Question 1

Janelle earned a salary of $40,000 in 1996 and $65,000 in 2006.The consumer price index was 160 in 1996 and 266 in 2006.Janelle's 1996 salary in 2006 dollars is

Accepted Answer

A)  $24,060.15. 
B)  $42,400.00. 
C)  $43,655.17. 
D)  $66,500.00. 
A)  $24,060.15. 
B)  $42,400.00. 
C)  $43,655.17. 
D)  $66,500.00.

Question 2

Which is the most accurate statement about the GDP deflator and the consumer price index?

Accepted Answer

A)  The GDP deflator compares the price of a fixed basket of goods and services to the price of the basket in the base year,whereas the consumer price index compares the price of currently produced goods and services to the price of the same goods and services in the base year. 
B)  The consumer price index compares the price of a fixed basket of goods and services to the price of the basket in the base year,whereas the GDP deflator compares the price of currently produced goods and services to the price of the same goods and services in the base year. 
C)  Both the GDP deflator and the consumer price index compare the price of a fixed basket of goods and services to the price of the basket in the base year. 
D)  Both the GDP deflator and the consumer price index compare the price of currently produced goods and services to the price of the same goods and services in the base year. 
A)  The GDP deflator compares the price of a fixed basket of goods and services to the price of the basket in the base year,whereas the consumer price index compares the price of currently produced goods and services to the price of the same goods and services in the base year. 
B)  The consumer price index compares the price of a fixed basket of goods and services to the price of the basket in the base year,whereas the GDP deflator compares the price of currently produced goods and services to the price of the same goods and services in the base year. 
C)  Both the GDP deflator and the consumer price index compare the price of a fixed basket of goods and services to the price of the basket in the base year. 
D)  Both the GDP deflator and the consumer price index compare the price of currently produced goods and services to the price of the same goods and services in the base year.

Question 3

The consumer price index is used to

Accepted Answer

A)  convert nominal GDP into real GDP. 
B)  turn dollar figures into meaningful measures of purchasing power. 
C)  characterize the types of goods and services that consumers purchase. 
D)  measure the quantity of goods and services that the economy produces. 
A)  convert nominal GDP into real GDP. 
B)  turn dollar figures into meaningful measures of purchasing power. 
C)  characterize the types of goods and services that consumers purchase. 
D)  measure the quantity of goods and services that the economy produces.

Question 4

When the consumer price index rises,the typical family

Accepted Answer

A)  has to spend more dollars to maintain the same standard of living. 
B)  can spend fewer dollars to maintain the same standard of living. 
C)  finds that its standard of living is not affected. 
D)  can offset the effects of rising prices by saving more. 
A)  has to spend more dollars to maintain the same standard of living. 
B)  can spend fewer dollars to maintain the same standard of living. 
C)  finds that its standard of living is not affected. 
D)  can offset the effects of rising prices by saving more.

Question 5

When the consumer price index falls,the typical family

Accepted Answer

A)  has to spend more dollars to maintain the same standard of living. 
B)  can spend fewer dollars to maintain the same standard of living. 
C)  finds that its standard of living is not affected. 
D)  can save less because they do not need to offset the effects of rising prices. 
A)  has to spend more dollars to maintain the same standard of living. 
B)  can spend fewer dollars to maintain the same standard of living. 
C)  finds that its standard of living is not affected. 
D)  can save less because they do not need to offset the effects of rising prices.

Question 6

Which of the following is correct?

Accepted Answer

A)  Nominal and real interest rates always move together. 
B)  Nominal and real interest rates never move together. 
C)  Nominal and real interest rates do not always move together. 
D)  Nominal and real interest rates always move in opposite directions. 
A)  Nominal and real interest rates always move together. 
B)  Nominal and real interest rates never move together. 
C)  Nominal and real interest rates do not always move together. 
D)  Nominal and real interest rates always move in opposite directions.

Question 7

Between October 2001 and October 2002,the CPI in Canada rose from 116.5 to 119.8 and the CPI in Mexico rose from 93.2 to 102.3.What were the inflation rates for Canada and Mexico over this one-year period?

Accepted Answer

A)  2.8 percent for Canada and 9.1 percent for Mexico 
B)  2.8 percent for Canada and 9.8 percent for Mexico 
C)  3.3 percent for Canada and 9.1 percent for Mexico 
D)  3.3 percent for Canada and 9.8 percent for Mexico 
A)  2.8 percent for Canada and 9.1 percent for Mexico 
B)  2.8 percent for Canada and 9.8 percent for Mexico 
C)  3.3 percent for Canada and 9.1 percent for Mexico 
D)  3.3 percent for Canada and 9.8 percent for Mexico

Question 8

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.The cost of the basket

Accepted Answer

A)  increased by $10 from 2006 to 2007. 
B)  increased by $42 from 2006 to 2007. 
C)  increased by $70 from 2006 to 2007. 
D)  increased by $150 from 2006 to 2007. 
A)  increased by $10 from 2006 to 2007. 
B)  increased by $42 from 2006 to 2007. 
C)  increased by $70 from 2006 to 2007. 
D)  increased by $150 from 2006 to 2007.

Question 9

The steps involved in calculating the consumer price index and the inflation rate,in order,are as follows:

Accepted Answer

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

Question 10

Substitution bias occurs because the CPI ignores the possibility of consumer substitution toward goods that have become relatively less expensive.

Accepted Answer

A) True 
 B)False

Question 11

If the CPI today is 120 and the CPI five years ago was 80,then something that cost $1 five years ago would cost $1.50 in today's prices.

Accepted Answer

A) True 
 B)False

Question 12

The introduction of a new good

Accepted Answer

A)  increases the cost of maintaining the same level of economic well-being. 
B)  decreases the cost of maintaining the same level of economic well-being. 
C)  has no impact on the cost of maintaining the same level of economic well-being. 
D)  may increase or decrease the cost of maintaining the same level of economic well-being,depending on how expensive the new good is. 
A)  increases the cost of maintaining the same level of economic well-being. 
B)  decreases the cost of maintaining the same level of economic well-being. 
C)  has no impact on the cost of maintaining the same level of economic well-being. 
D)  may increase or decrease the cost of maintaining the same level of economic well-being,depending on how expensive the new good is.

Question 13

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 2008 is the base year,then the consumer price index was

Accepted Answer

A)  64.5 in 2006,87.1 in 2007,and 100 in 2008. 
B)  64.5 in 2006,270 in 2007,and 310 in 2008. 
C)  200 in 2006,87.1 in 2007,and 100 in 2008. 
D)  200 in 2006,270 in 2007,and 310 in 2008. 
A)  64.5 in 2006,87.1 in 2007,and 100 in 2008. 
B)  64.5 in 2006,270 in 2007,and 310 in 2008. 
C)  200 in 2006,87.1 in 2007,and 100 in 2008. 
D)  200 in 2006,270 in 2007,and 310 in 2008.

Question 14

In the basket of goods that is used to compute the consumer price index,which of the following categories of consumer spending is the largest?

Accepted Answer

A)  education & communication 
B)  food & beverages 
C)  medical care 
D)  recreation 
A)  education & communication 
B)  food & beverages 
C)  medical care 
D)  recreation

Question 15

Each week,the Bureau of Labor Statistics computes and reports the consumer price index.

Accepted Answer

A) True 
 B)False

Question 16

When constructing the consumer price index,the Bureau of Labor Statistics does not do which of the following?

Accepted Answer

A)  Try to include all the goods and services that the typical consumer buys. 
B)  Try to weight the goods and services that the typical consumer buys according to how much consumers buy of each item. 
C)  Survey consumers to determine what the typical consumer buys. 
D)  Survey sellers to determine what the typical consumer buys. 
A)  Try to include all the goods and services that the typical consumer buys. 
B)  Try to weight the goods and services that the typical consumer buys according to how much consumers buy of each item. 
C)  Survey consumers to determine what the typical consumer buys. 
D)  Survey sellers to determine what the typical consumer buys.

Question 17

Marion collected Social Security payments of $220 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)  $228. 
B)  $238. 
C)  $257. 
D)  $264. 
A)  $228. 
B)  $238. 
C)  $257. 
D)  $264.

Question 18

In 1969,Fritz bought a Ford Mustang for $2,500.If the price index was 36.7 in 1969 and the price index was 180 in 2006,then what is the price of the Ford Mustang in 2006 dollars?

Accepted Answer

A)  $509.72 
B)  $6,866.49 
C)  $9,761.58 
D)  $12,261.58 
A)  $509.72 
B)  $6,866.49 
C)  $9,761.58 
D)  $12,261.58

Question 19

Suppose the price of a quart of milk rises from $1 to $1.25 and the price of a T-shirt rises from $8 to $10.If the CPI rises from 150 to 175,then people likely will buy

Accepted Answer

A)  more milk and more T-shirts. 
B)  more milk and fewer T-shirts. 
C)  less milk and more T-shirts. 
D)  less milk and fewer T-shirts. 
A)  more milk and more T-shirts. 
B)  more milk and fewer T-shirts. 
C)  less milk and more T-shirts. 
D)  less milk and fewer T-shirts.

Question 20

The three problems with using the consumer price index as a measure of the cost of living are

Accepted Answer

A)  widely acknowledged and easy to solve. 
B)  widely acknowledged and difficult to solve. 
C)  nearly unacknowledged and easy to solve. 
D)  nearly unacknowledged and difficult to solve. 
A)  widely acknowledged and easy to solve. 
B)  widely acknowledged and difficult to solve. 
C)  nearly unacknowledged and easy to solve. 
D)  nearly unacknowledged and difficult to solve.

Exam 24: Measuring the Cost of Living

Janelle earned a salary of $40,000 in 1996 and $65,000 in 2006.The consumer price index was 160 in 1996 and 266 in 2006.Janelle's 1996 salary in 2006 dollars is

Which is the most accurate statement about the GDP deflator and the consumer price index?

The consumer price index is used to

When the consumer price index rises,the typical family

When the consumer price index falls,the typical family

Which of the following is correct?

Between October 2001 and October 2002,the CPI in Canada rose from 116.5 to 119.8 and the CPI in Mexico rose from 93.2 to 102.3.What were the inflation rates for Canada and Mexico over this one-year period?

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.The cost of the basket

The steps involved in calculating the consumer price index and the inflation rate,in order,are as follows:

Substitution bias occurs because the CPI ignores the possibility of consumer substitution toward goods that have become relatively less expensive.

If the CPI today is 120 and the CPI five years ago was 80,then something that cost $1 five years ago would cost $1.50 in today's prices.

The introduction of a new good

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 2008 is the base year,then the consumer price index was

In the basket of goods that is used to compute the consumer price index,which of the following categories of consumer spending is the largest?

Each week,the Bureau of Labor Statistics computes and reports the consumer price index.

When constructing the consumer price index,the Bureau of Labor Statistics does not do which of the following?

Marion collected Social Security payments of $220 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

In 1969,Fritz bought a Ford Mustang for $2,500.If the price index was 36.7 in 1969 and the price index was 180 in 2006,then what is the price of the Ford Mustang in 2006 dollars?

Suppose the price of a quart of milk rises from $1 to $1.25 and the price of a T-shirt rises from $8 to $10.If the CPI rises from 150 to 175,then people likely will buy

The three problems with using the consumer price index as a measure of the cost of living are

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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