Question 1

Suppose that the real interest rate was 3 percent and the inflation rate was 1 percent.What happened with the value of savings?

Accepted Answer

A)  The dollar value of savings increased at 2 percent,and the value of savings measured in goods increased at 3 percent. 
B)  The dollar value of savings increased at 1 percent,and the value of savings measured in goods increased at 2 percent. 
C)  The dollar value of savings increased at 3 percent,and the value of savings measured in goods increased at 1 percent. 
D)  The dollar value of savings increased at 4 percent,and the value of savings measured in goods increased at 3 percent. 
A)  The dollar value of savings increased at 2 percent,and the value of savings measured in goods increased at 3 percent. 
B)  The dollar value of savings increased at 1 percent,and the value of savings measured in goods increased at 2 percent. 
C)  The dollar value of savings increased at 3 percent,and the value of savings measured in goods increased at 1 percent. 
D)  The dollar value of savings increased at 4 percent,and the value of savings measured in goods increased at 3 percent.

Question 2

If the real interest rate is 9 percent and the expected inflation rate is 2 percent,what would a person expect to have after a year?

Accepted Answer

A)  7 percent more dollars,which will purchase 7 percent more goods 
B)  7 percent more dollars,which will purchase 9 percent more goods 
C)  11 percent more dollars,which will purchase 7 percent more goods 
D)  11 percent more dollars,which will purchase 9 percent more goods 
A)  7 percent more dollars,which will purchase 7 percent more goods 
B)  7 percent more dollars,which will purchase 9 percent more goods 
C)  11 percent more dollars,which will purchase 7 percent more goods 
D)  11 percent more dollars,which will purchase 9 percent more goods

Question 3

Table 6-2  
-Refer to the Table 6-2.Suppose that the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn.What is the consumer price index for 2015 if the base year is 2014?

Accepted Answer

A)  120.00 
B)  129.17 
C)  136.11 
D)  150.00 
A)  120.00 
B)  129.17 
C)  136.11 
D)  150.00

Question 4

Tiffany is offered a job in Winnipeg that pays $90,000.She is offered a similar job in Montreal for $60,000.Which set of CPIs comes closest to giving both salaries the same purchasing power?

Accepted Answer

A)  90 in Winnipeg and 120 in Montreal 
B)  90 in Winnipeg and 40 in Montreal 
C)  60 in Winnipeg and 120 in Montreal 
D)  60 in Winnipeg and 40 in Montreal 
A)  90 in Winnipeg and 120 in Montreal 
B)  90 in Winnipeg and 40 in Montreal 
C)  60 in Winnipeg and 120 in Montreal 
D)  60 in Winnipeg and 40 in Montreal

Question 5

Most,but not all,athletic apparel sold in Canada is imported from other nations.If the price of athletic apparel increases,what will happen to the GDP deflator?

Accepted Answer

A)  It will increase less than the consumer price index will. 
B)  It will increase more than the consumer price index will. 
C)  It will not increase,but the consumer price index will increase. 
D)  It will increase,but the consumer price index will not increase. 
A)  It will increase less than the consumer price index will. 
B)  It will increase more than the consumer price index will. 
C)  It will not increase,but the consumer price index will increase. 
D)  It will increase,but the consumer price index will not increase.

Question 6

Samantha goes to the grocery store to make her monthly purchase of ginger ale.As she enters the soft drink section,she notices that the price of ginger ale has been raised by 15 percent,so she decides to buy some peppermint tea instead.Which problem in the construction of the CPI is this situation most relevant to?

Accepted Answer

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

Question 7

The price index is 260 in one year and 300 in the next.What is the inflation rate?

Accepted Answer

A)  1.0 percent 
B)  9.3 percent 
C)  12 percent 
D)  15.3 percent 
A)  1.0 percent 
B)  9.3 percent 
C)  12 percent 
D)  15.3 percent

Question 8

Which price changes when an inflation rate is calculated using the CPI?

Accepted Answer

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

Question 9

What best defines the inflation rate?

Accepted Answer

A)  the price level 
B)  the change in the price level 
C)  the price level divided by the price level in the previous period 
D)  the percentage change in the price level from the previous period 
A)  the price level 
B)  the change in the price level 
C)  the price level divided by the price level in the previous period 
D)  the percentage change in the price level from the previous period

Question 10

Al and Amanda meet with Shino,the banker,to work out the details of a mortgage.They all expect that inflation will be 3 percent over the term of the loan,and they agree on a nominal interest rate of 7 percent.As it turns out,the inflation rate is 4 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 benefitted and who lost because of the unexpected inflation?

Accepted Answer

a.The expected real interest rate was 4

Question 11

By not taking into account the possibility of consumer substitution,how is the CPI biased?

Accepted Answer

A)  It understates the cost of living because people buy more of the newer goods. 
B)  It overstates the cost of living because people buy more of the cheaper goods. 
C)  It understates the cost of living because people have higher incomes and perceive some goods as inferior. 
D)  It overstates the cost of living because people have higher incomes and perceive formerly luxury goods as necessities. 
A)  It understates the cost of living because people buy more of the newer goods. 
B)  It overstates the cost of living because people buy more of the cheaper goods. 
C)  It understates the cost of living because people have higher incomes and perceive some goods as inferior. 
D)  It overstates the cost of living because people have higher incomes and perceive formerly luxury goods as necessities.

Question 12

Table 6-3
In the country of Shem,the CPI is calculated using a market basket consisting of 5 apples,4 kg of chicken,3 shirts,and 2 litres of gasoline.The per-unit prices of these goods have been as follows:  
-Refer to the Table 6-3.What was the inflation rate,as measured by the CPI,between 2013 and 2014?

Accepted Answer

A)  27.9 percent 
B)  34.1 percent 
C)  47.0 percent 
D)  48.5 percent 
A)  27.9 percent 
B)  34.1 percent 
C)  47.0 percent 
D)  48.5 percent

Question 13

Which of the following is NOT a widely acknowledged problem with the CPI as a measure of the cost of living?

Accepted Answer

A)  substitution bias 
B)  introduction of new goods 
C)  unmeasured quality change 
D)  unmeasured wage changes 
A)  substitution bias 
B)  introduction of new goods 
C)  unmeasured quality change 
D)  unmeasured wage changes

Question 14

What are the categories of Canadian consumer spending,ranked from largest to smallest?

Accepted Answer

A)  food,alcoholic beverages and tobacco products,shelter,transportation,and health and personal care 
B)  food,health and personal care,shelter,alcoholic beverages and tobacco products,and transportation 
C)  shelter,food,alcoholic beverages and tobacco products,transportation,and health and personal care 
D)  shelter,transportation,food,health and personal care,and alcoholic beverages and tobacco products 
A)  food,alcoholic beverages and tobacco products,shelter,transportation,and health and personal care 
B)  food,health and personal care,shelter,alcoholic beverages and tobacco products,and transportation 
C)  shelter,food,alcoholic beverages and tobacco products,transportation,and health and personal care 
D)  shelter,transportation,food,health and personal care,and alcoholic beverages and tobacco products

Question 15

Scenario 6-1
Grant Smith was a doctor.In 1944,he made $12,000.His daughter,Lisa Smith,is also a doctor.Last year she made $275,000.The price index in 1944 was 17.6 and the price index last year was 200.
-Refer to the Scenario 6-1.What is Lisa's income in 1944 dollars?

Accepted Answer

A)  $15,667 
B)  $17,401 
C)  $19,322 
D)  $24,200 
A)  $15,667 
B)  $17,401 
C)  $19,322 
D)  $24,200

Question 16

Which of the following is the consumer price index used for?

Accepted Answer

A)  to differentiate between gross national product and gross domestic product 
B)  to turn dollar figures into meaningful measures of purchasing power 
C)  to characterize the types of goods and services that consumers purchase 
D)  to measure the quantity of goods and services that the economy produces 
A)  to differentiate between gross national product and gross domestic product 
B)  to turn dollar figures into meaningful measures of purchasing power 
C)  to characterize the types of goods and services that consumers purchase 
D)  to measure the quantity of goods and services that the economy produces

Question 17

Table 6-2  
-Refer to the Table 6-2.Suppose that the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn.What is the inflation rate for 2015?

Accepted Answer

A)  21.33 percent 
B)  25.00 percent 
C)  29.17 percent 
D)  36.11 percent 
A)  21.33 percent 
B)  25.00 percent 
C)  29.17 percent 
D)  36.11 percent

Question 18

If there is a reduction in the price of large tractors imported into Canada from Russia,what will happen to the GDP deflator and the consumer price index?

Accepted Answer

A)  The GDP deflator and the consumer price index will decrease. 
B)  The GDP deflator will not change; the consumer price index will decrease. 
C)  The GDP deflator will decrease; the consumer price index will not change. 
D)  Neither the GDP deflator nor the consumer price index will change. 
A)  The GDP deflator and the consumer price index will decrease. 
B)  The GDP deflator will not change; the consumer price index will decrease. 
C)  The GDP deflator will decrease; the consumer price index will not change. 
D)  Neither the GDP deflator nor the consumer price index will change.

Question 19

Chip's Chocolate Factory has an agreement with its workers to completely index the wages of its employees to inflation in the CPI.Chip's currently pays its production line workers $20 an hour and is scheduled to index their wages today.If the CPI is currently about 120 and was 100 a year ago,by how much should Chip's increase the hourly wages of its workers?

Accepted Answer

A)  $0.58 
B)  $0.65 
C)  $1.00 
D)  $4.00 
A)  $0.58 
B)  $0.65 
C)  $1.00 
D)  $4.00

Question 20

Samantha deposits $2000 into a saving account that pays an annual interest rate of 5 percent.Over the course of a year,the inflation rate is 2 percent.What happens at the end of the year?

Accepted Answer

A)  Samantha has $100 more in her account,and her purchasing power has increased by about $40. 
B)  Samantha has $100 more in her account,and her purchasing power has increased by about $60. 
C)  Samantha has $140 more in her account,and her purchasing power has increased about $100. 
D)  Samantha has $140 more in her account,and her purchasing power has increased about $40. 
A)  Samantha has $100 more in her account,and her purchasing power has increased by about $40. 
B)  Samantha has $100 more in her account,and her purchasing power has increased by about $60. 
C)  Samantha has $140 more in her account,and her purchasing power has increased about $100. 
D)  Samantha has $140 more in her account,and her purchasing power has increased about $40.

Suppose that the real interest rate was 3 percent and the inflation rate was 1 percent.What happened with the value of savings?

If the real interest rate is 9 percent and the expected inflation rate is 2 percent,what would a person expect to have after a year?

Table 6-2 -Refer to the Table 6-2.Suppose that the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn.What is the consumer price index for 2015 if the base year is 2014?

Tiffany is offered a job in Winnipeg that pays $90,000.She is offered a similar job in Montreal for $60,000.Which set of CPIs comes closest to giving both salaries the same purchasing power?

Most,but not all,athletic apparel sold in Canada is imported from other nations.If the price of athletic apparel increases,what will happen to the GDP deflator?

The price index is 260 in one year and 300 in the next.What is the inflation rate?

Which price changes when an inflation rate is calculated using the CPI?

What best defines the inflation rate?

By not taking into account the possibility of consumer substitution,how is the CPI biased?

Which of the following is NOT a widely acknowledged problem with the CPI as a measure of the cost of living?

What are the categories of Canadian consumer spending,ranked from largest to smallest?

Scenario 6-1 Grant Smith was a doctor.In 1944,he made $12,000.His daughter,Lisa Smith,is also a doctor.Last year she made $275,000.The price index in 1944 was 17.6 and the price index last year was 200. -Refer to the Scenario 6-1.What is Lisa's income in 1944 dollars?

Which of the following is the consumer price index used for?

Table 6-2 -Refer to the Table 6-2.Suppose that the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn.What is the inflation rate for 2015?

If there is a reduction in the price of large tractors imported into Canada from Russia,what will happen to the GDP deflator and the consumer price index?

Samantha deposits $2000 into a saving account that pays an annual interest rate of 5 percent.Over the course of a year,the inflation rate is 2 percent.What happens at the end of the year?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Production and Growth

Saving, investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Exam 6: Measuring the Cost of Living

Suppose that the real interest rate was 3 percent and the inflation rate was 1 percent.What happened with the value of savings?

If the real interest rate is 9 percent and the expected inflation rate is 2 percent,what would a person expect to have after a year?

Table 6-2 -Refer to the Table 6-2.Suppose that the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn.What is the consumer price index for 2015 if the base year is 2014?

Tiffany is offered a job in Winnipeg that pays $90,000.She is offered a similar job in Montreal for $60,000.Which set of CPIs comes closest to giving both salaries the same purchasing power?

Most,but not all,athletic apparel sold in Canada is imported from other nations.If the price of athletic apparel increases,what will happen to the GDP deflator?

The price index is 260 in one year and 300 in the next.What is the inflation rate?

Which price changes when an inflation rate is calculated using the CPI?

What best defines the inflation rate?

By not taking into account the possibility of consumer substitution,how is the CPI biased?

Which of the following is NOT a widely acknowledged problem with the CPI as a measure of the cost of living?

What are the categories of Canadian consumer spending,ranked from largest to smallest?

Scenario 6-1 Grant Smith was a doctor.In 1944,he made $12,000.His daughter,Lisa Smith,is also a doctor.Last year she made $275,000.The price index in 1944 was 17.6 and the price index last year was 200. -Refer to the Scenario 6-1.What is Lisa's income in 1944 dollars?

Which of the following is the consumer price index used for?

Table 6-2 -Refer to the Table 6-2.Suppose that the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn.What is the inflation rate for 2015?

If there is a reduction in the price of large tractors imported into Canada from Russia,what will happen to the GDP deflator and the consumer price index?

Samantha deposits $2000 into a saving account that pays an annual interest rate of 5 percent.Over the course of a year,the inflation rate is 2 percent.What happens at the end of the year?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Production and Growth

Saving, investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters