Question 1

Suppose that in 2010, the producer price index increases by 1.5 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 1.5 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 1.5 percent in 2011. 
C)  interest rates will decrease in the future. 
D)  the consumer price index will increase in the future.

Question 2

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If deflation was 5 percent during the year the money was deposited, then Bob's purchasing power has not changed.

Accepted Answer

A) True 
 B)False

Question 3

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 4

The basket of goods in the consumer price index changes

Accepted Answer

A)  occasionally, as does the group of goods used to compute the GDP deflator. 
B)  automatically, as does the group of goods used to compute the GDP deflator. 
C)  occasionally, whereas the group of goods used to compute the GDP deflator changes automatically. 
D)  automatically, whereas the group of goods used to compute the GDP deflator changes occasionally. 
A)  occasionally, as does the group of goods used to compute the GDP deflator. 
B)  automatically, as does the group of goods used to compute the GDP deflator. 
C)  occasionally, whereas the group of goods used to compute the GDP deflator changes automatically. 
D)  automatically, whereas the group of goods used to compute the GDP deflator changes occasionally.

Question 5

In the basket of goods that is used to compute the consumer price index, the three largest categories of consumer spending are

Accepted Answer

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

Question 6

If the nominal interest rate is 4.2 percent and the rate of inflation is -0.5 percent, then the real interest rate is

Accepted Answer

A)  -8.4 percent. 
B)  -2.1 percent. 
C)  3.7 percent. 
D)  4.7 percent. 
A)  -8.4 percent. 
B)  -2.1 percent. 
C)  3.7 percent. 
D)  4.7 percent.

Question 7

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 8

Table 24-16
The table below lists annual consumer price index and inflation rates for a country over the period 2010-2013. Assume the year 2010 is used as the base year.
  
-Refer to Table 24-16. Calculate the missing value that belongs in space B.

Accepted Answer

The answer of Table 24-16
The table below lists annual consumer...

Question 9

The consumer price index was 200 in 2008 and 190 in 2009. The nominal interest rate during this period was 4.5 percent. What was the real interest rate during this period?

Accepted Answer

A)  - 0.75 percent 
B)  - 0.5 percent 
C)  9.5 percent 
D)  9.75 percent 
A)  - 0.75 percent 
B)  - 0.5 percent 
C)  9.5 percent 
D)  9.75 percent

Question 10

For an imaginary economy, the value of the consumer price index was 140 in 2013, and the inflation rate was 5.0 percent between 2013 and 2014. The consumer price index in 2014 was

Accepted Answer

A)  145.0. 
B)  147.0. 
C)  135.0. 
D)  133.3. 
A)  145.0. 
B)  147.0. 
C)  135.0. 
D)  133.3.

Question 11

Table 24-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below.
  
-Refer to Table 24-12. Suppose the consumer price index is 15.5 percent higher in 2011 than in 2009. Then Will's food expenditures for 2010 in 2011 dollars amount to

Accepted Answer

A)  $6,352. 
B)  $6,380. 
C)  $6,426. 
D)  $6,651. 
A)  $6,352. 
B)  $6,380. 
C)  $6,426. 
D)  $6,651.

Question 12

The U.S. economy has never experienced deflation.

Accepted Answer

A) True 
 B)False

Question 13

The real interest rate tells you

Accepted Answer

A)  how fast the number of dollars in your bank account rises over time. 
B)  how fast the purchasing power of your bank account rises over time. 
C)  the number of dollars in your bank account today. 
D)  the purchasing power of your bank account today. 
A)  how fast the number of dollars in your bank account rises over time. 
B)  how fast the purchasing power of your bank account rises over time. 
C)  the number of dollars in your bank account today. 
D)  the purchasing power of your bank account today.

Question 14

Which of the following statements best represents economists' beliefs about the bias in the CPI as a measure of the cost of living?

Accepted Answer

A)  Economists agree that the bias in the CPI is a very serious problem. 
B)  Economists agree that the bias in the CPI is not a serious problem. 
C)  Economists agree on the severity of the CPI bias, but there is still debate on what to do about it. 
D)  There is still debate among economists on the severity of the CPI bias and what to do about it. 
A)  Economists agree that the bias in the CPI is a very serious problem. 
B)  Economists agree that the bias in the CPI is not a serious problem. 
C)  Economists agree on the severity of the CPI bias, but there is still debate on what to do about it. 
D)  There is still debate among economists on the severity of the CPI bias and what to do about it.

Question 15

Table 24-3
The table below pertains to Iowan, an economy in which the typical consumer's basket consists of 4 pounds of pork and 3 bushels of corn.
  
-Refer to Table 24-3. The cost of the basket in 2012 was

Accepted Answer

A)  $108. 
B)  $116. 
C)  $112. 
D)  $224. 
A)  $108. 
B)  $116. 
C)  $112. 
D)  $224.

Question 16

If the cost of apparel increases by 50 percent, then, other things the same, the CPI is likely to increase by about

Accepted Answer

A)  0.5 percent. 
B)  2.0 percent. 
C)  3.0 percent. 
D)  11.8 percent. 
A)  0.5 percent. 
B)  2.0 percent. 
C)  3.0 percent. 
D)  11.8 percent.

Question 17

In 1979 and 1980,

Accepted Answer

A)  the U.S. inflation rate as measured by the GDP deflator was higher than that measured by the CPI, and the difference was explained by rapidly rising prices of goods exported by the U.S. 
B)  the U.S. inflation rate as measured by the CPI was higher than that measured by the GDP deflator, and the difference was explained by rapidly rising prices of goods exported by the U.S. 
C)  the U.S. inflation rate as measured by the GDP deflator was higher than that measured by the CPI, and the difference was explained by rapidly rising oil prices. 
D)  the U.S. inflation rate as measured by the CPI was higher than that measured by the GDP deflator, and the difference was explained by rapidly rising oil prices. 
A)  the U.S. inflation rate as measured by the GDP deflator was higher than that measured by the CPI, and the difference was explained by rapidly rising prices of goods exported by the U.S. 
B)  the U.S. inflation rate as measured by the CPI was higher than that measured by the GDP deflator, and the difference was explained by rapidly rising prices of goods exported by the U.S. 
C)  the U.S. inflation rate as measured by the GDP deflator was higher than that measured by the CPI, and the difference was explained by rapidly rising oil prices. 
D)  the U.S. inflation rate as measured by the CPI was higher than that measured by the GDP deflator, and the difference was explained by rapidly rising oil prices.

Question 18

If the price index was 90 in year 1, 100 in year 2, and 95 in year 3, then the economy experienced

Accepted Answer

A)  10 percent inflation between years 1 and 2, and 5 percent inflation between years 2 and 3. 
B)  10 percent inflation between years 1 and 2, and 5 percent deflation between years 2 and 3. 
C)  11.1 percent inflation between years 1 and 2, and 5 percent inflation between years 2 and 3. 
D)  11.1 percent inflation between years 1 and 2, and 5 percent deflation between years 2 and 3. 
A)  10 percent inflation between years 1 and 2, and 5 percent inflation between years 2 and 3. 
B)  10 percent inflation between years 1 and 2, and 5 percent deflation between years 2 and 3. 
C)  11.1 percent inflation between years 1 and 2, and 5 percent inflation between years 2 and 3. 
D)  11.1 percent inflation between years 1 and 2, and 5 percent deflation between years 2 and 3.

Question 19

For an imaginary economy, the value of the consumer price index was 138.75 in 2016, and the inflation rate was 10 percent between 2015 and 2016. The consumer price index in 2015 was

Accepted Answer

A)  126.1. 
B)  128.8. 
C)  148.8. 
D)  152.6. 
A)  126.1. 
B)  128.8. 
C)  148.8. 
D)  152.6.

Question 20

Most, but not all, athletic apparel sold in the United States is imported from other nations. If the price of athletic apparel increases, the GDP deflator will

Accepted Answer

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

Exam 16: Measuring the Cost of Living

Suppose that in 2010, the producer price index increases by 1.5 percent. As a result, economists most likely will predict that

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If deflation was 5 percent during the year the money was deposited, then Bob's purchasing power has not changed.

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.

The basket of goods in the consumer price index changes

In the basket of goods that is used to compute the consumer price index, the three largest categories of consumer spending are

If the nominal interest rate is 4.2 percent and the rate of inflation is -0.5 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?

Table 24-16 The table below lists annual consumer price index and inflation rates for a country over the period 2010-2013. Assume the year 2010 is used as the base year. -Refer to Table 24-16. Calculate the missing value that belongs in space B.

The consumer price index was 200 in 2008 and 190 in 2009. The nominal interest rate during this period was 4.5 percent. What was the real interest rate during this period?

For an imaginary economy, the value of the consumer price index was 140 in 2013, and the inflation rate was 5.0 percent between 2013 and 2014. The consumer price index in 2014 was

Table 24-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. -Refer to Table 24-12. Suppose the consumer price index is 15.5 percent higher in 2011 than in 2009. Then Will's food expenditures for 2010 in 2011 dollars amount to

The U.S. economy has never experienced deflation.

The real interest rate tells you

Which of the following statements best represents economists' beliefs about the bias in the CPI as a measure of the cost of living?

Table 24-3 The table below pertains to Iowan, an economy in which the typical consumer's basket consists of 4 pounds of pork and 3 bushels of corn. -Refer to Table 24-3. The cost of the basket in 2012 was

If the cost of apparel increases by 50 percent, then, other things the same, the CPI is likely to increase by about

In 1979 and 1980,

If the price index was 90 in year 1, 100 in year 2, and 95 in year 3, then the economy experienced

For an imaginary economy, the value of the consumer price index was 138.75 in 2016, and the inflation rate was 10 percent between 2015 and 2016. The consumer price index in 2015 was

Most, but not all, athletic apparel sold in the United States is imported from other nations. If the price of athletic apparel increases, the GDP deflator will

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 Costs of Production

Firms in Competitive Markets

Monopoly

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

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

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