Question 1

One of the differences between the GDP deflator and the consumer price index is

Accepted Answer

A) the GDP deflator includes income earned by American citizens working in foreign countries and the consumer price index is based solely on purchases made in the U.S. 
B) the consumer price index basket of goods is updated constantly by the Bureau of Labor Statistics whereas the GDP deflator is updated only occasionally. 
C) the consumer price index includes items not included in the GDP deflator such as airplanes purchased by the Air Force. 
D) the GDP deflator reflects prices for all goods and services produced domestically and the consumer price index reflects prices for some goods and services bought by consumers. 
A) the GDP deflator includes income earned by American citizens working in foreign countries and the consumer price index is based solely on purchases made in the U.S. 
B) the consumer price index basket of goods is updated constantly by the Bureau of Labor Statistics whereas the GDP deflator is updated only occasionally. 
C) the consumer price index includes items not included in the GDP deflator such as airplanes purchased by the Air Force. 
D) the GDP deflator reflects prices for all goods and services produced domestically and the consumer price index reflects prices for some goods and services bought by consumers.

Question 2

If the current year CPI is 90, then the price level has decreased 10 percent since the base year.

Accepted Answer

A) True 
 B)False

Question 3

The CPI differs from the GDP deflator in that

Accepted Answer

A) the CPI is an inflation index, while the GDP deflator is a price index. 
B) substitution bias is not a problem with the CPI, but it is a problem with the GDP deflator. 
C) increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the GDP deflator but not in the CPI. 
D) increases in the prices of domestically produced goods that are sold to the U.S. government show up in the GDP deflator but not in the CPI. 
A) the CPI is an inflation index, while the GDP deflator is a price index. 
B) substitution bias is not a problem with the CPI, but it is a problem with the GDP deflator. 
C) increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the GDP deflator but not in the CPI. 
D) increases in the prices of domestically produced goods that are sold to the U.S. government show up in the GDP deflator but not in the CPI.

Question 4

The CPI is always 1 in the base year.

Accepted Answer

A) True 
 B)False

Question 5

Table 11-6. The table below applies to an economy with only two goods - hamburgers and hot dogs. The fixed basket consists of 4 hamburgers and 8 hot dogs. $$\begin{array} { l c c } 
\hline \text { Year } & \text { Priee of hamburegers } & \text { Prife of hat doges } \
\hline 2009 & \$ 5.00 & \$ 3.00 \
2010 & 5.50 & 3.30 \
2011 & 5.61 & 3.63 \
\hline
\end{array}$$
-Refer to Table 11-6. If the base year is 2010, then the economy's inflation rate in 2010 is

Accepted Answer

A) 8 percent. 
B) 10 percent. 
C) 10.91 percent. 
D) 11.11 percent. 
A) 8 percent. 
B) 10 percent. 
C) 10.91 percent. 
D) 11.11 percent.

Question 6

Scenario 11-3
Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2008. The price index was 17.6 in 1944 and 184 in 2008.
-Refer to Scenario 11-3. Sue Holloway's 1944 income in 2008 dollars is

Accepted Answer

A) $1,147.83. 
B) $113,454.55. 
C) $125,454.55. 
D) $1,996,800.00. 
A) $1,147.83. 
B) $113,454.55. 
C) $125,454.55. 
D) $1,996,800.00.

Question 7

Arlo is offered a job in Des Moines, where the CPI is 80, and a job in New York, where the CPI is 125. Arlo's job offer in Des Moines is for $42,000. How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?

Accepted Answer

A) $42,000 
B) $65,625 
C) $68,880 
D) $189,000 
A) $42,000 
B) $65,625 
C) $68,880 
D) $189,000

Question 8

The group of goods and services used to compute the GDP deflator changes automatically over time, but the group of goods and services used to compute the CPI does not.

Accepted Answer

A) True 
 B)False

Question 9

Economists use the term inflation to describe a situation in which the economy's overall price level is rising.

Accepted Answer

A) True 
 B)False

Question 10

Suppose lawn mowers are part of the market basket used to compute the CPI. Suppose also that the quality of lawn mowers deteriorates while the price of lawn mowers stays the same. If the Bureau of Labor Statistics is able to precisely adjust the CPI for the improvement in quality, then, other things equal,

Accepted Answer

A) the CPI will rise. 
B) the CPI will fall. 
C) the CPI will stay the same. 
D) lawn mowers will no longer be included in the market basket. 
A) the CPI will rise. 
B) the CPI will fall. 
C) the CPI will stay the same. 
D) lawn mowers will no longer be included in the market basket.

Question 11

A COLA automatically raises the wage when the CPI rises.

Accepted Answer

A) True 
 B)False

Question 12

If the quality of a good deteriorates while its price remains the same, then the value of a dollar

Accepted Answer

A) rises and the cost of living increases. 
B) rises and the cost of living decreases. 
C) falls and the cost of living increases. 
D) falls and the cost of living decreases. 
A) rises and the cost of living increases. 
B) rises and the cost of living decreases. 
C) falls and the cost of living increases. 
D) falls and the cost of living decreases.

Question 13

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 2008 is the base year, then the consumer price index was

Accepted Answer

A) 64.5 in 2006, 87.1 in 2007, and 100 in 2008. 
B) 64.5 in 2006, 270 in 2007, and 310 in 2008. 
C) 200 in 2006, 87.1 in 2007, and 100 in 2008. 
D) 200 in 2006, 270 in 2007, and 310 in 2008. 
A) 64.5 in 2006, 87.1 in 2007, and 100 in 2008. 
B) 64.5 in 2006, 270 in 2007, and 310 in 2008. 
C) 200 in 2006, 87.1 in 2007, and 100 in 2008. 
D) 200 in 2006, 270 in 2007, and 310 in 2008.

Question 14

If the current year CPI is 140, then the price level has increased 40 percent since the base year.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following changes in the price index produces the greatest rate of inflation: 80 to 100, 100 to 120, or 150 to 170?

Accepted Answer

A) 80 to 100 
B) 100 to 120 
C) 150 to 170 
D) All of these changes produce the same rate of inflation. 
A) 80 to 100 
B) 100 to 120 
C) 150 to 170 
D) All of these changes produce the same rate of inflation.

Question 16

From 2008 to 2009, the CPI for medical care increased from 150.8 to 164.4. What was the inflation rate for medical care?

Accepted Answer

A) 4.4 percent 
B) 7.6 percent 
C) 9.0 percent 
D) 12.1 percent 
A) 4.4 percent 
B) 7.6 percent 
C) 9.0 percent 
D) 12.1 percent

Question 17

Which of the following statements is correct?

Accepted Answer

A) The consumer price index is a measure of the overall level of prices, whereas the GDP deflator is not a measure of the overall level of prices. 
B) If, in the year 2011, the consumer price index has a value of 123.50, then the inflation rate for 2011 must be 23.50 percent. 
C) Compared to the GDP deflator, the consumer price index is the more common gauge of inflation. 
D) The consumer price index and the GDP deflator reflect the goods and services bought by consumers equally well. 
A) The consumer price index is a measure of the overall level of prices, whereas the GDP deflator is not a measure of the overall level of prices. 
B) If, in the year 2011, the consumer price index has a value of 123.50, then the inflation rate for 2011 must be 23.50 percent. 
C) Compared to the GDP deflator, the consumer price index is the more common gauge of inflation. 
D) The consumer price index and the GDP deflator reflect the goods and services bought by consumers equally well.

Question 18

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. The cost of the basket

Accepted Answer

A) increased by $10 from 2006 to 2007. 
B) increased by $42 from 2006 to 2007. 
C) increased by $70 from 2006 to 2007. 
D) increased by $150 from 2006 to 2007. 
A) increased by $10 from 2006 to 2007. 
B) increased by $42 from 2006 to 2007. 
C) increased by $70 from 2006 to 2007. 
D) increased by $150 from 2006 to 2007.

Question 19

In the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the largest?

Accepted Answer

A) education & communication 
B) recreation 
C) medical care 
D) All of the above categories are about equal in magnitude. 
A) education & communication 
B) recreation 
C) medical care 
D) All of the above categories are about equal in magnitude.

Question 20

Scenario 11-2
The price tag on a golf ball in 1975 read $0.20, and the price tag on a golf ball in 2005 read $2.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3.
-Refer to Scenario 11-2. The price of a 1975 golf ball in 2005 dollars is

Accepted Answer

A) $0.05. 
B) $0.53. 
C) $0.73. 
D) $2.00. 
A) $0.05. 
B) $0.53. 
C) $0.73. 
D) $2.00.

One of the differences between the GDP deflator and the consumer price index is

If the current year CPI is 90, then the price level has decreased 10 percent since the base year.

The CPI differs from the GDP deflator in that

The CPI is always 1 in the base year.

Scenario 11-3 Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2008. The price index was 17.6 in 1944 and 184 in 2008. -Refer to Scenario 11-3. Sue Holloway's 1944 income in 2008 dollars is

Arlo is offered a job in Des Moines, where the CPI is 80, and a job in New York, where the CPI is 125. Arlo's job offer in Des Moines is for $42,000. How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?

The group of goods and services used to compute the GDP deflator changes automatically over time, but the group of goods and services used to compute the CPI does not.

Economists use the term inflation to describe a situation in which the economy's overall price level is rising.

A COLA automatically raises the wage when the CPI rises.

If the quality of a good deteriorates while its price remains the same, then the value of a dollar

If the current year CPI is 140, then the price level has increased 40 percent since the base year.

Which of the following changes in the price index produces the greatest rate of inflation: 80 to 100, 100 to 120, or 150 to 170?

From 2008 to 2009, the CPI for medical care increased from 150.8 to 164.4. What was the inflation rate for medical care?

Which of the following statements is correct?

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. Year Price of a Buak Price of a Calculator 2006 \ 24 \ 8 2007 \ 30 \ 12 2008 \ 32 \ 15 -Refer to Table 11-3. The cost of the basket

In the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the largest?

Scenario 11-2 The price tag on a golf ball in 1975 read $0.20, and the price tag on a golf ball in 2005 read $2.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3. -Refer to Scenario 11-2. The price of a 1975 golf ball in 2005 dollars is

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

Exam 11: Measuring the Cost of Living

One of the differences between the GDP deflator and the consumer price index is

If the current year CPI is 90, then the price level has decreased 10 percent since the base year.

The CPI differs from the GDP deflator in that

The CPI is always 1 in the base year.

Scenario 11-3 Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2008. The price index was 17.6 in 1944 and 184 in 2008. -Refer to Scenario 11-3. Sue Holloway's 1944 income in 2008 dollars is

Arlo is offered a job in Des Moines, where the CPI is 80, and a job in New York, where the CPI is 125. Arlo's job offer in Des Moines is for $42,000. How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?

The group of goods and services used to compute the GDP deflator changes automatically over time, but the group of goods and services used to compute the CPI does not.

Economists use the term inflation to describe a situation in which the economy's overall price level is rising.

A COLA automatically raises the wage when the CPI rises.

If the quality of a good deteriorates while its price remains the same, then the value of a dollar

If the current year CPI is 140, then the price level has increased 40 percent since the base year.

Which of the following changes in the price index produces the greatest rate of inflation: 80 to 100, 100 to 120, or 150 to 170?

From 2008 to 2009, the CPI for medical care increased from 150.8 to 164.4. What was the inflation rate for medical care?

Which of the following statements is correct?

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. Year Price of a Buak Price of a Calculator 2006 \ 24 \ 8 2007 \ 30 \ 12 2008 \ 32 \ 15 -Refer to Table 11-3. The cost of the basket

In the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the largest?

Scenario 11-2 The price tag on a golf ball in 1975 read $0.20, and the price tag on a golf ball in 2005 read $2.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3. -Refer to Scenario 11-2. The price of a 1975 golf ball in 2005 dollars is

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