Question 1

The goal of the consumer price index is to gauge how much incomes must rise to maintain a constant standard of living.

Accepted Answer

A) True 
 B)False

Question 2

If the quality of a good deteriorates while its price remains the same,then the value of a dollar

Accepted Answer

A)  rises and the cost of living increases. 
B)  rises and the cost of living decreases. 
C)  falls and the cost of living increases. 
D)  falls and the cost of living decreases. 
A)  rises and the cost of living increases. 
B)  rises and the cost of living decreases. 
C)  falls and the cost of living increases. 
D)  falls and the cost of living decreases.

Question 3

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

Accepted Answer

A)  food & beverages 
B)  recreation 
C)  housing 
D)  apparel 
A)  food & beverages 
B)  recreation 
C)  housing 
D)  apparel

Question 4

The purpose of measuring the overall level of prices in the economy is to permit comparison between dollar figures from different times.

Accepted Answer

A) True 
 B)False

Question 5

Data from the Bureau of Labor Statistics show that apparel makes up 14 percent of the typical consumer's budget.

Accepted Answer

A) True 
 B)False

Question 6

Suppose that in 2010,the producer price index increases by 2 percent.As a result,economists most likely will predict that

Accepted Answer

A)  GDP will increase in 2011. 
B)  the producer price index will increase by more than 2 percent in 2011. 
C)  interest rates will decrease in the future. 
D)  the consumer price index will increase in the future. 
A)  GDP will increase in 2011. 
B)  the producer price index will increase by more than 2 percent in 2011. 
C)  interest rates will decrease in the future. 
D)  the consumer price index will increase in the future.

Question 7

The consumer price index and the GDP deflator are two alternative measures of the overall price level.Which of the following statements about the two measures is correct?

Accepted Answer

A)  The CPI involves a base year;the GDP deflator does not involve a base year. 
B)  The CPI can be used to compute the inflation rate;the GDP deflator cannot be used to compute the inflation rate. 
C)  The CPI reflects the prices of goods and services produced domestically;the GDP deflator reflects the prices of all goods and services bought by consumers. 
D)  The CPI reflects a fixed basket of goods and services;the GDP deflator reflects current production of goods and services. 
A)  The CPI involves a base year;the GDP deflator does not involve a base year. 
B)  The CPI can be used to compute the inflation rate;the GDP deflator cannot be used to compute the inflation rate. 
C)  The CPI reflects the prices of goods and services produced domestically;the GDP deflator reflects the prices of all goods and services bought by consumers. 
D)  The CPI reflects a fixed basket of goods and services;the GDP deflator reflects current production of goods and services.

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 from 2006 to 2007 and increased from 2007 to 2008. 
B)  increased from 2006 to 2007 and decreased from 2007 to 2008. 
C)  decreased from 2006 to 2007 and increased from 2007 to 2008. 
D)  decreased from 2006 to 2007 and decreased from 2007 to 2008. 
A)  increased from 2006 to 2007 and increased from 2007 to 2008. 
B)  increased from 2006 to 2007 and decreased from 2007 to 2008. 
C)  decreased from 2006 to 2007 and increased from 2007 to 2008. 
D)  decreased from 2006 to 2007 and decreased from 2007 to 2008.

Question 9

Table 24-5
The table below pertains to Yackandsnack,an economy in which the typical consumer's basket consists of 2 cell phones and 20 ham sandwiches.
  
-Refer to Table 24-5.If the base year is 2006,then the economy's inflation rate in 2007 is

Accepted Answer

A)  20 percent. 
B)  25 percent. 
C)  40 percent. 
D)  125 percent. 
A)  20 percent. 
B)  25 percent. 
C)  40 percent. 
D)  125 percent.

Question 10

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.The cost of the basket

Accepted Answer

A)  decreased by $2 from 2004 to 2005. 
B)  increased by $3 from 2004 to 2005. 
C)  increased by $7 from 2004 to 2005. 
D)  increased by $10 from 2004 to 2005. 
A)  decreased by $2 from 2004 to 2005. 
B)  increased by $3 from 2004 to 2005. 
C)  increased by $7 from 2004 to 2005. 
D)  increased by $10 from 2004 to 2005.

Question 11

When the relative price of a good decreases,consumers respond by buying

Accepted Answer

A)  a larger quantity of that good and a larger quantity of substitutes for that good. 
B)  a larger quantity of that good and a smaller quantity of substitutes for that good. 
C)  a smaller quantity of that good and a larger quantity of substitutes for that good. 
D)  a smaller quantity of that good and a smaller quantity of substitutes for that good. 
A)  a larger quantity of that good and a larger quantity of substitutes for that good. 
B)  a larger quantity of that good and a smaller quantity of substitutes for that good. 
C)  a smaller quantity of that good and a larger quantity of substitutes for that good. 
D)  a smaller quantity of that good and a smaller quantity of substitutes for that good.

Question 12

Two alternative measures of the overall level of prices are

Accepted Answer

A)  the inflation rate and the consumer price index. 
B)  the inflation rate and the GDP deflator. 
C)  the GDP deflator and the consumer price index. 
D)  the cost of living index and nominal GDP. 
A)  the inflation rate and the consumer price index. 
B)  the inflation rate and the GDP deflator. 
C)  the GDP deflator and the consumer price index. 
D)  the cost of living index and nominal GDP.

Question 13

In calculating the CPI,a fixed basket of goods and services is used.The quantities of the goods and services in the fixed basket are determined by

Accepted Answer

A)  surveying consumers. 
B)  surveying sellers of the goods and services. 
C)  working backward from the rate of inflation to arrive at imputed values for those quantities. 
D)  arbitrary choices made by federal government employees. 
A)  surveying consumers. 
B)  surveying sellers of the goods and services. 
C)  working backward from the rate of inflation to arrive at imputed values for those quantities. 
D)  arbitrary choices made by federal government employees.

Question 14

Suppose OPEC succeeds in raising world oil prices by 300 percent.This price increase causes inventors to look at alternative sources of fuel for internal-combustion engines.A hydrogen-powered engine is developed which is cheaper to operate than gasoline engines.Which problems in the construction of the CPI does this situation represent?

Accepted Answer

A)  substitution bias and introduction of new goods 
B)  introduction of new goods and unmeasured quality change 
C)  substitution bias and unmeasured quality change 
D)  income bias and substitution bias 
A)  substitution bias and introduction of new goods 
B)  introduction of new goods and unmeasured quality change 
C)  substitution bias and unmeasured quality change 
D)  income bias and substitution bias

Question 15

Data from the Bureau of Labor Statistics show that consumer spending on transportation is only slightly higher than consumer spending on food and beverages.

Accepted Answer

A) True 
 B)False

Question 16

The CPI is calculated

Accepted Answer

A)  weekly. 
B)  monthly. 
C)  quarterly. 
D)  yearly. 
A)  weekly. 
B)  monthly. 
C)  quarterly. 
D)  yearly.

Question 17

The producer price index measures the cost of a basket of goods and services bought by firms rather than consumers.

Accepted Answer

A) True 
 B)False

Question 18

If the nominal interest rate is 1.5 percent and the rate of inflation is -0.5 percent,then the real interest rate is

Accepted Answer

A)  -4 percent. 
B)  -2 percent. 
C)  1 percent. 
D)  2 percent. 
A)  -4 percent. 
B)  -2 percent. 
C)  1 percent. 
D)  2 percent.

Question 19

The CPI and GDP deflator usually tell two different stories about how quickly prices are rising.

Accepted Answer

A) True 
 B)False

Question 20

If the current year CPI is 140,then the price level has increased 40 percent since the base year.

Accepted Answer

A) True 
 B)False

Exam 24: Measuring the Cost of Living

The goal of the consumer price index is to gauge how much incomes must rise to maintain a constant standard of living.

If the quality of a good deteriorates while its price remains the same,then the value of a dollar

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

The purpose of measuring the overall level of prices in the economy is to permit comparison between dollar figures from different times.

Data from the Bureau of Labor Statistics show that apparel makes up 14 percent of the typical consumer's budget.

Suppose that in 2010,the producer price index increases by 2 percent.As a result,economists most likely will predict that

The consumer price index and the GDP deflator are two alternative measures of the overall price level.Which of the following statements about the two measures is correct?

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

Table 24-5 The table below pertains to Yackandsnack,an economy in which the typical consumer's basket consists of 2 cell phones and 20 ham sandwiches. -Refer to Table 24-5.If the base year is 2006,then the economy's inflation rate in 2007 is

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.The cost of the basket

When the relative price of a good decreases,consumers respond by buying

Two alternative measures of the overall level of prices are

In calculating the CPI,a fixed basket of goods and services is used.The quantities of the goods and services in the fixed basket are determined by

Data from the Bureau of Labor Statistics show that consumer spending on transportation is only slightly higher than consumer spending on food and beverages.

The CPI is calculated

The producer price index measures the cost of a basket of goods and services bought by firms rather than consumers.

If the nominal interest rate is 1.5 percent and the rate of inflation is -0.5 percent,then the real interest rate is

The CPI and GDP deflator usually tell two different stories about how quickly prices are rising.

If the current year CPI is 140,then the price level has increased 40 percent since the base year.

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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