Question 1

How are the weights on the various goods and services in the CPI basket determined?

Accepted Answer

A)  A survey is conducted to determine how much of each good and service a typical consumer purchases 
B)  All goods and services are weighted equally 
C)  Each good and service is weighted according to its price 
D)  Weights are randomly assigned 
A)  A survey is conducted to determine how much of each good and service a typical consumer purchases 
B)  All goods and services are weighted equally 
C)  Each good and service is weighted according to its price 
D)  Weights are randomly assigned

Question 2

The substitution bias in the CPI results from the index not taking into account:

Accepted Answer

A)  the substitution of new goods for old goods in the purchases of consumers 
B)  that consumers substitute towards goods that have become relatively less expensive 
C)  the substitution of new prices for old prices in the basket of goods from one year to the next 
D)  the substitution of quality for quantity in consumer purchases over time 
A)  the substitution of new goods for old goods in the purchases of consumers 
B)  that consumers substitute towards goods that have become relatively less expensive 
C)  the substitution of new prices for old prices in the basket of goods from one year to the next 
D)  the substitution of quality for quantity in consumer purchases over time

Question 3

In the CPI, goods and services are weighted according to:

Accepted Answer

A)  whether the goods and services are necessities or luxuries 
B)  the levels of production of the goods and services in the domestic economy 
C)  how much of each item consumers buy 
D)  a random weighting scheme 
A)  whether the goods and services are necessities or luxuries 
B)  the levels of production of the goods and services in the domestic economy 
C)  how much of each item consumers buy 
D)  a random weighting scheme

Question 4

Which is the most accurate statement about the relationship between inflation and interest rates?

Accepted Answer

A)  The nominal interest rate is the difference between the real interest rate and the rate of inflation 
B)  The real interest rate is the difference between the nominal interest rate and the rate of inflation 
C)  The real interest rate is the nominal interest rate times the rate of inflation 
D)  The nominal interest rate is the real interest rate times the rate of inflation 
A)  The nominal interest rate is the difference between the real interest rate and the rate of inflation 
B)  The real interest rate is the difference between the nominal interest rate and the rate of inflation 
C)  The real interest rate is the nominal interest rate times the rate of inflation 
D)  The nominal interest rate is the real interest rate times the rate of inflation

Question 5

When the Reserve Bank is assessing whether to increase interest rates, it does so in the belief that:

Accepted Answer

A)  food prices have gone down too much 
B)  aggregate supply within the economy is in surplus 
C)  expected aggregate demand will place less pressure on prices 
D)  expected aggregate demand will place more pressure on prices 
A)  food prices have gone down too much 
B)  aggregate supply within the economy is in surplus 
C)  expected aggregate demand will place less pressure on prices 
D)  expected aggregate demand will place more pressure on prices

Question 6

When the overall level of prices in the economy is increasing, we say that the economy is experiencing:

Accepted Answer

A)  economic growth 
B)  unemployment 
C)  inflation 
D)  deflation 
A)  economic growth 
B)  unemployment 
C)  inflation 
D)  deflation

Question 7

Which is the most accurate statement about the CPI?

Accepted Answer

A)  When the CPI increases, the average family has to spend less to maintain its standard of living 
B)  When the CPI increases, the average family has to spend more to maintain its standard of living 
C)  When the CPI increases, the standard of living of the average family increases 
D)  The CPI has nothing to do with the average family's standard of living 
A)  When the CPI increases, the average family has to spend less to maintain its standard of living 
B)  When the CPI increases, the average family has to spend more to maintain its standard of living 
C)  When the CPI increases, the standard of living of the average family increases 
D)  The CPI has nothing to do with the average family's standard of living

Question 8

The basket of goods has remained the same since 2000, as common consumer preferences have tended to stay constant.

Accepted Answer

A) True 
 B)False

Question 9

Indexation is a way of compensating beneficiaries for rises in prices.

Accepted Answer

A) True 
 B)False

Question 10

Harry Porter worked at a library in 1996. A day's work paid him $35. If the price index was 65 in 1990 and 160 in 2011, how much was Harry's daily wage worth in 2011?

Accepted Answer

A)  $42 
B)  $51 
C)  $86 
D)  It is too difficult to calculate, as Harry would have become much better at his job 
A)  $42 
B)  $51 
C)  $86 
D)  It is too difficult to calculate, as Harry would have become much better at his job

Question 11

The price index in 2011 is 120, and in 2012 the price index is 126. What is the inflation rate?

Accepted Answer

A)  5 per cent 
B)  6 per cent 
C)  26 per cent 
D)  The inflation rate is impossible to determine without knowing the base year 
A)  5 per cent 
B)  6 per cent 
C)  26 per cent 
D)  The inflation rate is impossible to determine without knowing the base year

Question 12

Indexation is only used in the payment of transfers.

Accepted Answer

A) True 
 B)False

Exam 25: Measuring the Cost of Living

How are the weights on the various goods and services in the CPI basket determined?

The substitution bias in the CPI results from the index not taking into account:

In the CPI, goods and services are weighted according to:

Which is the most accurate statement about the relationship between inflation and interest rates?

When the Reserve Bank is assessing whether to increase interest rates, it does so in the belief that:

When the overall level of prices in the economy is increasing, we say that the economy is experiencing:

Which is the most accurate statement about the CPI?

The basket of goods has remained the same since 2000, as common consumer preferences have tended to stay constant.

Indexation is a way of compensating beneficiaries for rises in prices.

Harry Porter worked at a library in 1996. A day's work paid him $35. If the price index was 65 in 1990 and 160 in 2011, how much was Harry's daily wage worth in 2011?

The price index in 2011 is 120, and in 2012 the price index is 126. What is the inflation rate?

Indexation is only used in the payment of transfers.

Ten Lessons From 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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Business Strategy

Competition Policy

Monopolistic Competition

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

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 Trade-Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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