Question 1

If the cost of housing increases by 10 percent,then,other things the same,the CPI is likely to increase by about

Accepted Answer

A)  1.7 percent. 
B)  3.3 percent. 
C)  4.3 percent. 
D)  10 percent. 
A)  1.7 percent. 
B)  3.3 percent. 
C)  4.3 percent. 
D)  10 percent.

Question 2

The group of goods and services used to compute the GDP deflator changes automatically over time,but the group of goods and services used to compute the CPI does not.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following changes in the price index produces the greatest rate of inflation: 80 to 100,100 to 120,or 150 to 170?

Accepted Answer

A)  80 to 100 
B)  100 to 120 
C)  150 to 170 
D)  All of these changes produce the same rate of inflation. 
A)  80 to 100 
B)  100 to 120 
C)  150 to 170 
D)  All of these changes produce the same rate of inflation.

Question 4

Jay and Joyce meet George,the banker,to work out the details of a mortgage.They all expect that inflation will be 2 percent over the term of the loan,and they agree on a nominal interest rate of 6 percent.As it turns out,the inflation rate is 5 percent over the term of the loan.
a.
What was the expected real interest rate?
b.
What was the actual real interest rate?
c.
Who benefited and who lost because of the unexpected inflation?

Accepted Answer

a.
The expected real interest rate was 4

Question 5

The inflation rate for 2007 is computed by dividing (the CPI in 2007 minus the CPI in 2006)by the CPI in 2006,then multiplying by 100.

Accepted Answer

A) True 
 B)False

Question 6

When a new good is introduced,consumers have more variety from which to choose,and this in turn increases the cost of maintaining the same level of economic well-being.

Accepted Answer

A) True 
 B)False

Question 7

If the CPI was 110 this year and 100 last year,then

Accepted Answer

A)  the cost of the CPI basket of goods and services increased by 110 percent this year. 
B)  the price level increased by 10 percent this year. 
C)  the inflation rate for this year was 10 percent higher than the inflation rate for last year. 
D)  All of the above are correct. 
A)  the cost of the CPI basket of goods and services increased by 110 percent this year. 
B)  the price level increased by 10 percent this year. 
C)  the inflation rate for this year was 10 percent higher than the inflation rate for last year. 
D)  All of the above are correct.

Question 8

The Bureau of Labor Statistics does not try to account for quality changes in the goods and services in the basket used to compute the CPI.

Accepted Answer

A) True 
 B)False

Question 9

Suppose the price index was 100 in 2004,118 in 2005,and the inflation rate was lower between 2005 and 2006 than it was between 2004 and 2005.This means that

Accepted Answer

A)  the price index in 2006 was lower than 118. 
B)  the price index in 2006 was lower than 136. 
C)  the price index in 2006 was lower than 139.24. 
D)  the inflation rate between 2005 and 2006 was lower than 1.18 percent. 
A)  the price index in 2006 was lower than 118. 
B)  the price index in 2006 was lower than 136. 
C)  the price index in 2006 was lower than 139.24. 
D)  the inflation rate between 2005 and 2006 was lower than 1.18 percent.

Question 10

Categories of U.S.consumer spending,ranked from largest to smallest,are

Accepted Answer

A)  housing,food & beverages,education & communication,and transportation. 
B)  education & communication,housing,food & beverages,and transportation. 
C)  food & beverages,housing,transportation,and medical care. 
D)  housing,transportation,food & beverages,and medical care. 
A)  housing,food & beverages,education & communication,and transportation. 
B)  education & communication,housing,food & beverages,and transportation. 
C)  food & beverages,housing,transportation,and medical care. 
D)  housing,transportation,food & beverages,and medical care.

Question 11

If the nominal interest rate is 8 percent and the rate of inflation is 3 percent,then the real interest rate is

Accepted Answer

A)  -5 percent. 
B)  1.67 percent. 
C)  5 percent. 
D)  11 percent. 
A)  -5 percent. 
B)  1.67 percent. 
C)  5 percent. 
D)  11 percent.

Question 12

Assume an economy experienced a positive rate of inflation between 2003 and 2004 and again between 2004 and 2005.However,the inflation rate was higher between 2004 and 2005 than it was between 2003 and 2004.Which of the following scenarios is consistent with this assumption?

Accepted Answer

A)  The CPI was 100 in 2003,110 in 2004,and 105 in 2005. 
B)  The CPI was 100 in 2003,120 in 2004,and 135 in 2005. 
C)  The CPI was 100 in 2003,105 in 2004,and 130 in 2005. 
D)  The CPI was 100 in 2003,90 in 2004,and 88 in 2005. 
A)  The CPI was 100 in 2003,110 in 2004,and 105 in 2005. 
B)  The CPI was 100 in 2003,120 in 2004,and 135 in 2005. 
C)  The CPI was 100 in 2003,105 in 2004,and 130 in 2005. 
D)  The CPI was 100 in 2003,90 in 2004,and 88 in 2005.

Question 13

Arlo is offered a job in Des Moines,where the CPI is 60,and a job in New York,where the CPI is 125.Arlo's job offer in Des Moines is for $48,000.How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?

Accepted Answer

A)  $23,040 
B)  $52,000 
C)  $79,200 
D)  $100,000 
A)  $23,040 
B)  $52,000 
C)  $79,200 
D)  $100,000

Question 14

The price of DVD players increases dramatically,causing a 1 percent increase in the CPI.The price increase will most likely cause the GDP deflator to increase by

Accepted Answer

A)  more than 1 percent. 
B)  less than 1 percent. 
C)  1 percent. 
D)  None of the above is correct;this particular price increase will not affect the GDP deflator. 
A)  more than 1 percent. 
B)  less than 1 percent. 
C)  1 percent. 
D)  None of the above is correct;this particular price increase will not affect the GDP deflator.

Question 15

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

Accepted Answer

A)  economic growth. 
B)  stagflation. 
C)  inflation. 
D)  deflation. 
A)  economic growth. 
B)  stagflation. 
C)  inflation. 
D)  deflation.

Question 16

Data from the Bureau of Labor Statistics show that consumer spending on medical care is about equal to consumer spending on recreation and consumer spending on education and communication.

Accepted Answer

A) True 
 B)False

Question 17

The producer price index measures the cost of a basket of goods and services

Accepted Answer

A)  typically produced in the economy. 
B)  produced for a typical consumer. 
C)  sold by producers. 
D)  bought by firms. 
A)  typically produced in the economy. 
B)  produced for a typical consumer. 
C)  sold by producers. 
D)  bought by firms.

Question 18

Babe Ruth's 1931 salary was $80,000.Government statistics show a consumer price index of 15.2 for 1931 and 207 for 2007.Ruth's 1931 salary was equivalent to a 2007 salary of about

Accepted Answer

A)  $5,874. 
B)  $1,089,474. 
C)  $1,216,000. 
D)  $16,560,000. 
A)  $5,874. 
B)  $1,089,474. 
C)  $1,216,000. 
D)  $16,560,000.

Question 19

The CPI for 2008 is computed by dividing the price of the basket of goods and services in 2008 by the price of the basket of goods and services in the base year,then multiplying by 100.

Accepted Answer

A) True 
 B)False

Question 20

When computing the cost of the basket of goods and services purchased by a typical consumer,which of the following changes from year to year?

Accepted Answer

A)  the quantities of the goods and services purchased 
B)  the prices of the goods and services 
C)  the goods and services making up the basket 
D)  All of the above are correct. 
A)  the quantities of the goods and services purchased 
B)  the prices of the goods and services 
C)  the goods and services making up the basket 
D)  All of the above are correct.

Exam 24: Measuring the Cost of Living

If the cost of housing increases by 10 percent,then,other things the same,the CPI is likely to increase by about

The group of goods and services used to compute the GDP deflator changes automatically over time,but the group of goods and services used to compute the CPI does not.

Which of the following changes in the price index produces the greatest rate of inflation: 80 to 100,100 to 120,or 150 to 170?

The inflation rate for 2007 is computed by dividing (the CPI in 2007 minus the CPI in 2006)by the CPI in 2006,then multiplying by 100.

When a new good is introduced,consumers have more variety from which to choose,and this in turn increases the cost of maintaining the same level of economic well-being.

If the CPI was 110 this year and 100 last year,then

The Bureau of Labor Statistics does not try to account for quality changes in the goods and services in the basket used to compute the CPI.

Suppose the price index was 100 in 2004,118 in 2005,and the inflation rate was lower between 2005 and 2006 than it was between 2004 and 2005.This means that

Categories of U.S.consumer spending,ranked from largest to smallest,are

If the nominal interest rate is 8 percent and the rate of inflation is 3 percent,then the real interest rate is

Assume an economy experienced a positive rate of inflation between 2003 and 2004 and again between 2004 and 2005.However,the inflation rate was higher between 2004 and 2005 than it was between 2003 and 2004.Which of the following scenarios is consistent with this assumption?

Arlo is offered a job in Des Moines,where the CPI is 60,and a job in New York,where the CPI is 125.Arlo's job offer in Des Moines is for $48,000.How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?

The price of DVD players increases dramatically,causing a 1 percent increase in the CPI.The price increase will most likely cause the GDP deflator to increase by

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

Data from the Bureau of Labor Statistics show that consumer spending on medical care is about equal to consumer spending on recreation and consumer spending on education and communication.

The producer price index measures the cost of a basket of goods and services

Babe Ruth's 1931 salary was $80,000.Government statistics show a consumer price index of 15.2 for 1931 and 207 for 2007.Ruth's 1931 salary was equivalent to a 2007 salary of about

The CPI for 2008 is computed by dividing the price of the basket of goods and services in 2008 by the price of the basket of goods and services in the base year,then multiplying by 100.

When computing the cost of the basket of goods and services purchased by a typical consumer,which of the following changes from year to 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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