Question 1

It is possible to observe a positive nominal interest rate together with a negative real interest rate.

Accepted Answer

A) True 
 B)False

Question 2

The real interest rate measures the change in dollar amounts.

Accepted Answer

A) True 
 B)False

Question 3

When a new good is introduced, consumers have more variety from which to choose, and this in turn increases the cost of maintaining the same level of economic well-being.

Accepted Answer

A) True 
 B)False

Question 4

Table 11-2
The table below pertains to Iowan, an economy in which the typical consumer's basket consists of 3 pounds of pork and 4 bushels of corn. $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Price of } \
\text { pork }
\end{array} & \begin{array} { c } 
\text { Price of } \
\text { Corn }
\end{array} \
\hline 2008 & \$ 20 \text { per pound } & \$ 12 \text { per bushed } \
\hline 2009 & \$ 25 \text { per pound } & \$ 18 \text { per bushed } \
\hline
\end{array}$$
-Refer to Table 11-2. The cost of the basket in 2008 was

Accepted Answer

A) $108. 
B) $147. 
C) $160. 
D) $224. 
A) $108. 
B) $147. 
C) $160. 
D) $224.

Question 5

The inflation rate is calculated

Accepted Answer

A) by determining the change in the price index from the preceding period. 
B) by adding up the price increases of all goods and services. 
C) by computing a simple average of the price increases for all goods and services. 
D) by determining the percentage increase in the price index from the preceding period. 
A) by determining the change in the price index from the preceding period. 
B) by adding up the price increases of all goods and services. 
C) by computing a simple average of the price increases for all goods and services. 
D) by determining the percentage increase in the price index from the preceding period.

Question 6

Ruben earned a salary of $60,000 in 2001 and $80,000 in 2006. The consumer price index was 177 in 2001 and 221.25 in 2006. Ruben's 2001 salary in 2006 dollars is

Accepted Answer

A) $75,000; thus, Ruben's purchasing power increased between 2001 and 2006. 
B) $75,000; thus, Ruben's purchasing power decreased between 2001 and 2006. 
C) $85,000; thus, Ruben's purchasing power increased between 2001 and 2006. 
D) $85,000; thus, Ruben's purchasing power decreased between 2001 and 2006. 
A) $75,000; thus, Ruben's purchasing power increased between 2001 and 2006. 
B) $75,000; thus, Ruben's purchasing power decreased between 2001 and 2006. 
C) $85,000; thus, Ruben's purchasing power increased between 2001 and 2006. 
D) $85,000; thus, Ruben's purchasing power decreased between 2001 and 2006.

Question 7

The producer price index measures the cost of a basket of goods and services bought by firms rather than consumers.

Accepted Answer

A) True 
 B)False

Question 8

The consumer price index is subject to substitution bias because

Accepted Answer

A) some pairs of goods are complements rather than substitutes. 
B) some goods are inferior rather than normal. 
C) the law of demand applies to most, if not all, goods. 
D) the index does not take into account the likelihood that consumers substitute newly-introduced goods for more-established goods. 
A) some pairs of goods are complements rather than substitutes. 
B) some goods are inferior rather than normal. 
C) the law of demand applies to most, if not all, goods. 
D) the index does not take into account the likelihood that consumers substitute newly-introduced goods for more-established goods.

Question 9

The purpose of measuring the overall level of prices in the economy is to permit comparison between dollar figures from different times.

Accepted Answer

A) True 
 B)False

Question 10

Changes in the producer price index are often thought to be useful in predicting changes in

Accepted Answer

A) stock prices. 
B) the consumer price index. 
C) the unemployment rate. 
D) the rate of output of goods and services. 
A) stock prices. 
B) the consumer price index. 
C) the unemployment rate. 
D) the rate of output of goods and services.

Question 11

Suppose the quality of beef changes over time, but the quality change goes unmeasured for the purpose of computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality change be least severe?

Accepted Answer

A) The quality of beef deteriorates and beef becomes more expensive relative to other goods. 
B) The quality of beef deteriorates and beef becomes less expensive relative to other goods. 
C) The quality of beef improves and beef becomes more expensive relative to other goods. 
D) The quality of beef improves and the price of beef relative to other prices remains unchanged. 
A) The quality of beef deteriorates and beef becomes more expensive relative to other goods. 
B) The quality of beef deteriorates and beef becomes less expensive relative to other goods. 
C) The quality of beef improves and beef becomes more expensive relative to other goods. 
D) The quality of beef improves and the price of beef relative to other prices remains unchanged.

Question 12

On goods and services, Harry spent $32,000 in 2004 and $39,000 in 2009. The consumer price index was 192 for 2004 and 217 for 2009. Harry's 2009 spending in 2004 dollars is about

Accepted Answer

A) $34,507. 
B) $35,911. 
C) $36,167. 
D) $37,578. 
A) $34,507. 
B) $35,911. 
C) $36,167. 
D) $37,578.

Question 13

You know that a candy bar cost five cents in 1962. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in today's prices?

Accepted Answer

A) five cents(1962 CPI / today's CPI) 
B) five cents((today's CPI - 1962 CPI)/1962 CPI) 
C) five cents(today's CPI / 1962 CPI) 
D) five centstoday's CPI - five cents1962 CPI. 
A) five cents(1962 CPI / today's CPI) 
B) five cents((today's CPI - 1962 CPI)/1962 CPI) 
C) five cents(today's CPI / 1962 CPI) 
D) five centstoday's CPI - five cents1962 CPI.

Question 14

Table 11-5
The table below pertains to Napandsnack, an economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs. $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Price of a } \
\text { pilldw }
\end{array} & \begin{array} { c } 
\text { Price af a } \
\text { Hotdlog }
\end{array} \
\hline 2009 & \$ 40 & \$ 3 \
\hline 2010 & \$ 45 & \$ 4 \
\hline 2011 & \$ 50 & \$ 3 \
\hline
\end{array}$$
-Refer to Table 11-5. If the base year is 2010, then the consumer price index was

Accepted Answer

A) 83.33 in 2009, 100.00 in 2010, and 96.67 in 2011. 
B) 85.56 in 2009, 100.00 in 2010, and 102.22 in 2011. 
C) 85.56 in 2009, 100.00 in 2010, and 96.67 in 2011. 
D) 92.22 in 2009, 99.00 in 2010, and 95.22 in 2011. 
A) 83.33 in 2009, 100.00 in 2010, and 96.67 in 2011. 
B) 85.56 in 2009, 100.00 in 2010, and 102.22 in 2011. 
C) 85.56 in 2009, 100.00 in 2010, and 96.67 in 2011. 
D) 92.22 in 2009, 99.00 in 2010, and 95.22 in 2011.

Question 15

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If inflation was 7 percent during the year the money was deposited, then Bob's purchasing power has increased by 2 percent.

Accepted Answer

A) True 
 B)False

Question 16

If the nominal interest rate is 7 percent and the real interest rate is -2.5 percent, then the inflation rate is

Accepted Answer

A) -9.5 percent. 
B) -4.5 percent. 
C) 4.5 percent. 
D) 9.5 percent. 
A) -9.5 percent. 
B) -4.5 percent. 
C) 4.5 percent. 
D) 9.5 percent.

Question 17

If the nominal interest rate is 8 percent and the real interest rate is 3.5 percent, then the inflation rate is

Accepted Answer

A) -4.5 percent. 
B) 0.78 percent. 
C) 4.5 percent. 
D) 11.5 percent. 
A) -4.5 percent. 
B) 0.78 percent. 
C) 4.5 percent. 
D) 11.5 percent.

Question 18

Each week, the Bureau of Labor Statistics computes and reports the consumer price index.

Accepted Answer

A) True 
 B)False

Question 19

Most, but not all, athletic apparel sold in the United States is imported from other nations. If the price of athletic apparel increases, the GDP deflator will

Accepted Answer

A) increase less than will the consumer price index. 
B) increase more than will the consumer price index. 
C) not increase, but the consumer price index will increase. 
D) increase, but the consumer price index will not increase. 
A) increase less than will the consumer price index. 
B) increase more than will the consumer price index. 
C) not increase, but the consumer price index will increase. 
D) increase, but the consumer price index will not increase.

Question 20

Which of the following statements regarding the consumer price index and the GDP deflator is correct?

Accepted Answer

A) The two price measures are always equal. 
B) Divergence between the two price measures is the rule, not the exception. 
C) Divergence between the two price measures is the exception, not the rule. 
D) None of the above is correct. 
A) The two price measures are always equal. 
B) Divergence between the two price measures is the rule, not the exception. 
C) Divergence between the two price measures is the exception, not the rule. 
D) None of the above is correct.

Exam 11: Measuring the Cost of Living

It is possible to observe a positive nominal interest rate together with a negative real interest rate.

The real interest rate measures the change in dollar amounts.

When a new good is introduced, consumers have more variety from which to choose, and this in turn increases the cost of maintaining the same level of economic well-being.

The inflation rate is calculated

Ruben earned a salary of $60,000 in 2001 and $80,000 in 2006. The consumer price index was 177 in 2001 and 221.25 in 2006. Ruben's 2001 salary in 2006 dollars is

The producer price index measures the cost of a basket of goods and services bought by firms rather than consumers.

The consumer price index is subject to substitution bias because

The purpose of measuring the overall level of prices in the economy is to permit comparison between dollar figures from different times.

Changes in the producer price index are often thought to be useful in predicting changes in

Suppose the quality of beef changes over time, but the quality change goes unmeasured for the purpose of computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality change be least severe?

On goods and services, Harry spent $32,000 in 2004 and $39,000 in 2009. The consumer price index was 192 for 2004 and 217 for 2009. Harry's 2009 spending in 2004 dollars is about

You know that a candy bar cost five cents in 1962. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in today's prices?

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If inflation was 7 percent during the year the money was deposited, then Bob's purchasing power has increased by 2 percent.

If the nominal interest rate is 7 percent and the real interest rate is -2.5 percent, then the inflation rate is

If the nominal interest rate is 8 percent and the real interest rate is 3.5 percent, then the inflation rate is

Each week, the Bureau of Labor Statistics computes and reports the consumer price index.

Most, but not all, athletic apparel sold in the United States is imported from other nations. If the price of athletic apparel increases, the GDP deflator will

Which of the following statements regarding the consumer price index and the GDP deflator is correct?

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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