Question 1

The U.S.income tax system is completely indexed for inflation.

Accepted Answer

A) True 
 B)False

Question 2

Scenario 24-2
The price tag on a golf ball in 1975 read $0.20,and the price tag on a golf ball in 2005 read $2.00.The CPI in 1975 was 52.3,and the CPI in 2005 was 191.3.
-Refer to Scenario 24-2.The price of a 1975 golf ball in 2005 dollars is

Accepted Answer

A)  $0.05. 
B)  $0.53. 
C)  $0.73. 
D)  $2.00. 
A)  $0.05. 
B)  $0.53. 
C)  $0.73. 
D)  $2.00.

Question 3

If the nominal interest rate is 5 percent and the real interest rate is 2 percent,then the inflation rate is 3 percent.

Accepted Answer

A) True 
 B)False

Question 4

The CPI is a measure of the overall cost of the goods and services bought by

Accepted Answer

A)  a typical firm. 
B)  the government. 
C)  a typical consumer. 
D)  All of the above are correct. 
A)  a typical firm. 
B)  the government. 
C)  a typical consumer. 
D)  All of the above are correct.

Question 5

Consider a small economy in which consumers buy only two goods: pies and tarts.In order to compute the consumer price index for this economy for two or more consecutive years,we assume that

Accepted Answer

A)  the percentage change in the price of pies is equal to the percentage change in the price of tarts from year to year. 
B)  the number of pies bought by the typical consumer is equal to the number of tarts bought by the typical consumer in each year. 
C)  neither the number of pies nor the number of tarts bought by the typical consumer changes from year to year. 
D)  neither the price of pies nor the price of tarts changes from year to year. 
A)  the percentage change in the price of pies is equal to the percentage change in the price of tarts from year to year. 
B)  the number of pies bought by the typical consumer is equal to the number of tarts bought by the typical consumer in each year. 
C)  neither the number of pies nor the number of tarts bought by the typical consumer changes from year to year. 
D)  neither the price of pies nor the price of tarts changes from year to year.

Question 6

If the price of Italian shoes imported into the United States increases,then

Accepted Answer

A)  both the GDP deflator and the consumer price index will increase. 
B)  neither the GDP deflator nor the consumer price index will increase. 
C)  the GDP deflator will increase,but the consumer price index will not increase. 
D)  the consumer price index will increase,but the GDP deflator will not increase. 
A)  both the GDP deflator and the consumer price index will increase. 
B)  neither the GDP deflator nor the consumer price index will increase. 
C)  the GDP deflator will increase,but the consumer price index will not increase. 
D)  the consumer price index will increase,but the GDP deflator will not increase.

Question 7

Compute how much each of the following items is worth in terms of today's dollars using 177 as the price index for today.
a.
In 1926,the CPI was 17.7 and the price of a movie ticket was $0.25.
b.
In 1932,the CPI was 13.1 and a cook earned $15.00 a week.
c.
In 1943,the CPI was 17.4 and a gallon of gas cost $0.19.

Accepted Answer

a.
The movie ticket is worth $.25177/17.

Question 8

The CPI is always 1 in the base year.

Accepted Answer

A) True 
 B)False

Question 9

To calculate the CPI,the Bureau of Labor Statistics uses

Accepted Answer

A)  the prices of all goods and services produced domestically. 
B)  the prices of all final goods and services. 
C)  the prices of all consumer goods. 
D)  the prices of some consumer goods. 
A)  the prices of all goods and services produced domestically. 
B)  the prices of all final goods and services. 
C)  the prices of all consumer goods. 
D)  the prices of some consumer goods.

Question 10

Assume that consumers consider coffee and tea to be substitutes,so that when the price of tea rises,consumers purchase less tea and more coffee.When the CPI is computed following the increase in the price of tea,it takes into account

Accepted Answer

A)  the increase in the price of tea. 
B)  the decrease in the quantity of tea purchased and the increase in the quantity of coffee purchased. 
C)  both (a)and (b). 
D)  None of the above is correct. 
A)  the increase in the price of tea. 
B)  the decrease in the quantity of tea purchased and the increase in the quantity of coffee purchased. 
C)  both (a)and (b). 
D)  None of the above is correct.

Question 11

For any given year,the CPI is the price of the basket of goods and services in the

Accepted Answer

A)  given year divided by the price of the basket in the base year,then multiplied by 100. 
B)  given year divided by the price of the basket in the previous year,then multiplied by 100. 
C)  base year divided by the price of the basket in the given year,then multiplied by 100. 
D)  previous year divided by the price of the basket in the given year,then multiplied by 100. 
A)  given year divided by the price of the basket in the base year,then multiplied by 100. 
B)  given year divided by the price of the basket in the previous year,then multiplied by 100. 
C)  base year divided by the price of the basket in the given year,then multiplied by 100. 
D)  previous year divided by the price of the basket in the given year,then multiplied by 100.

Question 12

The inflation rate reported in the news is usually calculated from the GDP deflator rather than the consumer price index.

Accepted Answer

A) True 
 B)False

Question 13

In general,if a consumer good is produced domestically and consumed domestically,a decrease in its price will have which of the following effects?

Accepted Answer

A)  The consumer price index will decrease relatively more than will the GDP deflator. 
B)  The consumer price index and the GDP deflator will decrease by the same amount. 
C)  The consumer price index will decrease relatively less than will the GDP deflator. 
D)  One cannot generalize about the decrease in the consumer price index relative to the decrease in the GDP deflator. 
A)  The consumer price index will decrease relatively more than will the GDP deflator. 
B)  The consumer price index and the GDP deflator will decrease by the same amount. 
C)  The consumer price index will decrease relatively less than will the GDP deflator. 
D)  One cannot generalize about the decrease in the consumer price index relative to the decrease in the GDP deflator.

Question 14

If the CPI was 95 in 1955 and is 475 today,then $100 today purchases the same amount of goods and services as

Accepted Answer

A)  $4.75 purchased in 1955. 
B)  $20.00 purchased in 1955. 
C)  $95.00 purchased in 1955. 
D)  $500 purchased in 1955. 
A)  $4.75 purchased in 1955. 
B)  $20.00 purchased in 1955. 
C)  $95.00 purchased in 1955. 
D)  $500 purchased in 1955.

Question 15

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because

Accepted Answer

A)  the CPI is easier to measure. 
B)  the CPI is calculated more often than the GDP deflator is. 
C)  the CPI better reflects the goods and services bought by consumers. 
D)  the GDP deflator cannot be used to gauge inflation. 
A)  the CPI is easier to measure. 
B)  the CPI is calculated more often than the GDP deflator is. 
C)  the CPI better reflects the goods and services bought by consumers. 
D)  the GDP deflator cannot be used to gauge inflation.

Question 16

For an imaginary economy,the consumer price index was 115.00 in 2004,126.50 in 2005,and 136.62 in 2006.Which of the following statements is correct?

Accepted Answer

A)  For this economy,the base year must be 2004. 
B)  If the basket of goods that is used to calculate the CPI cost $75.00 in the base year,then that basket of goods cost $115.00 in 2004. 
C)  This economy's rate of inflation for 2006 is 10.12 percent. 
D)  None of the above is correct. 
A)  For this economy,the base year must be 2004. 
B)  If the basket of goods that is used to calculate the CPI cost $75.00 in the base year,then that basket of goods cost $115.00 in 2004. 
C)  This economy's rate of inflation for 2006 is 10.12 percent. 
D)  None of the above is correct.

Question 17

If the nominal interest rate is 8 percent and the real interest rate is 4.5 percent,then the inflation rate is

Accepted Answer

A)  -3.5 percent. 
B)  0.78 percent. 
C)  3.5 percent. 
D)  12.5 percent. 
A)  -3.5 percent. 
B)  0.78 percent. 
C)  3.5 percent. 
D)  12.5 percent.

Question 18

If the nominal interest rate is 6 percent and the rate of inflation is 9 percent,then the real interest rate is

Accepted Answer

A)  -3 percent. 
B)  -0.33 percent. 
C)  3 percent. 
D)  15 percent. 
A)  -3 percent. 
B)  -0.33 percent. 
C)  3 percent. 
D)  15 percent.

Question 19

If the nominal interest rate is 6 percent and the rate of inflation is 2 percent,then the real interest rate is

Accepted Answer

A)  -4 percent. 
B)  2 percent. 
C)  4 percent. 
D)  8 percent. 
A)  -4 percent. 
B)  2 percent. 
C)  4 percent. 
D)  8 percent.

Question 20

Which of the following is the most accurate statement about the effects of quality change on the CPI?

Accepted Answer

A)  Even though the BLS adjusts the prices of products in the CPI basket when the quality of the products change,changes in quality are still a problem because quality is so hard to measure. 
B)  Because the BLS adjusts the prices of products in the CPI basket when the quality of the products change,changes in quality are no longer a problem for the CPI. 
C)  The BLS does not adjust the CPI for quality changes. 
D)  Most economists believe that changes in the quality of goods included in the CPI basket do not bias the CPI as a measure of the cost of living. 
A)  Even though the BLS adjusts the prices of products in the CPI basket when the quality of the products change,changes in quality are still a problem because quality is so hard to measure. 
B)  Because the BLS adjusts the prices of products in the CPI basket when the quality of the products change,changes in quality are no longer a problem for the CPI. 
C)  The BLS does not adjust the CPI for quality changes. 
D)  Most economists believe that changes in the quality of goods included in the CPI basket do not bias the CPI as a measure of the cost of living.

Exam 24: Measuring the Cost of Living

The U.S.income tax system is completely indexed for inflation.

Scenario 24-2 The price tag on a golf ball in 1975 read $0.20,and the price tag on a golf ball in 2005 read $2.00.The CPI in 1975 was 52.3,and the CPI in 2005 was 191.3. -Refer to Scenario 24-2.The price of a 1975 golf ball in 2005 dollars is

If the nominal interest rate is 5 percent and the real interest rate is 2 percent,then the inflation rate is 3 percent.

The CPI is a measure of the overall cost of the goods and services bought by

Consider a small economy in which consumers buy only two goods: pies and tarts.In order to compute the consumer price index for this economy for two or more consecutive years,we assume that

If the price of Italian shoes imported into the United States increases,then

The CPI is always 1 in the base year.

To calculate the CPI,the Bureau of Labor Statistics uses

Assume that consumers consider coffee and tea to be substitutes,so that when the price of tea rises,consumers purchase less tea and more coffee.When the CPI is computed following the increase in the price of tea,it takes into account

For any given year,the CPI is the price of the basket of goods and services in the

The inflation rate reported in the news is usually calculated from the GDP deflator rather than the consumer price index.

In general,if a consumer good is produced domestically and consumed domestically,a decrease in its price will have which of the following effects?

If the CPI was 95 in 1955 and is 475 today,then $100 today purchases the same amount of goods and services as

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because

For an imaginary economy,the consumer price index was 115.00 in 2004,126.50 in 2005,and 136.62 in 2006.Which of the following statements is correct?

If the nominal interest rate is 8 percent and the real interest rate is 4.5 percent,then the inflation rate is

If the nominal interest rate is 6 percent and the rate of inflation is 9 percent,then the real interest rate is

If the nominal interest rate is 6 percent and the rate of inflation is 2 percent,then the real interest rate is

Which of the following is the most accurate statement about the effects of quality change on the CPI?

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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