Question 1

When ranking movies by nominal box office receipts, what important fact is overlooked?

Accepted Answer

A) More people go to movies now than in the past. 
B) There are no good substitutes for movies currently. 
C) Prices, including those for movie tickets, have been rising over time. 
D) Movies and DVD are complements. 
A) More people go to movies now than in the past. 
B) There are no good substitutes for movies currently. 
C) Prices, including those for movie tickets, have been rising over time. 
D) Movies and DVD are complements.

Question 2

Table 11-11. Megan's salary for three consecutive years, along with other values, are presented in the table below.  
-Refer to Table 11-11. The nominal interest rate for 2009 is

Accepted Answer

A) 2.40 percent. 
B) 3.66 percent. 
C) 6.60 percent. 
D) 9.60 percent. 
A) 2.40 percent. 
B) 3.66 percent. 
C) 6.60 percent. 
D) 9.60 percent.

Question 3

In 1969, Malcolm bought a Pontiac Firebird for $2,500. If the price index was 36.7 in 1969 and the price index was 180 in 2009, then what is the price of the Firebird in 2009 dollars?

Accepted Answer

A) $509.72 
B) $6,866.49 
C) $9,761.58 
D) $12,261.58 
A) $509.72 
B) $6,866.49 
C) $9,761.58 
D) $12,261.58

Question 4

Price changes from year to year are not proportional, and consumers respond to these changes by altering their spending patterns. The problem this creates for inflation calculations is called

Accepted Answer

A) deflation. 
B) inflation. 
C) unmeasured quality change. 
D) substitution bias. 
A) deflation. 
B) inflation. 
C) unmeasured quality change. 
D) substitution bias.

Question 5

Assume an economy experienced a positive rate of inflation between 2003 and 2004 and again between 2004 and 2005. However, the inflation rate was lower between 2004 and 2005 than it was between 2003 and 2004. Which of the following scenarios is consistent with this assumption?

Accepted Answer

A) The CPI was 100 in 2003, 110 in 2004, and 105 in 2005. 
B) The CPI was 100 in 2003, 120 in 2004, and 135 in 2005. 
C) The CPI was 100 in 2003, 105 in 2004, and 130 in 2005. 
D) The CPI was 100 in 2003, 90 in 2004, and 88 in 2005. 
A) The CPI was 100 in 2003, 110 in 2004, and 105 in 2005. 
B) The CPI was 100 in 2003, 120 in 2004, and 135 in 2005. 
C) The CPI was 100 in 2003, 105 in 2004, and 130 in 2005. 
D) The CPI was 100 in 2003, 90 in 2004, and 88 in 2005.

Question 6

By keeping the basket of goods and services the same when computing the CPI, the Bureau of Labor Statistics isolates the effects of price changes from the effect of any quantity changes that might be occurring at the same time.

Accepted Answer

A) True 
 B)False

Question 7

For an imaginary economy, the consumer price index was 62.50 in 2004, 100.00 in 2005, and 160.00 in 2006. Which of the following statements is correct?

Accepted Answer

A) If the basket of goods that is used to calculate the CPI cost $80 in 2004, then that basket of goods cost $128 in 2005. 
B) If the basket of goods that is used to calculate the CPI cost $90 in 2005, then that basket of goods cost $150 in 2006. 
C) The overall level of prices increased by 97.5 percent between 2004 and 2006. 
D) All of the above are correct. 
A) If the basket of goods that is used to calculate the CPI cost $80 in 2004, then that basket of goods cost $128 in 2005. 
B) If the basket of goods that is used to calculate the CPI cost $90 in 2005, then that basket of goods cost $150 in 2006. 
C) The overall level of prices increased by 97.5 percent between 2004 and 2006. 
D) All of the above are correct.

Question 8

Recent changes in methods used to compute the CPI have made the

Accepted Answer

A) upward bias in the CPI inflation rate more severe than it used to be. 
B) upward bias in the CPI inflation rate less severe than it used to be. 
C) downward bias in the CPI inflation rate more severe than it used to be. 
D) downward bias in the CPI inflation rate less severe than it used to be. 
A) upward bias in the CPI inflation rate more severe than it used to be. 
B) upward bias in the CPI inflation rate less severe than it used to be. 
C) downward bias in the CPI inflation rate more severe than it used to be. 
D) downward bias in the CPI inflation rate less severe than it used to be.

Question 9

In which of the following cases would there be an effect on the value of the U.S. consumer price index, but not on the value of the U.S. GDP deflator?

Accepted Answer

A) All of the truck tires that are produced by a certain company in South Korea are sold to the U.S. military, and the price of these tires decreases. 
B) All of the truck tires that are produced by a certain company in California are sold to the U.S. military, and the price of these tires decreases. 
C) Most of the bananas that are produced by a certain company in Honduras end up in U.S. grocery stores, and the price of these bananas increases. 
D) Most of the earth-moving machines that are produced by a certain company in Illinois are exported to other countries, and the price of these machines increases. 
A) All of the truck tires that are produced by a certain company in South Korea are sold to the U.S. military, and the price of these tires decreases. 
B) All of the truck tires that are produced by a certain company in California are sold to the U.S. military, and the price of these tires decreases. 
C) Most of the bananas that are produced by a certain company in Honduras end up in U.S. grocery stores, and the price of these bananas increases. 
D) Most of the earth-moving machines that are produced by a certain company in Illinois are exported to other countries, and the price of these machines increases.

Question 10

In the calculation of the CPI, books are given greater weight than magazines if

Accepted Answer

A) consumers buy more books than magazines. 
B) the price of books is higher than the price of magazines. 
C) it costs more to produce books than it costs to produce magazines. 
D) books are more readily available than magazines to the typical consumer. 
A) consumers buy more books than magazines. 
B) the price of books is higher than the price of magazines. 
C) it costs more to produce books than it costs to produce magazines. 
D) books are more readily available than magazines to the typical consumer.

Question 11

In 1979 and 1980,

Accepted Answer

A) the U.S. inflation rate as measured by the GDP deflator was higher than that measured by the CPI, and the difference was explained by rapidly rising prices of goods exported by the U.S. 
B) the U.S. inflation rate as measured by the CPI was higher than that measured by the GDP deflator, and the difference was explained by rapidly rising prices of goods exported by the U.S. 
C) the U.S. inflation rate as measured by the GDP deflator was higher than that measured by the CPI, and the difference was explained by rapidly rising oil prices. 
D) the U.S. inflation rate as measured by the CPI was higher than that measured by the GDP deflator, and the difference was explained by rapidly rising oil prices. 
A) the U.S. inflation rate as measured by the GDP deflator was higher than that measured by the CPI, and the difference was explained by rapidly rising prices of goods exported by the U.S. 
B) the U.S. inflation rate as measured by the CPI was higher than that measured by the GDP deflator, and the difference was explained by rapidly rising prices of goods exported by the U.S. 
C) the U.S. inflation rate as measured by the GDP deflator was higher than that measured by the CPI, and the difference was explained by rapidly rising oil prices. 
D) the U.S. inflation rate as measured by the CPI was higher than that measured by the GDP deflator, and the difference was explained by rapidly rising oil prices.

Question 12

Table 11-3
The table below pertains to Studious, an economy in which the typical consumer's basket consists of 5 books and 10 calculators. $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Price of a } \
\text { Buak }
\end{array} & \begin{array} { c } 
\text { Price of a } \
\text { Calculator }
\end{array} \
\hline 2006 & \$ 24 & \$ 8 \
\hline 2007 & \$ 30 & \$ 12 \
\hline 2008 & \$ 32 & \$ 15 \
\hline
\end{array}$$
-Refer to Table 11-3. If 2007 is the base year, then the consumer price index was

Accepted Answer

A) 74.1 in 2006, 100 in 2007, and 114.8 in 2008. 
B) 74.1 in 2006, 270 in 2007, and 310 in 2008. 
C) 200 in 2006, 100 in 2007, and 114.8 in 2008. 
D) 200 in 2006, 270 in 2007, and 310 in 2008. 
A) 74.1 in 2006, 100 in 2007, and 114.8 in 2008. 
B) 74.1 in 2006, 270 in 2007, and 310 in 2008. 
C) 200 in 2006, 100 in 2007, and 114.8 in 2008. 
D) 200 in 2006, 270 in 2007, and 310 in 2008.

Question 13

The GDP Deflator reflects

Accepted Answer

A) the prices of all final goods and services currently produced domestically, as does the CPI. 
B) the price of a fixed basket of goods and services purchased by a typical consumer, as does the CPI. 
C) the prices of all final goods and services currently produced domestically, while the CPI reflects the price of a fixed basket of goods and services purchased by a typical consumer. 
D) the price of a fixed basket of goods and services purchased by a typical consumer, while the CPI reflects the prices of all final goods and services produced domestically. 
A) the prices of all final goods and services currently produced domestically, as does the CPI. 
B) the price of a fixed basket of goods and services purchased by a typical consumer, as does the CPI. 
C) the prices of all final goods and services currently produced domestically, while the CPI reflects the price of a fixed basket of goods and services purchased by a typical consumer. 
D) the price of a fixed basket of goods and services purchased by a typical consumer, while the CPI reflects the prices of all final goods and services produced domestically.

Question 14

The CPI is a measure of the overall cost of

Accepted Answer

A) the inputs purchased by a typical producer. 
B) the goods and services purchased by a typical consumer. 
C) the goods and services produced in the economy. 
D) the stocks on the New York Stock Exchange. 
A) the inputs purchased by a typical producer. 
B) the goods and services purchased by a typical consumer. 
C) the goods and services produced in the economy. 
D) the stocks on the New York Stock Exchange.

Question 15

The price index was 150 in the first year, 160 in the second year, and 175 in the third year. The inflation rate was about

Accepted Answer

A) 6.25 percent between the first and second years, and 8.6 percent between the second and third years. 
B) 6.7 percent between the first and second years, and 9.4 percent between the second and third years. 
C) 10 percent between the first and second years, and 15 percent between the second and third years. 
D) 60 percent between the first and second years, and 75 percent between the second and third years. 
A) 6.25 percent between the first and second years, and 8.6 percent between the second and third years. 
B) 6.7 percent between the first and second years, and 9.4 percent between the second and third years. 
C) 10 percent between the first and second years, and 15 percent between the second and third years. 
D) 60 percent between the first and second years, and 75 percent between the second and third years.

Question 16

When we are calculating the consumer price index and the inflation rate for a certain year,

Accepted Answer

A) the value of the consumer price index may depend on the choice of a base year, but the inflation rate does not depend on the choice of a base year. 
B) the inflation rate may depend on the choice of a base year, but the value of the consumer price index does not depend on the choice of a base year. 
C) both the value of the consumer price index and the inflation rate may depend on the choice of a base year. 
D) neither the value of the consumer price index nor the inflation rate depends on the choice of a base year. 
A) the value of the consumer price index may depend on the choice of a base year, but the inflation rate does not depend on the choice of a base year. 
B) the inflation rate may depend on the choice of a base year, but the value of the consumer price index does not depend on the choice of a base year. 
C) both the value of the consumer price index and the inflation rate may depend on the choice of a base year. 
D) neither the value of the consumer price index nor the inflation rate depends on the choice of a base year.

Question 17

For purposes of calculating the CPI, the food & beverages category of consumer spending includes the cost of

Accepted Answer

A) food away from home. 
B) alcoholic beverages. 
C) both food away from home and alcoholic beverages. 
D) neither food away from home nor alcoholic beverages because these are included in the recreation category of consumer spending. 
A) food away from home. 
B) alcoholic beverages. 
C) both food away from home and alcoholic beverages. 
D) neither food away from home nor alcoholic beverages because these are included in the recreation category of consumer spending.

Question 18

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 2005 was

Accepted Answer

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

Question 19

Table 11-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below.  
-Refer to Table 11-12. Suppose Will's 2009 food expenditures in 2011 dollars amount to $5,750. Then the inflation rate for 2011 is about

Accepted Answer

A) 9.08 percent. 
B) 9.52 percent. 
C) 10.24 percent. 
D) 10.78 percent. 
A) 9.08 percent. 
B) 9.52 percent. 
C) 10.24 percent. 
D) 10.78 percent.

Question 20

Two alternative measures of the overall level of prices are

Accepted Answer

A) the inflation rate and the consumer price index. 
B) the inflation rate and the GDP deflator. 
C) the GDP deflator and the consumer price index. 
D) the cost of living index and nominal GDP. 
A) the inflation rate and the consumer price index. 
B) the inflation rate and the GDP deflator. 
C) the GDP deflator and the consumer price index. 
D) the cost of living index and nominal GDP.

Exam 11: Measuring the Cost of Living

When ranking movies by nominal box office receipts, what important fact is overlooked?

Table 11-11. Megan's salary for three consecutive years, along with other values, are presented in the table below. -Refer to Table 11-11. The nominal interest rate for 2009 is

In 1969, Malcolm bought a Pontiac Firebird for $2,500. If the price index was 36.7 in 1969 and the price index was 180 in 2009, then what is the price of the Firebird in 2009 dollars?

Price changes from year to year are not proportional, and consumers respond to these changes by altering their spending patterns. The problem this creates for inflation calculations is called

Assume an economy experienced a positive rate of inflation between 2003 and 2004 and again between 2004 and 2005. However, the inflation rate was lower between 2004 and 2005 than it was between 2003 and 2004. Which of the following scenarios is consistent with this assumption?

By keeping the basket of goods and services the same when computing the CPI, the Bureau of Labor Statistics isolates the effects of price changes from the effect of any quantity changes that might be occurring at the same time.

For an imaginary economy, the consumer price index was 62.50 in 2004, 100.00 in 2005, and 160.00 in 2006. Which of the following statements is correct?

Recent changes in methods used to compute the CPI have made the

In which of the following cases would there be an effect on the value of the U.S. consumer price index, but not on the value of the U.S. GDP deflator?

In the calculation of the CPI, books are given greater weight than magazines if

In 1979 and 1980,

The GDP Deflator reflects

The CPI is a measure of the overall cost of

The price index was 150 in the first year, 160 in the second year, and 175 in the third year. The inflation rate was about

When we are calculating the consumer price index and the inflation rate for a certain year,

For purposes of calculating the CPI, the food & beverages category of consumer spending includes the cost of

Table 11-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. -Refer to Table 11-12. Suppose Will's 2009 food expenditures in 2011 dollars amount to $5,750. Then the inflation rate for 2011 is about

Two alternative measures of the overall level of prices are

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

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