Question 1

If the cost of medical care increases by 40 percent, then, other things the same, the CPI is likely to increase by about

Accepted Answer

A) 0.9 percent. 
B) 2.4 percent. 
C) 8.0 percent. 
D) 40 percent. 
A) 0.9 percent. 
B) 2.4 percent. 
C) 8.0 percent. 
D) 40 percent.

Question 2

Suppose that the prices of dairy products have risen relatively less than prices in general over the last several years. To which problem in the construction of the CPI is this situation 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 3

If the consumer price index was 88 in 2009, 95 in 2010, and 100 in 2011, then the base year must be

Accepted Answer

A) 	2009. 
B) 	2010. 
C) 	2011. 
D) The base year cannot be determined from the given information. 
A) 	2009. 
B) 	2010. 
C) 	2011. 
D) The base year cannot be determined from the given information.

Question 4

In 1983, one could buy a model radio-controlled airplane for $11.50 each. Those same planes are available today and the price increased at exactly the rate of inflation. If the CPI today is 220.5 and in 1983 was 105, what is the price of the airplane today?

Accepted Answer

A) $24.15 
B) $11.50 
C) $5.48 
D) $2.10 
A) $24.15 
B) $11.50 
C) $5.48 
D) $2.10

Question 5

The CPI and GDP deflator usually tell two different stories about how quickly prices are rising.

Accepted Answer

A) True 
 B)False

Question 6

The market basket used to calculate the CPI in Aquilonia is 4 loaves of bread, 6 gallons of milk, 2 shirts, and 2 pairs of pants. In 2005, bread cost $1.00 per loaf, milk cost $1.50 per gallon, shirts cost $6.00 each, and pants cost $10.00 per pair. In 2006, bread cost $1.50 per loaf, milk cost $2.00 per gallon, shirts cost $7.00 each, and pants cost $12.00 per pair. Using 2005 as the base year, what was Aquilonia's inflation rate in 2006?

Accepted Answer

A) 4 percent 
B) 11 percent 
C) 19.6 percent 
D) 24.4 percent 
A) 4 percent 
B) 11 percent 
C) 19.6 percent 
D) 24.4 percent

Question 7

Suppose a basket of goods and services has been selected to calculate the CPI and 2002 has been selected as the base year. In 2002, the basket's cost was $50; in 2004, the basket's cost was $52; and in 2006, the basket's cost was $54.60. The value of the CPI in 2004 was

Accepted Answer

A) 96.2. 
B) 102.0. 
C) 104.0. 
D) 152.0. 
A) 96.2. 
B) 102.0. 
C) 104.0. 
D) 152.0.

Question 8

In 1970, Professor Plum earned $12,000; in 1980, he earned $24,000; and in 1990, he earned $36,000. If the CPI was 40 in 1970, 70 in 1980, and 130 in 1990, then in real terms, Professor Plum's salary was highest in

Accepted Answer

A) 1970 and lowest in 1980. 
B) 1970 and lowest in 1990. 
C) 1980 and lowest in 1970. 
D) 1980 and lowest in 1990. 
A) 1970 and lowest in 1980. 
B) 1970 and lowest in 1990. 
C) 1980 and lowest in 1970. 
D) 1980 and lowest in 1990.

Question 9

The consumer price index is used to

Accepted Answer

A) convert nominal GDP into real GDP. 
B) turn dollar figures into meaningful measures of purchasing power. 
C) characterize the types of goods and services that consumers purchase. 
D) measure the quantity of goods and services that the economy produces. 
A) convert nominal GDP into real GDP. 
B) turn dollar figures into meaningful measures of purchasing power. 
C) characterize the types of goods and services that consumers purchase. 
D) measure the quantity of goods and services that the economy produces.

Question 10

John just graduated law school and has two competing job offers. The first is in Phoenix and pays a salary of $150,000. He has a similar job offer in Cleveland that pays $90,000. Which pair of CPIs would make the two salaries have the same purchasing power?

Accepted Answer

A) 70 in Phoenix and 42 in Cleveland 
B) 68 in Phoenix and 34 in Cleveland 
C) 42 in Phoenix and 70 in Cleveland 
D) 34 in Phoenix and 68 in Cleveland 
A) 70 in Phoenix and 42 in Cleveland 
B) 68 in Phoenix and 34 in Cleveland 
C) 42 in Phoenix and 70 in Cleveland 
D) 34 in Phoenix and 68 in Cleveland

Question 11

Michelle bought word-processing software in 2009 for $75. Michelle's cousin, Barry, bought an upgrade of the same software in 2010 for $75. To which problem in the construction of the CPI is this situation most relevant?

Accepted Answer

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

Question 12

Why does the GDP deflator give a different rate of inflation than the CPI?

Accepted Answer

The GDP deflator and the CPI differ in t

Question 13

An increase in the price of imported coffee shows up

Accepted Answer

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

Question 14

When looking at a graph of nominal and real interest rates you notice the graph for nominal rates and the graph for real rates cross each other many times. From this you conclude

Accepted Answer

A) consumer prices sometimes rose and sometimes fell in the time frame represented on the graph. 
B) consumer prices were always rising in the time frame represented on the graph. 
C) the economy never experienced a recession in the time frame represented on the graph. 
D) GDP was always increasing for the time frame represented on the graph. 
A) consumer prices sometimes rose and sometimes fell in the time frame represented on the graph. 
B) consumer prices were always rising in the time frame represented on the graph. 
C) the economy never experienced a recession in the time frame represented on the graph. 
D) GDP was always increasing for the time frame represented on the graph.

Question 15

The problems with using the consumer price index as a measure of the cost of living are important because

Accepted Answer

A) even the appearance of high rates of inflation cause voters to become disenchanted. 
B) politicians have manipulated the measurement problems to their advantage. 
C) many government programs use the CPI to adjust for changes in the overall level of prices. 
D) if the price level is overstated, consumers will be taken advantage of by sellers of consumer goods. 
A) even the appearance of high rates of inflation cause voters to become disenchanted. 
B) politicians have manipulated the measurement problems to their advantage. 
C) many government programs use the CPI to adjust for changes in the overall level of prices. 
D) if the price level is overstated, consumers will be taken advantage of by sellers of consumer goods.

Question 16

The price index was 220 in one year and 260 in the next year. What was the inflation rate?

Accepted Answer

A) 9.0 percent 
B) 114.6 percent 
C) 18.2 percent 
D) 40.0 percent 
A) 9.0 percent 
B) 114.6 percent 
C) 18.2 percent 
D) 40.0 percent

Question 17

Suppose a basket of goods and services has been selected to calculate the CPI and 2004 has been selected as the base year. In 2002, the basket's cost was $50; in 2004, the basket's cost was $52; and in 2006, the basket's cost was $54.60. The value of the CPI in 2006 was

Accepted Answer

A) 91.6. 
B) 95.2. 
C) 105.0. 
D) 109.2. 
A) 91.6. 
B) 95.2. 
C) 105.0. 
D) 109.2.

Question 18

As long as prices are rising over time, then

Accepted Answer

A) the nominal interest rate exceeds the real interest rate. 
B) the real interest rate exceeds the nominal interest rate. 
C) the real interest rate is positive. 
D) the nominal interest rate is a better indicator than the real interest rate of how fast the purchasing power of your bank account is changing over time. 
A) the nominal interest rate exceeds the real interest rate. 
B) the real interest rate exceeds the nominal interest rate. 
C) the real interest rate is positive. 
D) the nominal interest rate is a better indicator than the real interest rate of how fast the purchasing power of your bank account is changing over time.

Question 19

The CPI does not reflect the increase in the value of the dollar that arises from the introduction of new goods.

Accepted Answer

A) True 
 B)False

Question 20

Of Social Security benefits and federal income tax brackets, which is indexed?

Accepted Answer

A) Both are indexed. 
B) Only Social Security benefits are indexed. 
C) Only federal income tax brackets are indexed. 
D) Neither is indexed. 
A) Both are indexed. 
B) Only Social Security benefits are indexed. 
C) Only federal income tax brackets are indexed. 
D) Neither is indexed.

Exam 11: Measuring the Cost of Living

If the cost of medical care increases by 40 percent, then, other things the same, the CPI is likely to increase by about

Suppose that the prices of dairy products have risen relatively less than prices in general over the last several years. To which problem in the construction of the CPI is this situation most relevant?

If the consumer price index was 88 in 2009, 95 in 2010, and 100 in 2011, then the base year must be

In 1983, one could buy a model radio-controlled airplane for $11.50 each. Those same planes are available today and the price increased at exactly the rate of inflation. If the CPI today is 220.5 and in 1983 was 105, what is the price of the airplane today?

The CPI and GDP deflator usually tell two different stories about how quickly prices are rising.

Suppose a basket of goods and services has been selected to calculate the CPI and 2002 has been selected as the base year. In 2002, the basket's cost was $50; in 2004, the basket's cost was $52; and in 2006, the basket's cost was $54.60. The value of the CPI in 2004 was

In 1970, Professor Plum earned $12,000; in 1980, he earned $24,000; and in 1990, he earned $36,000. If the CPI was 40 in 1970, 70 in 1980, and 130 in 1990, then in real terms, Professor Plum's salary was highest in

The consumer price index is used to

John just graduated law school and has two competing job offers. The first is in Phoenix and pays a salary of $150,000. He has a similar job offer in Cleveland that pays $90,000. Which pair of CPIs would make the two salaries have the same purchasing power?

Michelle bought word-processing software in 2009 for $75. Michelle's cousin, Barry, bought an upgrade of the same software in 2010 for $75. To which problem in the construction of the CPI is this situation most relevant?

Why does the GDP deflator give a different rate of inflation than the CPI?

An increase in the price of imported coffee shows up

When looking at a graph of nominal and real interest rates you notice the graph for nominal rates and the graph for real rates cross each other many times. From this you conclude

The problems with using the consumer price index as a measure of the cost of living are important because

The price index was 220 in one year and 260 in the next year. What was the inflation rate?

Suppose a basket of goods and services has been selected to calculate the CPI and 2004 has been selected as the base year. In 2002, the basket's cost was $50; in 2004, the basket's cost was $52; and in 2006, the basket's cost was $54.60. The value of the CPI in 2006 was

As long as prices are rising over time, then

The CPI does not reflect the increase in the value of the dollar that arises from the introduction of new goods.

Of Social Security benefits and federal income tax brackets, which is indexed?

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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