Question 1

If the real interest rate is 7 percent and the expected inflation rate is 2 percent, what would a person expect to have after a year?

Accepted Answer

A) 10 percent more dollars, which will purchase 6 percent more goods 
B) 9 percent more dollars, which will purchase 5 percent more goods 
C) 9 percent more dollars, which will purchase 7 percent more goods 
D) 5 percent more dollars, which will purchase 9 percent more goods 
A) 10 percent more dollars, which will purchase 6 percent more goods 
B) 9 percent more dollars, which will purchase 5 percent more goods 
C) 9 percent more dollars, which will purchase 7 percent more goods 
D) 5 percent more dollars, which will purchase 9 percent more goods

Question 2

Suppose that the nominal interest rate was 3 percent and the inflation rate was 1 percent. What happened with the value of savings?

Accepted Answer

A) The dollar value of savings increased at 1 percent, and the value of savings measured in goods increased at 2 percent. 
B) The dollar value of savings increased at 2 percent, and the value of savings measured in goods increased at 3 percent. 
C) The dollar value of savings increased at 3 percent, and the value of savings measured in goods increased at 2 percent. 
D) The dollar value of savings increased at 4 percent, and the value of savings measured in goods increased at 3 percent. 
A) The dollar value of savings increased at 1 percent, and the value of savings measured in goods increased at 2 percent. 
B) The dollar value of savings increased at 2 percent, and the value of savings measured in goods increased at 3 percent. 
C) The dollar value of savings increased at 3 percent, and the value of savings measured in goods increased at 2 percent. 
D) The dollar value of savings increased at 4 percent, and the value of savings measured in goods increased at 3 percent.

Question 3

Which of the following agencies calculates the CPI?

Accepted Answer

A) the National Price Board 
B) the Department of Weight and Measurements 
C) Statistics Canada 
D) the Ministry of Finance 
A) the National Price Board 
B) the Department of Weight and Measurements 
C) Statistics Canada 
D) the Ministry of Finance

Question 4

The price index is 180 in one year and 210 in the next. What is the inflation rate?

Accepted Answer

A) 11.1 percent 
B) 14.3 percent 
C) 16.7 percent 
D) 19.0 percent 
A) 11.1 percent 
B) 14.3 percent 
C) 16.7 percent 
D) 19.0 percent

Question 5

If the prices of Australian-made shoes imported into Canada increase, what happens to the GDP deflator and the consumer price index?

Accepted Answer

A) Both the GDP deflator and the consumer price index will increase. 
B) Neither the GDP deflator nor the consumer price index will increase. 
C) The GDP deflator will increase, but the consumer price index will not increase. 
D) The consumer price index will increase, but the GDP deflator will not increase. 
A) Both the GDP deflator and the consumer price index will increase. 
B) Neither the GDP deflator nor the consumer price index will increase. 
C) The GDP deflator will increase, but the consumer price index will not increase. 
D) The consumer price index will increase, but the GDP deflator will not increase.

Question 6

In 1949 the city of Sherbrooke, Quebec, built a hospital for about $500 000. In 1987 the city restored its courthouse for about $2.4 million. A price index for nonresidential construction was 14 in 1949, 92 in 1987, and 114.5 in 2000. According to these numbers, what did the hospital cost approximately?

Accepted Answer

A) $3.6 million in 2000 dollars, which is less than the cost of the courthouse restoration in 2000 dollars 
B) $3.6 million in 2000 dollars, which is more than the cost of the courthouse restoration in 2000 dollars 
C) $4.1 million in 2000 dollars, which is less than the cost of the courthouse restoration in 2000 dollars 
D) $4.1 million in 2000 dollars, which is more than the cost of the courthouse restoration in 2000 dollars 
A) $3.6 million in 2000 dollars, which is less than the cost of the courthouse restoration in 2000 dollars 
B) $3.6 million in 2000 dollars, which is more than the cost of the courthouse restoration in 2000 dollars 
C) $4.1 million in 2000 dollars, which is less than the cost of the courthouse restoration in 2000 dollars 
D) $4.1 million in 2000 dollars, which is more than the cost of the courthouse restoration in 2000 dollars

Question 7

Why are measurement problems in the consumer price index as an indicator of the cost of living important?

Accepted Answer

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

Question 8

What does the real interest rate tell you?

Accepted Answer

A) how fast the number of dollars in your bank account rises over time 
B) how fast the purchasing power of your bank account rises over time 
C) the number of dollars in your bank account 
D) the purchasing power of your bank account 
A) how fast the number of dollars in your bank account rises over time 
B) how fast the purchasing power of your bank account rises over time 
C) the number of dollars in your bank account 
D) the purchasing power of your bank account

Question 9

Laura buys word processing software in 2010 for $50. Laura's twin brother Laurence buys an upgrade of the same software in 2011 for $50. Which of the following problems in the construction of the CPI does this situation best represent?

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 10

When the relative price of a good increases, how will consumers respond?

Accepted Answer

A) by buying more of it and its substitutes 
B) by buying less of it and its substitutes 
C) by buying less of it and more of its substitutes 
D) by buying more of it and less of its substitutes 
A) by buying more of it and its substitutes 
B) by buying less of it and its substitutes 
C) by buying less of it and more of its substitutes 
D) by buying more of it and less of its substitutes

Question 11

How is the inflation rate calculated?

Accepted Answer

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

Question 12

Which change in the price index shows the greatest rate of inflation?

Accepted Answer

A) 100 to 110 
B) 150 to 170 
C) 180 to 189 
D) 220 to 235 
A) 100 to 110 
B) 150 to 170 
C) 180 to 189 
D) 220 to 235

Question 13

How often does the basket of goods in the consumer price index change?

Accepted Answer

A) occasionally, as does the basket of goods used to compute the GDP deflator 
B) yearly, as does the basket of goods used to compute the GDP deflator 
C) occasionally, while the basket of goods used to compute the GDP deflator changes yearly 
D) yearly, while the basket of goods used to compute the GDP deflator changes occasionally 
A) occasionally, as does the basket of goods used to compute the GDP deflator 
B) yearly, as does the basket of goods used to compute the GDP deflator 
C) occasionally, while the basket of goods used to compute the GDP deflator changes yearly 
D) yearly, while the basket of goods used to compute the GDP deflator changes occasionally

Question 14

Which of the following best describes real interest rates in the 1970s and 1990s?

Accepted Answer

A) high in the 70s and 90s 
B) low in the 70s and 90s 
C) high in the 70s and low in the 90s 
D) low in the 70s and high in the 90s 
A) high in the 70s and 90s 
B) low in the 70s and 90s 
C) high in the 70s and low in the 90s 
D) low in the 70s and high in the 90s

Question 15

Table 6-5
The table below pertains to an economy with only two goods-books and calculators. The fixed basket consists of 5 books and 10 calculators.
  
-Refer to Table 24-5. Using 2005 as the base year, what is the inflation rate?

Accepted Answer

A) 13.3 percent for 2006 and 14.8 percent for 2007 
B) 13.3 percent for 2006 and 55 percent for 2007 
C) 35 percent for 2006 and 14.8 percent for 2007 
D) 35 percent for 2006 and 55 percent for 2007 
A) 13.3 percent for 2006 and 14.8 percent for 2007 
B) 13.3 percent for 2006 and 55 percent for 2007 
C) 35 percent for 2006 and 14.8 percent for 2007 
D) 35 percent for 2006 and 55 percent for 2007

Question 16

Babe Ruth, the famous baseball player, earned $80 000 in 1931. Today, the best baseball players can earn 200 times as much as Babe Ruth in 1931. However, prices have also risen since 1931. What can we conclude from this information?

Accepted Answer

A) The best baseball players today are better off than Babe Ruth was in 1931. 
B) Because prices have also risen, the standard of living of baseball stars hasn't changed since 1931. 
C) One cannot make judgments about changes in the standard of living based on changes in prices and changes in incomes. 
D) One cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931. 
A) The best baseball players today are better off than Babe Ruth was in 1931. 
B) Because prices have also risen, the standard of living of baseball stars hasn't changed since 1931. 
C) One cannot make judgments about changes in the standard of living based on changes in prices and changes in incomes. 
D) One cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931.

Question 17

Which of the following is the consumer price index used for?

Accepted Answer

A) to track changes in the level of wholesale prices in the economy 
B) to monitor changes in the cost of living 
C) to monitor changes in the level of real GDP 
D) to track changes in the stock market 
A) to track changes in the level of wholesale prices in the economy 
B) to monitor changes in the cost of living 
C) to monitor changes in the level of real GDP 
D) to track changes in the stock market

Question 18

Table 6-5
The table below pertains to an economy with only two goods-books and calculators. The fixed basket consists of 5 books and 10 calculators.
  
-Refer to Table 6-5. Using 2005 as the base year, what is the consumer price index?

Accepted Answer

A) 100 in 2005, 135 in 2006, and 155 in 2007 
B) 100 in 2005, 270 in 2006, and 310 in 2007 
C) 200 in 2005, 270 in 2006, and 310 in 2007 
D) 200 in 2005, 540 in 2006, and 620 in 2007 
A) 100 in 2005, 135 in 2006, and 155 in 2007 
B) 100 in 2005, 270 in 2006, and 310 in 2007 
C) 200 in 2005, 270 in 2006, and 310 in 2007 
D) 200 in 2005, 540 in 2006, and 620 in 2007

Question 19

Use the following information to answer the following questions.
In the country of Shem, the CPI is calculated using a market basket consisting of 5 apples, 4 loaves of bread, 3 robes, and 2 litres of gasoline. The per-unit prices of these goods have been as follows:
Table 6-3
  
-Refer to Table 6-3. What was the inflation rate, as measured by the CPI, between 2009 and 2010?

Accepted Answer

A) 40 percent 
B) 40.25 percent 
C) 46.46 percent 
D) It is impossible to determine without knowing the base year. 
A) 40 percent 
B) 40.25 percent 
C) 46.46 percent 
D) It is impossible to determine without knowing the base year.

Question 20

Use the following information to answer the following questions.
In the country of Shem, the CPI is calculated using a market basket consisting of 5 apples, 4 loaves of bread, 3 robes, and 2 litres of gasoline. The per-unit prices of these goods have been as follows:
Table 6-3
  
-Refer to Table 6-3. What was the inflation rate, as measured by the CPI, between 2008 and 2009?

Accepted Answer

A) 28.5 percent 
B) 34.2 percent 
C) 47 percent 
D) It is impossible to determine without knowing the base year. 
A) 28.5 percent 
B) 34.2 percent 
C) 47 percent 
D) It is impossible to determine without knowing the base year.

If the real interest rate is 7 percent and the expected inflation rate is 2 percent, what would a person expect to have after a year?

Suppose that the nominal interest rate was 3 percent and the inflation rate was 1 percent. What happened with the value of savings?

Which of the following agencies calculates the CPI?

The price index is 180 in one year and 210 in the next. What is the inflation rate?

If the prices of Australian-made shoes imported into Canada increase, what happens to the GDP deflator and the consumer price index?

Why are measurement problems in the consumer price index as an indicator of the cost of living important?

What does the real interest rate tell you?

Laura buys word processing software in 2010 for $50. Laura's twin brother Laurence buys an upgrade of the same software in 2011 for $50. Which of the following problems in the construction of the CPI does this situation best represent?

When the relative price of a good increases, how will consumers respond?

How is the inflation rate calculated?

Which change in the price index shows the greatest rate of inflation?

How often does the basket of goods in the consumer price index change?

Which of the following best describes real interest rates in the 1970s and 1990s?

Table 6-5 The table below pertains to an economy with only two goods-books and calculators. The fixed basket consists of 5 books and 10 calculators. -Refer to Table 24-5. Using 2005 as the base year, what is the inflation rate?

Babe Ruth, the famous baseball player, earned $80 000 in 1931. Today, the best baseball players can earn 200 times as much as Babe Ruth in 1931. However, prices have also risen since 1931. What can we conclude from this information?

Which of the following is the consumer price index used for?

Table 6-5 The table below pertains to an economy with only two goods-books and calculators. The fixed basket consists of 5 books and 10 calculators. -Refer to Table 6-5. Using 2005 as the base year, what is the consumer price index?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

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 Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Exam 6: Measuring the Cost of Living

If the real interest rate is 7 percent and the expected inflation rate is 2 percent, what would a person expect to have after a year?

Suppose that the nominal interest rate was 3 percent and the inflation rate was 1 percent. What happened with the value of savings?

Which of the following agencies calculates the CPI?

The price index is 180 in one year and 210 in the next. What is the inflation rate?

If the prices of Australian-made shoes imported into Canada increase, what happens to the GDP deflator and the consumer price index?

Why are measurement problems in the consumer price index as an indicator of the cost of living important?

What does the real interest rate tell you?

Laura buys word processing software in 2010 for $50. Laura's twin brother Laurence buys an upgrade of the same software in 2011 for $50. Which of the following problems in the construction of the CPI does this situation best represent?

When the relative price of a good increases, how will consumers respond?

How is the inflation rate calculated?

Which change in the price index shows the greatest rate of inflation?

How often does the basket of goods in the consumer price index change?

Which of the following best describes real interest rates in the 1970s and 1990s?

Table 6-5 The table below pertains to an economy with only two goods-books and calculators. The fixed basket consists of 5 books and 10 calculators. -Refer to Table 24-5. Using 2005 as the base year, what is the inflation rate?

Babe Ruth, the famous baseball player, earned $80 000 in 1931. Today, the best baseball players can earn 200 times as much as Babe Ruth in 1931. However, prices have also risen since 1931. What can we conclude from this information?

Which of the following is the consumer price index used for?

Table 6-5 The table below pertains to an economy with only two goods-books and calculators. The fixed basket consists of 5 books and 10 calculators. -Refer to Table 6-5. Using 2005 as the base year, what is the consumer price index?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

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 Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters