Question 1

The price index was 120 in 2012 and 126 in 2013. What was the inflation rate?

Accepted Answer

A)  5.0 percent 
B)  6.0 percent 
C)  7.2 percent 
D)  105 percent 
A)  5.0 percent 
B)  6.0 percent 
C)  7.2 percent 
D)  105 percent

Question 2

Explain how the introduction of new goods might bias the calculation of the consumer price index.

Accepted Answer

Because the CPI is based on a fixed bask

Question 3

Suppose the price of a quart of milk rises from $1.00 to $1.20 and the price of a T-shirt rises from $8.00 to $9.60. If the CPI rises from 150 to 195, then people likely will buy

Accepted Answer

A)  more milk and more T-shirts. 
B)  more milk and fewer T-shirts. 
C)  less milk and more T-shirts. 
D)  less milk and fewer T-shirts. 
A)  more milk and more T-shirts. 
B)  more milk and fewer T-shirts. 
C)  less milk and more T-shirts. 
D)  less milk and fewer T-shirts.

Question 4

Suppose that the CPI in 2009 is 220 and that the inflation rate is 5% in 2010. What is the CPI in 2010?

Accepted Answer

The CPI in

Question 5

Table 24-4
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 24-4. If 2012 is the base year, then the consumer price index was

Accepted Answer

A)  100 in 2012, 123.8 in 2013, and 133.3 in 2014. 
B)  100 in 2012, 124.2 in 2013, and 133.3 in 2014. 
C)  210 in 2012, 260 in 2013, and 280 in 2014. 
D)  100 in 2012, 150 in 2013, and 170 in 2014. 
A)  100 in 2012, 123.8 in 2013, and 133.3 in 2014. 
B)  100 in 2012, 124.2 in 2013, and 133.3 in 2014. 
C)  210 in 2012, 260 in 2013, and 280 in 2014. 
D)  100 in 2012, 150 in 2013, and 170 in 2014.

Question 6

If the CPI today is 120 and the CPI five years ago was 80, then something that cost $1 five years ago would cost $1.50 in today's prices.

Accepted Answer

A) True 
 B)False

Question 7

If the nominal interest rate is 6 percent and the rate of inflation is 10 percent, then the real interest rate is

Accepted Answer

A)  -16 percent. 
B)  -4 percent. 
C)  4 percent. 
D)  16 percent. 
A)  -16 percent. 
B)  -4 percent. 
C)  4 percent. 
D)  16 percent.

Question 8

Table 24-5
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 24-5. The inflation rate was

Accepted Answer

A)  negative in 2005 and negative in 2006. 
B)  negative in 2005 and positive in 2006. 
C)  positive in 2005 and negative in 2006. 
D)  positive in 2005 and positive in 2006. 
A)  negative in 2005 and negative in 2006. 
B)  negative in 2005 and positive in 2006. 
C)  positive in 2005 and negative in 2006. 
D)  positive in 2005 and positive in 2006.

Question 9

Dewey earned a salary of $75,000 in 2001 and $95,000 in 2006. The consumer price index was 177 in 2001 and 266 in 2006. Dewey's 2001 salary in 2006 dollars is

Accepted Answer

A)  $37,711.86. 
B)  $49,906.02. 
C)  $66,750.00. 
D)  $112,711.86. 
A)  $37,711.86. 
B)  $49,906.02. 
C)  $66,750.00. 
D)  $112,711.86.

Question 10

Table 24-9
The table below lists the per gallon prices of gas and milk for the months of April, May, and June. Assume that the typical consumer buys 60 gallons of gas and 4 gallons of milk each month, and that April is the base period.
  
-Refer to Table 24-9. What is the inflation rate for May?

Accepted Answer

A)  66.4% 
B)  60.1% 
C)  -4.1% 
D)  10% 
A)  66.4% 
B)  60.1% 
C)  -4.1% 
D)  10%

Question 11

In 1972, one could buy model rocket engines for $1.50 each. If those same engines cost $2.50 each today, then which pair of CPIs would make the engine prices in today's dollars the same for both years?

Accepted Answer

A)  60 in 1972 and 95 today 
B)  60 in 1972 and 120 today 
C)  90 in 1972 and 150 today 
D)  96 in 1972 and 154 today 
A)  60 in 1972 and 95 today 
B)  60 in 1972 and 120 today 
C)  90 in 1972 and 150 today 
D)  96 in 1972 and 154 today

Question 12

When the consumer price index rises, the typical family

Accepted Answer

A)  has to spend more dollars to maintain the same standard of living. 
B)  can spend fewer dollars to maintain the same standard of living. 
C)  finds that its standard of living is not affected. 
D)  can offset the effects of rising prices by saving more. 
A)  has to spend more dollars to maintain the same standard of living. 
B)  can spend fewer dollars to maintain the same standard of living. 
C)  finds that its standard of living is not affected. 
D)  can offset the effects of rising prices by saving more.

Question 13

The price of milk increases dramatically, causing a 0.5 percent increase in the CPI. The price increase will most likely cause the GDP deflator to increase by

Accepted Answer

A)  more than 0.5 percent. 
B)  less than 0.5 percent. 
C)  0.5 percent. 
D)  None of the above is correct; this particular price increase will not affect the GDP deflator. 
A)  more than 0.5 percent. 
B)  less than 0.5 percent. 
C)  0.5 percent. 
D)  None of the above is correct; this particular price increase will not affect the GDP deflator.

Question 14

Suppose that over the past year, the real interest rate was 6 percent and the inflation rate was 4 percent. It follows that

Accepted Answer

A)  the dollar value of savings increased at 6 percent, and the purchasing power of savings increased at 2 percent. 
B)  the dollar value of savings increased at 6 percent, and the purchasing power of savings increased at 10 percent. 
C)  the dollar value of savings increased at 10 percent, and the purchasing power of savings increased at 2 percent. 
D)  the dollar value of savings increased at 10 percent, and the purchasing power of savings increased at 6 percent. 
A)  the dollar value of savings increased at 6 percent, and the purchasing power of savings increased at 2 percent. 
B)  the dollar value of savings increased at 6 percent, and the purchasing power of savings increased at 10 percent. 
C)  the dollar value of savings increased at 10 percent, and the purchasing power of savings increased at 2 percent. 
D)  the dollar value of savings increased at 10 percent, and the purchasing power of savings increased at 6 percent.

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

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

Accepted Answer

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

Question 17

To which of the problems in the construction of the CPI is the invention of pocket-sized computers most relevant?

Accepted Answer

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

Question 18

Suppose that over the past year, the nominal interest rate was 5 percent, the CPI was 150.3 at the end of the year, and the CPI was 144.2 at the beginning of the year. It follows that

Accepted Answer

A)  the dollar value of savings increased at 5 percent, and the purchasing power of savings increased at 0.8 percent. 
B)  the dollar value of savings increased at 5 percent, and the purchasing power of savings increased at 9.2 percent. 
C)  the dollar value of savings increased at 0.8 percent, and the purchasing power of savings increased at 5 percent. 
D)  the dollar value of savings increased at 9.2 percent, and the purchasing power of savings increased at 5 percent. 
A)  the dollar value of savings increased at 5 percent, and the purchasing power of savings increased at 0.8 percent. 
B)  the dollar value of savings increased at 5 percent, and the purchasing power of savings increased at 9.2 percent. 
C)  the dollar value of savings increased at 0.8 percent, and the purchasing power of savings increased at 5 percent. 
D)  the dollar value of savings increased at 9.2 percent, and the purchasing power of savings increased at 5 percent.

Question 19

If the nominal interest rate is 5 percent and the rate of inflation is 9 percent, then the real interest rate is

Accepted Answer

A)  -4 percent. 
B)  -0.44 percent. 
C)  4 percent. 
D)  14 percent. 
A)  -4 percent. 
B)  -0.44 percent. 
C)  4 percent. 
D)  14 percent.

Question 20

The largest sector in the consumer price index market basket is food and beverage purchases.

Accepted Answer

A) True 
 B)False

Exam 16: Measuring the Cost of Living

The price index was 120 in 2012 and 126 in 2013. What was the inflation rate?

Explain how the introduction of new goods might bias the calculation of the consumer price index.

Suppose the price of a quart of milk rises from $1.00 to $1.20 and the price of a T-shirt rises from $8.00 to $9.60. If the CPI rises from 150 to 195, then people likely will buy

Suppose that the CPI in 2009 is 220 and that the inflation rate is 5% in 2010. What is the CPI in 2010?

Table 24-4 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 24-4. If 2012 is the base year, then the consumer price index was

If the CPI today is 120 and the CPI five years ago was 80, then something that cost $1 five years ago would cost $1.50 in today's prices.

If the nominal interest rate is 6 percent and the rate of inflation is 10 percent, then the real interest rate is

Table 24-5 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 24-5. The inflation rate was

Dewey earned a salary of $75,000 in 2001 and $95,000 in 2006. The consumer price index was 177 in 2001 and 266 in 2006. Dewey's 2001 salary in 2006 dollars is

Table 24-9 The table below lists the per gallon prices of gas and milk for the months of April, May, and June. Assume that the typical consumer buys 60 gallons of gas and 4 gallons of milk each month, and that April is the base period. -Refer to Table 24-9. What is the inflation rate for May?

In 1972, one could buy model rocket engines for $1.50 each. If those same engines cost $2.50 each today, then which pair of CPIs would make the engine prices in today's dollars the same for both years?

When the consumer price index rises, the typical family

The price of milk increases dramatically, causing a 0.5 percent increase in the CPI. The price increase will most likely cause the GDP deflator to increase by

Suppose that over the past year, the real interest rate was 6 percent and the inflation rate was 4 percent. It follows that

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

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

To which of the problems in the construction of the CPI is the invention of pocket-sized computers most relevant?

Suppose that over the past year, the nominal interest rate was 5 percent, the CPI was 150.3 at the end of the year, and the CPI was 144.2 at the beginning of the year. It follows that

If the nominal interest rate is 5 percent and the rate of inflation is 9 percent, then the real interest rate is

The largest sector in the consumer price index market basket is food and beverage purchases.

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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