Question 1

The GDP deflator reflects the

Accepted Answer

A)  level of prices in the base year relative to the current level of prices. 
B)  current level of prices relative to the level of prices in the base year. 
C)  level of real output in the base year relative to the current level of real output. 
D)  current level of real output relative to the level of real output in the base year. 
A)  level of prices in the base year relative to the current level of prices. 
B)  current level of prices relative to the level of prices in the base year. 
C)  level of real output in the base year relative to the current level of real output. 
D)  current level of real output relative to the level of real output in the base year.

Question 2

Table 24-3
The table below pertains to Studious,an economy in which the typical consumer's basket consists of 5 books and 10 calculators.
  
-Refer to Table 24-3.If 2007 is the base year,then the consumer price index was

Accepted Answer

A)  74.1 in 2006,100 in 2007,and 114.8 in 2008. 
B)  74.1 in 2006,270 in 2007,and 310 in 2008. 
C)  200 in 2006,100 in 2007,and 114.8 in 2008. 
D)  200 in 2006,270 in 2007,and 310 in 2008. 
A)  74.1 in 2006,100 in 2007,and 114.8 in 2008. 
B)  74.1 in 2006,270 in 2007,and 310 in 2008. 
C)  200 in 2006,100 in 2007,and 114.8 in 2008. 
D)  200 in 2006,270 in 2007,and 310 in 2008.

Question 3

Marion collected Social Security payments of $250 a month in 1985.If the price index rose from 90 to 108 between 1985 and 1986,then her Social Security payments for 1986 should have been

Accepted Answer

A)  $268. 
B)  $292. 
C)  $300. 
D)  $358. 
A)  $268. 
B)  $292. 
C)  $300. 
D)  $358.

Question 4

Suppose that over the past year,the real interest rate was 3 percent and the inflation rate was -1 percent.It follows that

Accepted Answer

A)  the dollar value of savings increased at 2 percent,and the purchasing power of savings increased at 3 percent. 
B)  the dollar value of savings increased at 2 percent,and the purchasing power of savings increased at 4 percent. 
C)  the dollar value of savings increased at 4 percent,and the purchasing power of savings increased at 2 percent. 
D)  the dollar value of savings increased at 4 percent,and the purchasing power of savings increased at 3 percent. 
A)  the dollar value of savings increased at 2 percent,and the purchasing power of savings increased at 3 percent. 
B)  the dollar value of savings increased at 2 percent,and the purchasing power of savings increased at 4 percent. 
C)  the dollar value of savings increased at 4 percent,and the purchasing power of savings increased at 2 percent. 
D)  the dollar value of savings increased at 4 percent,and the purchasing power of savings increased at 3 percent.

Question 5

Mavis is offered a Job in Minneapolis that pays $80,000.She is offered a similar job in Memphis that pays $64,000.Which pair of CPIs would make the two salaries have the same purchasing power?

Accepted Answer

A)  90 in Minneapolis and 80 in Memphis 
B)  90 in Minneapolis and 72 in Memphis 
C)  90 in Minneapolis and 66 in Memphis 
D)  90 in Minneapolis and 50 in Memphis 
A)  90 in Minneapolis and 80 in Memphis 
B)  90 in Minneapolis and 72 in Memphis 
C)  90 in Minneapolis and 66 in Memphis 
D)  90 in Minneapolis and 50 in Memphis

Question 6

If the consumer price index was 100 in the base year and 107 in the following year,then the inflation rate was

Accepted Answer

A)  1.07 percent. 
B)  7 percent. 
C)  10.7 percent. 
D)  107 percent. 
A)  1.07 percent. 
B)  7 percent. 
C)  10.7 percent. 
D)  107 percent.

Question 7

The price index was 320 in one year and 360 in the next year.What was the inflation rate?

Accepted Answer

A)  9 percent 
B)  11.1 percent 
C)  12.5 percent 
D)  40 percent 
A)  9 percent 
B)  11.1 percent 
C)  12.5 percent 
D)  40 percent

Question 8

The CPI and the GDP deflator

Accepted Answer

A)  generally move together. 
B)  generally show different patterns of movement. 
C)  always show identical changes. 
D)  always show different patterns of movement. 
A)  generally move together. 
B)  generally show different patterns of movement. 
C)  always show identical changes. 
D)  always show different patterns of movement.

Question 9

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 the price index was 180 in 2006,then what is the price of the 1970 bag of groceries in 2006 dollars?

Accepted Answer

A)  $5.39 
B)  $25.00 
C)  $29.11 
D)  $37.11 
A)  $5.39 
B)  $25.00 
C)  $29.11 
D)  $37.11

Question 10

If the quality of a good deteriorates from one year to the next while its price remains the same,then the value of a dollar falls.

Accepted Answer

A) True 
 B)False

Question 11

In a simple economy,people consume only 2 goods,food and clothing.The market basket of goods used to compute the CPI consists of 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 per

Question 12

Maxine deposits $100 in a bank account that pays an annual interest rate of 20%.A year later,after Maxine has accumulated $20 in interest,she withdraws her $120.Maxine's purchasing power

Accepted Answer

A)  did not change if the inflation rate was 0%. 
B)  decreased if the inflation rate was -2%. 
C)  increased if the inflation rate was 5%. 
D)  More than one of the above is correct. 
A)  did not change if the inflation rate was 0%. 
B)  decreased if the inflation rate was -2%. 
C)  increased if the inflation rate was 5%. 
D)  More than one of the above is correct.

Question 13

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 14

In the CPI,goods and services are weighted according to

Accepted Answer

A)  how long a market has existed for each good or service. 
B)  the extent to which each good or service is regarded by the government as a necessity. 
C)  how much consumers buy of each good or service. 
D)  the number of firms that produce and sell each good or service. 
A)  how long a market has existed for each good or service. 
B)  the extent to which each good or service is regarded by the government as a necessity. 
C)  how much consumers buy of each good or service. 
D)  the number of firms that produce and sell each good or service.

Question 15

Table 24-4
The table below pertains to Wrexington,an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys.
  
-Refer to Table 24-4.If the base year is 2006,then the inflation rate in 2005 was

Accepted Answer

A)  -44.5%. 
B)  -30.8%. 
C)  7.7%. 
D)  12.5%. 
A)  -44.5%. 
B)  -30.8%. 
C)  7.7%. 
D)  12.5%.

Question 16

Table 24-4
The table below pertains to Wrexington,an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys.
  
-Refer to Table 24-4.If the base year is 2006,then the CPI

Accepted Answer

A)  increased from 2004 to 2005 and increased from 2005 to 2006. 
B)  increased from 2004 to 2005 and decreased from 2005 to 2006. 
C)  decreased from 2004 to 2005 and increased from 2005 to 2006. 
D)  decreased from 2004 to 2005 and decreased from 2005 to 2006. 
A)  increased from 2004 to 2005 and increased from 2005 to 2006. 
B)  increased from 2004 to 2005 and decreased from 2005 to 2006. 
C)  decreased from 2004 to 2005 and increased from 2005 to 2006. 
D)  decreased from 2004 to 2005 and decreased from 2005 to 2006.

Question 17

When box office receipts are corrected for inflation,the most popular movie of all time is

Accepted Answer

A)  Star Wars. 
B)  Titanic. 
C)  Gone With the Wind. 
D)  The Sound of Music. 
A)  Star Wars. 
B)  Titanic. 
C)  Gone With the Wind. 
D)  The Sound of Music.

Question 18

The price index was 150 in the first year,160 in the second year,and 165 in the third year.Which of the following statements is correct?

Accepted Answer

A)  The price level was higher in the second year than in the first year,and it was higher in the third year than in the second year. 
B)  The inflation rate was positive between the first and second years,and it was positive between the second and third years. 
C)  The inflation rate was lower between the second and third years than it was between the first and second years. 
D)  All of the above are correct. 
A)  The price level was higher in the second year than in the first year,and it was higher in the third year than in the second year. 
B)  The inflation rate was positive between the first and second years,and it was positive between the second and third years. 
C)  The inflation rate was lower between the second and third years than it was between the first and second years. 
D)  All of the above are correct.

Question 19

Sophia deposits $1,000 in a savings account that pays an annual interest rate of 4 percent.Over the course of a year,the inflation rate is 1 percent.At the end of the year,Sophia has

Accepted Answer

A)  $30 more in her account,and her purchasing power has increased by $10. 
B)  $30 more in her account,and her purchasing power has increased by $40. 
C)  $40 more in her account,and her purchasing power has increased by $30. 
D)  $50 more in her account and her purchasing power has increased by $40. 
A)  $30 more in her account,and her purchasing power has increased by $10. 
B)  $30 more in her account,and her purchasing power has increased by $40. 
C)  $40 more in her account,and her purchasing power has increased by $30. 
D)  $50 more in her account and her purchasing power has increased by $40.

Question 20

The consumer price index was 225 in 2006 and 234 in 2007.The nominal interest rate during this period was 6.5 percent.What was the real interest rate during this period?

Accepted Answer

A)  2.5 percent 
B)  4.0 percent 
C)  6.76 percent 
D)  10.5 percent 
A)  2.5 percent 
B)  4.0 percent 
C)  6.76 percent 
D)  10.5 percent

Exam 24: Measuring the Cost of Living

The GDP deflator reflects the

Table 24-3 The table below pertains to Studious,an economy in which the typical consumer's basket consists of 5 books and 10 calculators. -Refer to Table 24-3.If 2007 is the base year,then the consumer price index was

Marion collected Social Security payments of $250 a month in 1985.If the price index rose from 90 to 108 between 1985 and 1986,then her Social Security payments for 1986 should have been

Suppose that over the past year,the real interest rate was 3 percent and the inflation rate was -1 percent.It follows that

Mavis is offered a Job in Minneapolis that pays $80,000.She is offered a similar job in Memphis that pays $64,000.Which pair of CPIs would make the two salaries have the same purchasing power?

If the consumer price index was 100 in the base year and 107 in the following year,then the inflation rate was

The price index was 320 in one year and 360 in the next year.What was the inflation rate?

The CPI and the GDP deflator

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 the price index was 180 in 2006,then what is the price of the 1970 bag of groceries in 2006 dollars?

If the quality of a good deteriorates from one year to the next while its price remains the same,then the value of a dollar falls.

Maxine deposits $100 in a bank account that pays an annual interest rate of 20%.A year later,after Maxine has accumulated $20 in interest,she withdraws her $120.Maxine's purchasing power

As long as prices are rising over time,then

In the CPI,goods and services are weighted according to

Table 24-4 The table below pertains to Wrexington,an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. -Refer to Table 24-4.If the base year is 2006,then the inflation rate in 2005 was

Table 24-4 The table below pertains to Wrexington,an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. -Refer to Table 24-4.If the base year is 2006,then the CPI

When box office receipts are corrected for inflation,the most popular movie of all time is

The price index was 150 in the first year,160 in the second year,and 165 in the third year.Which of the following statements is correct?

Sophia deposits $1,000 in a savings account that pays an annual interest rate of 4 percent.Over the course of a year,the inflation rate is 1 percent.At the end of the year,Sophia has

The consumer price index was 225 in 2006 and 234 in 2007.The nominal interest rate during this period was 6.5 percent.What was the real interest rate during this period?

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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

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 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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