10 percent. 
D) 20 percent. 
A) 1.5 percent. 
B) 7.5 percent. 
C) 10 percent. 
D) 20 percent.

Question 15

Dewey earned a salary of $75,000 in 2001 and $95,000 in 2006. The consumer price index was 177 in 2001 and 266 in 2006. Dewey's 2006 salary in 2001 dollars is

Accepted Answer

A) $47,768.36. 
B) $63,214.29. 
C) $84,550.00. 
D) $142,768.36. 
A) $47,768.36. 
B) $63,214.29. 
C) $84,550.00. 
D) $142,768.36.

Question 16

The real interest rate is the interest rate corrected for inflation.

Accepted Answer

A) True 
 B)False

Question 17

Table 11-1
The table below pertains to Pieway, an economy in which the typical consumer's basket consists of 10 bushels of peaches and 15 bushels of pecans. $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Price of } \
\text { Peaches }
\end{array} & \begin{array} { c } 
\text { Price of } \
\text { Pecans }
\end{array} \
\hline 2005 & \$ 11 \text { per bushd } & \$ 6 \text { per bushel } \
\hline 2006 & \$ 9 \text { per bushed } & \$ 10 \text { per bushe } \
\hline
\end{array}$$
-Refer to Table 11-1. The cost of the basket in 2006 was

Accepted Answer

A) $200. 
B) $210. 
C) $240. 
D) $245. 
A) $200. 
B) $210. 
C) $240. 
D) $245.

Question 18

A Korean steel company produces steel in the United States, with some of its steel being exported to other nations and some of it being sold within the United States. If the prices of this steel increase, then

Accepted Answer

A) the GDP deflator and the CPI will both increase. 
B) the GDP deflator will increase and the CPI will be unchanged. 
C) the GDP deflator will be unchanged and the CPI will increase. 
D) the GDP deflator and the CPI will both be unchanged. 
A) the GDP deflator and the CPI will both increase. 
B) the GDP deflator will increase and the CPI will be unchanged. 
C) the GDP deflator will be unchanged and the CPI will increase. 
D) the GDP deflator and the CPI will both be unchanged.

Question 19

A decrease in the price of large tractors imported into the United States from Russia

Accepted Answer

A) leaves the GDP deflator unchanged but decreases the consumer price index. 
B) decreases the GDP deflator but leaves the consumer price index unchanged. 
C) decreases both the GDP deflator and the consumer price index. 
D) leaves both the GDP deflator and the consumer price index unchanged. 
A) leaves the GDP deflator unchanged but decreases the consumer price index. 
B) decreases the GDP deflator but leaves the consumer price index unchanged. 
C) decreases both the GDP deflator and the consumer price index. 
D) leaves both the GDP deflator and the consumer price index unchanged.

Question 20

The CPI is calculated

Accepted Answer

A) monthly by the Department of Commerce. 
B) monthly by the Bureau of Labor Statistics. 
C) quarterly by the Department of Commerce. 
D) quarterly by the Bureau of Labor Statistics. 
A) monthly by the Department of Commerce. 
B) monthly by the Bureau of Labor Statistics. 
C) quarterly by the Department of Commerce. 
D) quarterly by the Bureau of Labor Statistics.

Exam 11: Measuring the Cost of Living

Consumer price index = PriceofbasketofgoodsandservicesinbaseyearPriceofbasketincurrentyear\frac{Price of basket of goods and services in base year}{Price of basket in current year}PriceofbasketincurrentyearPriceofbasketofgoodsandservicesinbaseyear​ *100.

In the United States, if the price of imported oil rises so that the prices of gasoline and heating oil rise, then the

Which of the following statements is true?

The relative importance of housing in the breakdown of consumer spending is

Changes in the consumer price index are useful in predicting changes in the producer price index.

Which of the following is not correct?

In general, if a consumer good is produced domestically and consumed domestically, an increase in its price will have which of the following effects?

With respect to the consumer price index, the substitution bias arises because

Janelle earned a salary of $40,000 in 1996 and $65,000 in 2006. The consumer price index was 160 in 1996 and 266 in 2006. Janelle's 1996 salary in 2006 dollars is

If the nominal interest rate is 8 percent and the real interest rate is 5.5 percent, then the inflation rate is

Consumer price index = PriceofbasketofgoodsandservicesinbaseyearPriceofbasketincurrentyear\frac{Price of basket of goods and services in base year}{Price of basket in current year}PriceofbasketincurrentyearPriceofbasketofgoodsandservicesinbaseyear​ * 100.

In a period of inflation real interest rates will be greater than nominal interest rates.

In general, if a consumer good is produced domestically and consumed domestically, a decrease in its price will have which of the following effects?

If the cost of food & beverages increases by 10 percent, then, other things the same, the CPI is likely to increase by about

Dewey earned a salary of $75,000 in 2001 and $95,000 in 2006. The consumer price index was 177 in 2001 and 266 in 2006. Dewey's 2006 salary in 2001 dollars is

The real interest rate is the interest rate corrected for inflation.

A Korean steel company produces steel in the United States, with some of its steel being exported to other nations and some of it being sold within the United States. If the prices of this steel increase, then

A decrease in the price of large tractors imported into the United States from Russia

The CPI is calculated

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Measuring a Nations Income

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomic Models

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

Consumer price index = $\frac{Price of basket of goods and services in base year}{Price of basket in current year}$ *100.

Consumer price index = $\frac{Price of basket of goods and services in base year}{Price of basket in current year}$ * 100.