Question 1

Although they sometimes diverge, generally the CPI and GDP deflator move in the same direction.

Accepted Answer

A) True 
 B)False

Question 2

The CPI for 2000 is computed as 100 times the ratio of the price of the market basket in 2000 divided by the price of the market basket in the base year.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) to differentiate between gross national product and gross domestic product 
B) to turn dollar figures into meaningful measures of purchasing power 
C) to characterize the types of goods and services that consumers purchase 
D) to measure the quantity of goods and services that the economy produces 
A) to differentiate between gross national product and gross domestic product 
B) to turn dollar figures into meaningful measures of purchasing power 
C) to characterize the types of goods and services that consumers purchase 
D) to measure the quantity of goods and services that the economy produces

Question 4

What does the rate of core inflation EXCLUDE?

Accepted Answer

A) clothing and footwear 
B) alcoholic beverages and tobacco products 
C) the most volatile components from the CPI basket of goods and services 
D) the least volatile components from the CPI basket of goods and services 
A) clothing and footwear 
B) alcoholic beverages and tobacco products 
C) the most volatile components from the CPI basket of goods and services 
D) the least volatile components from the CPI basket of goods and services

Question 5

You know that a chocolate bar costs 60 cents today. 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 1962 prices?

Accepted Answer

A) 60 cents * (today's CPI - 1962 CPI) 
B) 60 cents * (1962 CPI - today's CPI) 
C) 60 cents * (today's CPI/1962 CPI) 
D) 60 cents * (1962 CPI/today's CPI) 
A) 60 cents * (today's CPI - 1962 CPI) 
B) 60 cents * (1962 CPI - today's CPI) 
C) 60 cents * (today's CPI/1962 CPI) 
D) 60 cents * (1962 CPI/today's CPI)

Question 6

In sequence, what are the steps involved in calculating the consumer price index and the inflation rate?

Accepted Answer

A) choose a base year, determine the basket, compute the index, compute the basket's cost, and compute the inflation rate 
B) choose a base year, find the prices, determine the basket, compute the basket's cost, and compute the inflation rate 
C) determine the basket, find the prices, compute the basket's cost, choose a base year and compute the index, and compute the inflation rate 
D) determine the basket, find the prices, compute the index, choose a base year and compute the inflation rate 
A) choose a base year, determine the basket, compute the index, compute the basket's cost, and compute the inflation rate 
B) choose a base year, find the prices, determine the basket, compute the basket's cost, and compute the inflation rate 
C) determine the basket, find the prices, compute the basket's cost, choose a base year and compute the index, and compute the inflation rate 
D) determine the basket, find the prices, compute the index, choose a base year and compute the inflation rate

Question 7

Scenario 6-1
Grant Smith was a doctor in 1944 and made about $12 000 a year. His daughter Lisa Smith also is a doctor and she made about $175 000 in 2006. The price index in 1944 was 17.6 and the price index was 192 in 2006.
-Refer to Scenario 6-1. What was the ratio of Grant's real income to Lisa's real income?

Accepted Answer

A) 2:15 
B) 3:5 
C) 7:10 
D) 7.5:10 
A) 2:15 
B) 3:5 
C) 7:10 
D) 7.5:10

Question 8

What is by far the largest category of goods and services in the CPI basket?

Accepted Answer

A) shelter 
B) recreation, education, and reading 
C) transportation 
D) food 
A) shelter 
B) recreation, education, and reading 
C) transportation 
D) food

Question 9

Suppose that the CPI is currently 400 and was 100 in 1969. Then, according to the CPI, $100 today purchases the same amount of goods and services as what amount in 1969?

Accepted Answer

A) $25 
B) $40 
C) $60 
D) $400 
A) $25 
B) $40 
C) $60 
D) $400

Question 10

In a simple economy, people consume only two goods-food and clothing. The market basket of goods used to compute the CPI has 50 units of food and 10 units of clothing.
   
a.What are the percentage increases in the price of food and in the price of clothing?
b.What is the percentage increase in the CPI?
c.Do these price changes affect all consumers to the same extent? Explain.

Accepted Answer

a.The price of food increased by 50 perc

Question 11

Ralph puts money in the bank and earns a 5 percent nominal interest rate. What happens if the inflation rate is 3 percent?

Accepted Answer

A) Ralph will have 3 percent more money, which will purchase 2 percent more goods. 
B) Ralph will have 3 percent more money, which will purchase 8 percent more goods. 
C) Ralph will have 5 percent more money, which will purchase 2 percent more goods. 
D) Ralph will have 5 percent more money, which will purchase 8 percent more goods. 
A) Ralph will have 3 percent more money, which will purchase 2 percent more goods. 
B) Ralph will have 3 percent more money, which will purchase 8 percent more goods. 
C) Ralph will have 5 percent more money, which will purchase 2 percent more goods. 
D) Ralph will have 5 percent more money, which will purchase 8 percent more goods.

Question 12

Ethel purchased a bag of groceries in 1970 for $8. She purchased the same bag of groceries in 2006 for $25. If the price index was 38.8 in 1970 and 180 in 2006, what's the price of a 1970 bag of groceries in 2006 prices?

Accepted Answer

A) $25.00 
B) $29.11 
C) $37.11 
D) $38.80 
A) $25.00 
B) $29.11 
C) $37.11 
D) $38.80

Question 13

What kind of payment does interest represent?

Accepted Answer

A) a payment now for money to be transferred in the future 
B) a payment in the future for a transfer of money in the past 
C) a payment in the past for money transferred now 
D) a payment at the time of the transfer of money 
A) a payment now for money to be transferred in the future 
B) a payment in the future for a transfer of money in the past 
C) a payment in the past for money transferred now 
D) a payment at the time of the transfer of money

Question 14

Use the table below to answer the following questions.
Table 6-2
  
-Refer to Table 6-2. Suppose that the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn. What is the inflation rate for 2011?

Accepted Answer

A) 21.33 percent 
B) 25 percent 
C) 28.89 percent 
D) 36.11 percent 
A) 21.33 percent 
B) 25 percent 
C) 28.89 percent 
D) 36.11 percent

Question 15

In 1972 in Kelowna, BC, one could buy model rocket engines for $1.50. If those same engines cost $3.00 today, which of the following sets of CPI's would make the engine prices in today's dollars the same for both years?

Accepted Answer

A) 60 in 1972 and 100 today 
B) 60 in 1972 and 110 today 
C) 60 in 1972 and 120 today 
D) 60 in 1972 and 130 today 
A) 60 in 1972 and 100 today 
B) 60 in 1972 and 110 today 
C) 60 in 1972 and 120 today 
D) 60 in 1972 and 130 today

Question 16

Use the table below to answer the following questions.
Table 6-1
  
-Refer to Table 6-1. What was the inflation rate in 2011?

Accepted Answer

A) 25 percent 
B) 20 percent 
C) 5 percent 
D) 4 percent 
A) 25 percent 
B) 20 percent 
C) 5 percent 
D) 4 percent

Question 17

If you currently make $25 000 a year and the CPI rises from 110 today to 150 in five years, then you need to be making $35 000 to have kept pace with consumer price inflation.

Accepted Answer

A) True 
 B)False

Question 18

In Japan in 2000 nominal interest rates were 1.5 percent and the inflation rate was -0.5 percent. What was the real interest rate?

Accepted Answer

A) -2 percent 
B) -1 percent 
C) 1 percent 
D) 2 percent 
A) -2 percent 
B) -1 percent 
C) 1 percent 
D) 2 percent

Question 19

What do economists believe about the bias in the CPI as a measure of the cost of living?

Accepted Answer

A) Economists agree that the bias in the CPI is a very serious problem. 
B) There is still debate among economists on whether CPI understates or overstates increases in the cost of living. 
C) Economists agree on the severity of the CPI bias, but there is still debate on what to do about it. 
D) There is still debate among economists on the severity of the CPI bias and what to do about it. 
A) Economists agree that the bias in the CPI is a very serious problem. 
B) There is still debate among economists on whether CPI understates or overstates increases in the cost of living. 
C) Economists agree on the severity of the CPI bias, but there is still debate on what to do about it. 
D) There is still debate among economists on the severity of the CPI bias and what to do about it.

Question 20

Suppose an economy consumes only two goods, food and clothing. The following table shows quantities consumed and prices for three years: Year 0 (the base year), Year   
a.If the CPI basket is the Year 0 one, compute the expenditure on the basket in years 0, 1, and 2.
b.Compute the CPIs in years 1 and two, with Year 0 being the base year.
c.For Year 0, compute the shares in expenditure of each of the two goods. Check that the sum of the two shares equals 1. If you multiply those shares by 100, we call them weights. Using the weights, calculate the CPI for Year 0. It should be equal to 100.
d.
Using the weights, re-calculate the CPIs for the next two years and compare your result with that at question

Accepted Answer

a.E⁰=5x50+12x100=$1450; E¹=6x50+11x100=$14

Although they sometimes diverge, generally the CPI and GDP deflator move in the same direction.

The CPI for 2000 is computed as 100 times the ratio of the price of the market basket in 2000 divided by the price of the market basket in the base year.

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

What does the rate of core inflation EXCLUDE?

You know that a chocolate bar costs 60 cents today. 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 1962 prices?

In sequence, what are the steps involved in calculating the consumer price index and the inflation rate?

What is by far the largest category of goods and services in the CPI basket?

Suppose that the CPI is currently 400 and was 100 in 1969. Then, according to the CPI, $100 today purchases the same amount of goods and services as what amount in 1969?

Ralph puts money in the bank and earns a 5 percent nominal interest rate. What happens if the inflation rate is 3 percent?

Ethel purchased a bag of groceries in 1970 for $8. She purchased the same bag of groceries in 2006 for $25. If the price index was 38.8 in 1970 and 180 in 2006, what's the price of a 1970 bag of groceries in 2006 prices?

What kind of payment does interest represent?

Use the table below to answer the following questions. Table 6-2 -Refer to Table 6-2. Suppose that the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn. What is the inflation rate for 2011?

In 1972 in Kelowna, BC, one could buy model rocket engines for $1.50. If those same engines cost $3.00 today, which of the following sets of CPI's would make the engine prices in today's dollars the same for both years?

Use the table below to answer the following questions. Table 6-1 -Refer to Table 6-1. What was the inflation rate in 2011?

If you currently make $25 000 a year and the CPI rises from 110 today to 150 in five years, then you need to be making $35 000 to have kept pace with consumer price inflation.

In Japan in 2000 nominal interest rates were 1.5 percent and the inflation rate was -0.5 percent. What was the real interest rate?

What do economists believe about the bias in the CPI as a measure of the cost of living?

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

Although they sometimes diverge, generally the CPI and GDP deflator move in the same direction.

The CPI for 2000 is computed as 100 times the ratio of the price of the market basket in 2000 divided by the price of the market basket in the base year.

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

What does the rate of core inflation EXCLUDE?

You know that a chocolate bar costs 60 cents today. 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 1962 prices?

In sequence, what are the steps involved in calculating the consumer price index and the inflation rate?

What is by far the largest category of goods and services in the CPI basket?

Suppose that the CPI is currently 400 and was 100 in 1969. Then, according to the CPI, $100 today purchases the same amount of goods and services as what amount in 1969?

Ralph puts money in the bank and earns a 5 percent nominal interest rate. What happens if the inflation rate is 3 percent?

Ethel purchased a bag of groceries in 1970 for $8. She purchased the same bag of groceries in 2006 for $25. If the price index was 38.8 in 1970 and 180 in 2006, what's the price of a 1970 bag of groceries in 2006 prices?

What kind of payment does interest represent?

Use the table below to answer the following questions. Table 6-2 -Refer to Table 6-2. Suppose that the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn. What is the inflation rate for 2011?

In 1972 in Kelowna, BC, one could buy model rocket engines for $1.50. If those same engines cost $3.00 today, which of the following sets of CPI's would make the engine prices in today's dollars the same for both years?

Use the table below to answer the following questions. Table 6-1 -Refer to Table 6-1. What was the inflation rate in 2011?

If you currently make $25 000 a year and the CPI rises from 110 today to 150 in five years, then you need to be making $35 000 to have kept pace with consumer price inflation.

In Japan in 2000 nominal interest rates were 1.5 percent and the inflation rate was -0.5 percent. What was the real interest rate?

What do economists believe about the bias in the CPI as a measure of the cost of living?

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