Question 1

If the consumer price index was 100 in the base year and 107 in the following year, then the inflation rate was

Accepted Answer

A) 1.07 percent. 
B) 7 percent. 
C) 10.7 percent. 
D) 107 percent. 
A) 1.07 percent. 
B) 7 percent. 
C) 10.7 percent. 
D) 107 percent.

Question 2

Suppose that over the past year, the real interest rate was 5 percent and the inflation rate was 3 percent. It follows that

Accepted Answer

A) the dollar value of savings increased at 5 percent, and the purchasing power of savings increased at 2 percent. 
B) the dollar value of savings increased at 5 percent, and the purchasing power of savings increased at 8 percent. 
C) the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 2 percent. 
D) the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 5 percent. 
A) the dollar value of savings increased at 5 percent, and the purchasing power of savings increased at 2 percent. 
B) the dollar value of savings increased at 5 percent, and the purchasing power of savings increased at 8 percent. 
C) the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 2 percent. 
D) the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 5 percent.

Question 3

An increase in the price of dairy products produced domestically will be reflected in

Accepted Answer

A) both the GDP deflator and the consumer price index. 
B) neither the GDP deflator nor the consumer price index. 
C) the GDP deflator but not in the consumer price index. 
D) the consumer price index but not in the GDP deflator. 
A) both the GDP deflator and the consumer price index. 
B) neither the GDP deflator nor the consumer price index. 
C) the GDP deflator but not in the consumer price index. 
D) the consumer price index but not in the GDP deflator.

Question 4

If the nominal interest rate is 5 percent and the rate of inflation is 9 percent, then the real interest rate is

Accepted Answer

A) -4 percent. 
B) -0.44 percent. 
C) 4 percent. 
D) 14 percent. 
A) -4 percent. 
B) -0.44 percent. 
C) 4 percent. 
D) 14 percent.

Question 5

Because the consumer price index reflects the goods and services bought by consumers better than the GDP deflator does, it is the more common gauge of inflation.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements about real and nominal interest rates is correct?

Accepted Answer

A) Real interest rates can be either positive or negative, but nominal interest rates must be positive. 
B) Real interest rates and nominal interest rates must be positive. 
C) Real interest rates must be positive, but nominal interest rates can be either positive or negative. 
D) Real interest rates and nominal interest rates can be either positive or negative. 
A) Real interest rates can be either positive or negative, but nominal interest rates must be positive. 
B) Real interest rates and nominal interest rates must be positive. 
C) Real interest rates must be positive, but nominal interest rates can be either positive or negative. 
D) Real interest rates and nominal interest rates can be either positive or negative.

Question 7

Which of the following is not an example of a price index computed by the Bureau of Labor Statistics?

Accepted Answer

A) the Los Angeles price index 
B) the energy price index 
C) the producer price index 
D) the stock price index 
A) the Los Angeles price index 
B) the energy price index 
C) the producer price index 
D) the stock price index

Question 8

Suppose that U.S. mining companies purchase German-made ore trucks at a reduced price. By itself, what effect will this purchase have on the GDP deflator and on the consumer price index?

Accepted Answer

A) The consumer price index and the GDP deflator will both fall. 
B) The consumer price index and the GDP deflator will both be unaffected. 
C) The consumer price index will fall, and the GDP deflator will be unaffected. 
D) The consumer price index will be unaffected, and the GDP deflator will fall. 
A) The consumer price index and the GDP deflator will both fall. 
B) The consumer price index and the GDP deflator will both be unaffected. 
C) The consumer price index will fall, and the GDP deflator will be unaffected. 
D) The consumer price index will be unaffected, and the GDP deflator will fall.

Question 9

Ethel purchased a bag of groceries in 1970 for $8. She purchased the same bag of groceries in 2006 for $25. If the price index was 38.8 in 1970 and the price index was 180 in 2006, then what is the price of the 1970 bag of groceries in 2006 dollars?

Accepted Answer

A) $5.39 
B) $25.00 
C) $29.11 
D) $37.11 
A) $5.39 
B) $25.00 
C) $29.11 
D) $37.11

Question 10

Sophia puts money in the bank and earns a 5 percent nominal interest rate. If the inflation rate is 2 percent, then after one year,

Accepted Answer

A) Sophia will have 3 percent more money, which will purchase 5 percent more goods. 
B) Sophia will have 3 percent more money, which will purchase 7 percent more goods. 
C) Sophia will have 5 percent more money, which will purchase 3 percent more goods. 
D) Sophia will have 5 percent more money, which will purchase 7 percent more goods. 
A) Sophia will have 3 percent more money, which will purchase 5 percent more goods. 
B) Sophia will have 3 percent more money, which will purchase 7 percent more goods. 
C) Sophia will have 5 percent more money, which will purchase 3 percent more goods. 
D) Sophia will have 5 percent more money, which will purchase 7 percent more goods.

Question 11

Suppose the price of a gallon of ice cream rises from $4 to $5 and the price of a can of coffee rises from $2 to $2.50. If the CPI rises from 150 to 177, then people likely will buy

Accepted Answer

A) more ice cream and more coffee. 
B) more ice cream and less coffee. 
C) less ice cream and more coffee. 
D) less ice cream and less coffee. 
A) more ice cream and more coffee. 
B) more ice cream and less coffee. 
C) less ice cream and more coffee. 
D) less ice cream and less coffee.

Question 12

Data from the Bureau of Labor Statistics show that the largest category of consumer spending is housing.

Accepted Answer

A) True 
 B)False

Question 13

An increase in the price of Irish whiskey imported into the United States will be reflected in

Accepted Answer

A) both the U.S. GDP deflator and the U.S. CPI. 
B) neither the U.S. GDP deflator nor the U.S. CPI. 
C) the U.S. GDP deflator, but not the U.S. CPI. 
D) the U.S. CPI, but not the U.S. GDP deflator. 
A) both the U.S. GDP deflator and the U.S. CPI. 
B) neither the U.S. GDP deflator nor the U.S. CPI. 
C) the U.S. GDP deflator, but not the U.S. CPI. 
D) the U.S. CPI, but not the U.S. GDP deflator.

Question 14

Suppose the price index was 105 in 2007, 115.5 in 2008, and the inflation rate was lower between 2008 and 2009 than it was between 2007 and 2008. This means that

Accepted Answer

A) the price index in 2009 was lower than 115.5. 
B) the price index in 2009 was lower than 126. 
C) the price index in 2009 was lower than 127.05. 
D) the inflation rate between 2008 and 2009 was lower than 1.1 percent. 
A) the price index in 2009 was lower than 115.5. 
B) the price index in 2009 was lower than 126. 
C) the price index in 2009 was lower than 127.05. 
D) the inflation rate between 2008 and 2009 was lower than 1.1 percent.

Question 15

To which of the problems in the construction of the CPI is the invention of pocket-sized computers most relevant?

Accepted Answer

A) substitution bias 
B) introduction of new goods 
C) unmeasured quality change 
D) income bias 
A) substitution bias 
B) introduction of new goods 
C) unmeasured quality change 
D) income bias

Question 16

If the nominal interest rate is 5 percent and the real interest rate is 7 percent, then the inflation rate is

Accepted Answer

A) -2 percent. 
B) 0.4 percent. 
C) 2 percent. 
D) 12 percent. 
A) -2 percent. 
B) 0.4 percent. 
C) 2 percent. 
D) 12 percent.

Question 17

Suppose that over the past year, the real interest rate was 3 percent and the inflation rate was -1 percent. It follows that

Accepted Answer

A) the dollar value of savings increased at 2 percent, and the purchasing power of savings increased at 3 percent. 
B) the dollar value of savings increased at 2 percent, and the purchasing power of savings increased at 4 percent. 
C) the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 2 percent. 
D) the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 3 percent. 
A) the dollar value of savings increased at 2 percent, and the purchasing power of savings increased at 3 percent. 
B) the dollar value of savings increased at 2 percent, and the purchasing power of savings increased at 4 percent. 
C) the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 2 percent. 
D) the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 3 percent.

Question 18

Assume that consumers consider rice and potatoes to be substitutes, so that when the price of rice rises, consumers purchase less rice and more potatoes. When the CPI is computed following the increase in the price of rice, it takes into account

Accepted Answer

A) the increase in the price of rice. 
B) the decrease in the quantity of rice purchased and the increase in the quantity of potatoes purchased. 
C) Both (a) and (b) are correct. 
D) None of the above is correct. 
A) the increase in the price of rice. 
B) the decrease in the quantity of rice purchased and the increase in the quantity of potatoes purchased. 
C) Both (a) and (b) are correct. 
D) None of the above is correct.

Question 19

A COLA automatically raises the wage when

Accepted Answer

A) GDP increases. 
B) taxes increase. 
C) the consumer price index increases. 
D) the producer price index increases. 
A) GDP increases. 
B) taxes increase. 
C) the consumer price index increases. 
D) the producer price index increases.

Question 20

In addition to the consumer price index, the Bureau of Labor Statistics also calculates the

Accepted Answer

A) macroeconomic price index. 
B) producer price index. 
C) rental unit price index. 
D) terms of trade. 
A) macroeconomic price index. 
B) producer price index. 
C) rental unit price index. 
D) terms of trade.

Exam 11: Measuring the Cost of Living

If the consumer price index was 100 in the base year and 107 in the following year, then the inflation rate was

Suppose that over the past year, the real interest rate was 5 percent and the inflation rate was 3 percent. It follows that

An increase in the price of dairy products produced domestically will be reflected in

If the nominal interest rate is 5 percent and the rate of inflation is 9 percent, then the real interest rate is

Because the consumer price index reflects the goods and services bought by consumers better than the GDP deflator does, it is the more common gauge of inflation.

Which of the following statements about real and nominal interest rates is correct?

Which of the following is not an example of a price index computed by the Bureau of Labor Statistics?

Suppose that U.S. mining companies purchase German-made ore trucks at a reduced price. By itself, what effect will this purchase have on the GDP deflator and on the consumer price index?

Ethel purchased a bag of groceries in 1970 for $8. She purchased the same bag of groceries in 2006 for $25. If the price index was 38.8 in 1970 and the price index was 180 in 2006, then what is the price of the 1970 bag of groceries in 2006 dollars?

Sophia puts money in the bank and earns a 5 percent nominal interest rate. If the inflation rate is 2 percent, then after one year,

Suppose the price of a gallon of ice cream rises from $4 to $5 and the price of a can of coffee rises from $2 to $2.50. If the CPI rises from 150 to 177, then people likely will buy

Data from the Bureau of Labor Statistics show that the largest category of consumer spending is housing.

An increase in the price of Irish whiskey imported into the United States will be reflected in

Suppose the price index was 105 in 2007, 115.5 in 2008, and the inflation rate was lower between 2008 and 2009 than it was between 2007 and 2008. This means that

To which of the problems in the construction of the CPI is the invention of pocket-sized computers most relevant?

If the nominal interest rate is 5 percent and the real interest rate is 7 percent, then the inflation rate is

Suppose that over the past year, the real interest rate was 3 percent and the inflation rate was -1 percent. It follows that

Assume that consumers consider rice and potatoes to be substitutes, so that when the price of rice rises, consumers purchase less rice and more potatoes. When the CPI is computed following the increase in the price of rice, it takes into account

A COLA automatically raises the wage when

In addition to the consumer price index, the Bureau of Labor Statistics also calculates the

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