Question 1

Suppose that the CPI today is 120 and that it was 80 five years ago. Then, in today's prices something that cost $1 five years ago now costs $1.50.

Accepted Answer

A) True 
 B)False

Question 2

In the late 1970s, nominal interest rates were high and inflation rates were very high. As a result, what were real interest rates?

Accepted Answer

A) very high 
B) moderately high 
C) low, and in some years they were negative 
D) low, but never negative 
A) very high 
B) moderately high 
C) low, and in some years they were negative 
D) low, but never negative

Question 3

Suppose the average price of gas in 2009 was $0.95 per litre and $0.97 in 2010. The inflation rate was 3 percent in 2010. What was the 2010 price of gas in 2009 dollars?

Accepted Answer

A) $0.922 
B) $0.941 
C) $0.978 
D) $0.999 
A) $0.922 
B) $0.941 
C) $0.978 
D) $0.999

Question 4

For the following questions consider the table below, which shows the CPI for various categories of goods and services.
Table 6-4
  
-Refer to Table 6-4. Among these categories, what was the highest rate of inflation?

Accepted Answer

A) 6.6 percent 
B) 5.2 percent 
C) 3.9 percent 
D) 3.1 percent 
A) 6.6 percent 
B) 5.2 percent 
C) 3.9 percent 
D) 3.1 percent

Question 5

A German automobile company produces cars in Canada, some of which are exported to other nations. If the price of these cars increases, what happens to the GDP deflator and the CPI?

Accepted Answer

A) The GDP deflator and the CPI will both increase. 
B) The GDP deflator will increase, and the CPI will be unchanged. 
C) The GDP deflator will be unchanged, and the CPI will increase. 
D) The GDP deflator and the CPI will both be unchanged. 
A) The GDP deflator and the CPI will both increase. 
B) The GDP deflator will increase, and the CPI will be unchanged. 
C) The GDP deflator will be unchanged, and the CPI will increase. 
D) The GDP deflator and the CPI will both be unchanged.

Question 6

Which of the following problems in the construction of the CPI is the invention of pocket-sized computers most relevant to?

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 7

Which of the following best defines "indexation"?

Accepted Answer

A) It is a process of adjusting the nominal interest rate so that it is equal to the real interest rate. 
B) It is the use of a law or contract to automatically correct a dollar amount for the effects of inflation. 
C) It is the use of a price index to deflate dollar values. 
D) It is an adjustment made by Statistics Canada to the CPI so that the index is in line with the GDP deflator. 
A) It is a process of adjusting the nominal interest rate so that it is equal to the real interest rate. 
B) It is the use of a law or contract to automatically correct a dollar amount for the effects of inflation. 
C) It is the use of a price index to deflate dollar values. 
D) It is an adjustment made by Statistics Canada to the CPI so that the index is in line with the GDP deflator.

Question 8

If the nominal interest rate is 8 percent and the rate of inflation is 2 percent, what is the real interest rate?

Accepted Answer

A) 16 percent 
B) 10 percent 
C) 6 percent 
D) 4 percent 
A) 16 percent 
B) 10 percent 
C) 6 percent 
D) 4 percent

Question 9

The 2002 CPI was 177 and the 1982 CPI was 96.5. If your parents put aside $1000 for you in 1982, how much would you have needed in 2002 in order to buy what you could have with the $1000 in 1982?

Accepted Answer

A) $1834.20 
B) $1777.77 
C) $1714.81 
D) $960 
A) $1834.20 
B) $1777.77 
C) $1714.81 
D) $960

Question 10

The price index is 270 in one year and 300 in the next. What is the inflation rate?

Accepted Answer

A) 1 percent 
B) 9.3 percent 
C) 10 percent 
D) 11.1 percent 
A) 1 percent 
B) 9.3 percent 
C) 10 percent 
D) 11.1 percent

Question 11

Use the table below to answer the following questions.
Table 6-1
  
-Refer to Table 6-1. Suppose that the typical consumer basket consists of 5 bushels of peaches and 10 bushels of pecans and that the base year is 2010. What is the consumer price index for 2010?

Accepted Answer

A) 100 
B) 160 
C) 200 
D) There is insufficient information to answer this question. 
A) 100 
B) 160 
C) 200 
D) There is insufficient information to answer this question.

Question 12

Substitution bias in computing the CPI tends to make the CPI overstate the true increase in the cost of living.

Accepted Answer

A) True 
 B)False

Question 13

What is the goal of the consumer price index?

Accepted Answer

A) to measure changes in the costs of production 
B) to measure changes in the cost of living 
C) to measure changes in the relative prices of consumer goods 
D) to measure changes in the production of consumer goods 
A) to measure changes in the costs of production 
B) to measure changes in the cost of living 
C) to measure changes in the relative prices of consumer goods 
D) to measure changes in the production of consumer goods

Question 14

List the three major problems in using the CPI as a measure of the cost of living.

Accepted Answer

(1) Substitution bias. The CPI ignores t

Question 15

Ruth wants to save an amount of money to buy a new computer in two years from now. She estimates that the price of the computer will be $800, and she wants to save the money in two tranches at the beginning of each of the next two years. For simplicity, suppose interest is computed only at the end of the year and Ruth wants to save equal amounts every year. If the interest rate is 10% per year, how much does Ruth need to save every year?

Accepted Answer

Let x be the amount that Ruth saves each

Question 16

In 1931, American President Herbert Hoover was paid a salary of $75 000. The price index for 1931 is 15.2, and the price index for 2006 is 195. George W. Bush, the President in 2006, had a salary of $400 000. What is President Hoover's salary equivalent in 2006 dollars?

Accepted Answer

A) It is much smaller than that of President Bush. 
B) It is about the same as that of President Bush. 
C) It is much larger than that of President Bush. 
D) One cannot make a meaningful comparison of 2006 salaries and 1931 salaries. 
A) It is much smaller than that of President Bush. 
B) It is about the same as that of President Bush. 
C) It is much larger than that of President Bush. 
D) One cannot make a meaningful comparison of 2006 salaries and 1931 salaries.

Question 17

For the average Canadian consumer, what percentage of total consumption does shelter and food expenditures make up, respectively?

Accepted Answer

A) 26.8, 16.9 
B) 16.9, 26.8 
C) 19.8, 16.9 
D) 16.9, 19.8 
A) 26.8, 16.9 
B) 16.9, 26.8 
C) 19.8, 16.9 
D) 16.9, 19.8

Question 18

Which of the following situations is described by the term "inflation"?

Accepted Answer

A) The overall level of prices in the economy is increasing. 
B) Incomes in the economy are increasing. 
C) Stock-market prices are rising. 
D) The economy is growing rapidly. 
A) The overall level of prices in the economy is increasing. 
B) Incomes in the economy are increasing. 
C) Stock-market prices are rising. 
D) The economy is growing rapidly.

Question 19

The price index in 2009 is 120, and in 2010 it is 127.2. What is the inflation rate?

Accepted Answer

A) 5 percent 
B) 6 percent 
C) 8 percent 
D) The inflation rate is impossible to determine without knowing the base year. 
A) 5 percent 
B) 6 percent 
C) 8 percent 
D) The inflation rate is impossible to determine without knowing the base year.

Question 20

Leslie is offered a job in Vancouver that pays $50 000. She is also offered a job in Halifax that pays $60 000. Which of the following sets of CPIs comes closest to giving both salaries the same purchasing power?

Accepted Answer

A) 83.3 in Vancouver and 100 in Halifax 
B) 89.3 in Vancouver and 100 in Halifax 
C) 100 in Vancouver and 124.5 in Halifax 
D) 100 in Vancouver and 140 in Halifax 
A) 83.3 in Vancouver and 100 in Halifax 
B) 89.3 in Vancouver and 100 in Halifax 
C) 100 in Vancouver and 124.5 in Halifax 
D) 100 in Vancouver and 140 in Halifax

Suppose that the CPI today is 120 and that it was 80 five years ago. Then, in today's prices something that cost $1 five years ago now costs $1.50.

In the late 1970s, nominal interest rates were high and inflation rates were very high. As a result, what were real interest rates?

Suppose the average price of gas in 2009 was $0.95 per litre and $0.97 in 2010. The inflation rate was 3 percent in 2010. What was the 2010 price of gas in 2009 dollars?

For the following questions consider the table below, which shows the CPI for various categories of goods and services. Table 6-4 -Refer to Table 6-4. Among these categories, what was the highest rate of inflation?

A German automobile company produces cars in Canada, some of which are exported to other nations. If the price of these cars increases, what happens to the GDP deflator and the CPI?

Which of the following problems in the construction of the CPI is the invention of pocket-sized computers most relevant to?

Which of the following best defines "indexation"?

If the nominal interest rate is 8 percent and the rate of inflation is 2 percent, what is the real interest rate?

The 2002 CPI was 177 and the 1982 CPI was 96.5. If your parents put aside $1000 for you in 1982, how much would you have needed in 2002 in order to buy what you could have with the $1000 in 1982?

The price index is 270 in one year and 300 in the next. What is the inflation rate?

Use the table below to answer the following questions. Table 6-1 -Refer to Table 6-1. Suppose that the typical consumer basket consists of 5 bushels of peaches and 10 bushels of pecans and that the base year is 2010. What is the consumer price index for 2010?

Substitution bias in computing the CPI tends to make the CPI overstate the true increase in the cost of living.

What is the goal of the consumer price index?

List the three major problems in using the CPI as a measure of the cost of living.

In 1931, American President Herbert Hoover was paid a salary of $75 000. The price index for 1931 is 15.2, and the price index for 2006 is 195. George W. Bush, the President in 2006, had a salary of $400 000. What is President Hoover's salary equivalent in 2006 dollars?

For the average Canadian consumer, what percentage of total consumption does shelter and food expenditures make up, respectively?

Which of the following situations is described by the term "inflation"?

The price index in 2009 is 120, and in 2010 it is 127.2. What is the inflation rate?

Leslie is offered a job in Vancouver that pays $50 000. She is also offered a job in Halifax that pays $60 000. Which of the following sets of CPIs comes closest to giving both salaries the same purchasing power?

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

Suppose that the CPI today is 120 and that it was 80 five years ago. Then, in today's prices something that cost $1 five years ago now costs $1.50.

In the late 1970s, nominal interest rates were high and inflation rates were very high. As a result, what were real interest rates?

Suppose the average price of gas in 2009 was $0.95 per litre and $0.97 in 2010. The inflation rate was 3 percent in 2010. What was the 2010 price of gas in 2009 dollars?

For the following questions consider the table below, which shows the CPI for various categories of goods and services. Table 6-4 -Refer to Table 6-4. Among these categories, what was the highest rate of inflation?

A German automobile company produces cars in Canada, some of which are exported to other nations. If the price of these cars increases, what happens to the GDP deflator and the CPI?

Which of the following problems in the construction of the CPI is the invention of pocket-sized computers most relevant to?

Which of the following best defines "indexation"?

If the nominal interest rate is 8 percent and the rate of inflation is 2 percent, what is the real interest rate?

The 2002 CPI was 177 and the 1982 CPI was 96.5. If your parents put aside $1000 for you in 1982, how much would you have needed in 2002 in order to buy what you could have with the $1000 in 1982?

The price index is 270 in one year and 300 in the next. What is the inflation rate?

Use the table below to answer the following questions. Table 6-1 -Refer to Table 6-1. Suppose that the typical consumer basket consists of 5 bushels of peaches and 10 bushels of pecans and that the base year is 2010. What is the consumer price index for 2010?

Substitution bias in computing the CPI tends to make the CPI overstate the true increase in the cost of living.

What is the goal of the consumer price index?

List the three major problems in using the CPI as a measure of the cost of living.

In 1931, American President Herbert Hoover was paid a salary of $75 000. The price index for 1931 is 15.2, and the price index for 2006 is 195. George W. Bush, the President in 2006, had a salary of $400 000. What is President Hoover's salary equivalent in 2006 dollars?

For the average Canadian consumer, what percentage of total consumption does shelter and food expenditures make up, respectively?

Which of the following situations is described by the term "inflation"?

The price index in 2009 is 120, and in 2010 it is 127.2. What is the inflation rate?

Leslie is offered a job in Vancouver that pays $50 000. She is also offered a job in Halifax that pays $60 000. Which of the following sets of CPIs comes closest to giving both salaries the same purchasing power?

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