Question 1

In the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the largest?

Accepted Answer

A)  education & communication 
B)  recreation 
C)  medical care 
D)  All of the above categories are about equal in magnitude. 
A)  education & communication 
B)  recreation 
C)  medical care 
D)  All of the above categories are about equal in magnitude.

Question 2

Scenario 24-1
The price tag on a tennis ball in 1975 read $0.10, and the price tag on a tennis ball in 2005 read $1.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3.
-Refer to Scenario 24-1. In 1975 dollars, a 1975 tennis ball cost $0.10 and a 2005 tennis ball cost

Accepted Answer

A)  $0.27, so tennis balls were cheaper in 1975. 
B)  $0.27, so tennis balls were cheaper in 2005. 
C)  $3.66, so tennis balls were cheaper in 1975. 
D)  $3.66, so tennis balls were cheaper in 2005. 
A)  $0.27, so tennis balls were cheaper in 1975. 
B)  $0.27, so tennis balls were cheaper in 2005. 
C)  $3.66, so tennis balls were cheaper in 1975. 
D)  $3.66, so tennis balls were cheaper in 2005.

Question 3

Scenario 24-5
Suppose the residents of Mediaville spend all of their income on books, CDs, and DVDs. In 2009, they buy 400 books for $3,200, 200 CDs for $1,400, and 100 DVDs for $900. In 2010, they buy 360 books for $3,240, 250 CDs for $1,500, and 125 DVDs for $1,250. Assume that the market basket for the CPI is defined in the base year.
-Refer to Scenario 24-5. Using 2009 as the base year, what is the CPI in each year?

Accepted Answer

In 2009 the CPI is 1

Question 4

In comparison to the situation in the late 1970s, the United States experienced lower nominal interest rates and higher real interest rates in the late 1990s.

Accepted Answer

A) True 
 B)False

Question 5

Table 24-6
The table below pertains to Napandsnack, an economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs.
  
-Refer to Table 24-6. If the base year is 2010, then the consumer price index was

Accepted Answer

A)  83.33 in 2009, 100.00 in 2010, and 96.67 in 2011. 
B)  85.56 in 2009, 100.00 in 2010, and 102.22 in 2011. 
C)  85.56 in 2009, 100.00 in 2010, and 96.67 in 2011. 
D)  92.22 in 2009, 99.00 in 2010, and 95.22 in 2011. 
A)  83.33 in 2009, 100.00 in 2010, and 96.67 in 2011. 
B)  85.56 in 2009, 100.00 in 2010, and 102.22 in 2011. 
C)  85.56 in 2009, 100.00 in 2010, and 96.67 in 2011. 
D)  92.22 in 2009, 99.00 in 2010, and 95.22 in 2011.

Question 6

Which of the following agencies calculates the CPI?

Accepted Answer

A)  Bureau of Labor Statistics 
B)  Congressional Budget Office 
C)  Federal Reserve 
D)  Bureau of National Price Standards and Records 
A)  Bureau of Labor Statistics 
B)  Congressional Budget Office 
C)  Federal Reserve 
D)  Bureau of National Price Standards and Records

Question 7

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. The cost of the basket in 2012 was

Accepted Answer

A)  $32. 
B)  $200. 
C)  $210. 
D)  $247.5. 
A)  $32. 
B)  $200. 
C)  $210. 
D)  $247.5.

Question 8

Suppose the consumer price index was 184 in 2009 and 198.17 in 2010. The nominal interest rate during this period was 5.8 percent. What was the real interest rate during this period?

Accepted Answer

A)  0.4 percent 
B)  1.2 percent 
C)  -1.9 percent 
D)  -2.6 percent 
A)  0.4 percent 
B)  1.2 percent 
C)  -1.9 percent 
D)  -2.6 percent

Question 9

Which of the following is the correct formula for calculating the inflation rate?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 10

Table 24-10
The table below shows the prices of baseballs and baseball bats for three years. Assume the typical consumer's basket consists of 6 baseballs and 2 baseball bats.
  
-Refer to Table 24-10. If 2009 is the base year, then the consumer price index was

Accepted Answer

A)  83.00 in 2008, 100.00 in 2009, and 132.50 in 2010. 
B)  89.97 in 2008, 100.00 in 2009, and 117.43 in 2010. 
C)  90.88 in 2008, 100.00 in 2009, and 117.43 in 2010. 
D)  169.50 in 2008, 186.50 in 2009, and 219.00 in 2010. 
A)  83.00 in 2008, 100.00 in 2009, and 132.50 in 2010. 
B)  89.97 in 2008, 100.00 in 2009, and 117.43 in 2010. 
C)  90.88 in 2008, 100.00 in 2009, and 117.43 in 2010. 
D)  169.50 in 2008, 186.50 in 2009, and 219.00 in 2010.

Question 11

Explain how the prices of goods and services used in the CPI differ from the prices used in the PPI.

Accepted Answer

The CPI focuses on goods and s

Question 12

In 1954, Mickey Mantle earned $21,000 playing for the New York Yankees. The CPI in 1954 was 26.9, and the CPI in 2010 was 218.06. What is Mickey Mantle's 1954 salary in 2010 dollars?

Accepted Answer

Mickey Mantle's 1954

Question 13

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 14

Changes in the quality of a good

Accepted Answer

A)  do not present a problem in the construction of the consumer price index. 
B)  present a problem in the construction of the consumer price index, and that problem is sometimes referred to as substitution bias. 
C)  are not accounted for, as a matter of policy, by the Bureau of Labor Statistics. 
D)  can lead to either an increase or a decrease in the value of a dollar. 
A)  do not present a problem in the construction of the consumer price index. 
B)  present a problem in the construction of the consumer price index, and that problem is sometimes referred to as substitution bias. 
C)  are not accounted for, as a matter of policy, by the Bureau of Labor Statistics. 
D)  can lead to either an increase or a decrease in the value of a dollar.

Question 15

One of the differences between the GDP deflator and the consumer price index is

Accepted Answer

A)  the GDP deflator includes income earned by American citizens working in foreign countries and the consumer price index is based solely on purchases made in the U.S. 
B)  the consumer price index basket of goods is updated constantly by the Bureau of Labor Statistics whereas the GDP deflator is updated only occasionally. 
C)  the consumer price index includes items not included in the GDP deflator such as airplanes purchased by the Air Force. 
D)  the GDP deflator reflects prices for all goods and services produced domestically and the consumer price index reflects prices for some goods and services bought by consumers. 
A)  the GDP deflator includes income earned by American citizens working in foreign countries and the consumer price index is based solely on purchases made in the U.S. 
B)  the consumer price index basket of goods is updated constantly by the Bureau of Labor Statistics whereas the GDP deflator is updated only occasionally. 
C)  the consumer price index includes items not included in the GDP deflator such as airplanes purchased by the Air Force. 
D)  the GDP deflator reflects prices for all goods and services produced domestically and the consumer price index reflects prices for some goods and services bought by consumers.

Question 16

Many economists believe the bias in the CPI is now only about half as large as it once was.

Accepted Answer

A) True 
 B)False

Question 17

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. If 2012 is the base year, then the CPI for 2013 was

Accepted Answer

A)  100.0. 
B)  116.0. 
C)  132.8. 
D)  154.0. 
A)  100.0. 
B)  116.0. 
C)  132.8. 
D)  154.0.

Question 18

Table 24-11. Megan's salary for three consecutive years, along with other values, are presented in the table below.
  
-Refer to Table 24-11. Suppose the consumer price index for 2013 is not necessarily 235. If the nominal interest rate for 2013 is 7.3 percent , then the consumer price index for 2013 is, in fact,

Accepted Answer

A)  239.1. 
B)  235.5. 
C)  242.7. 
D)  250.9. 
A)  239.1. 
B)  235.5. 
C)  242.7. 
D)  250.9.

Question 19

When the price of Italian wine rises, this change is reflected in the U.S. CPI but not in the U.S. GDP deflator.

Accepted Answer

A) True 
 B)False

Question 20

The goal of the consumer price index is to gauge how much incomes must rise to maintain a constant standard of living.

Accepted Answer

A) True 
 B)False

Exam 16: Measuring the Cost of Living

In the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the largest?

Scenario 24-1 The price tag on a tennis ball in 1975 read $0.10, and the price tag on a tennis ball in 2005 read $1.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3. -Refer to Scenario 24-1. In 1975 dollars, a 1975 tennis ball cost $0.10 and a 2005 tennis ball cost

In comparison to the situation in the late 1970s, the United States experienced lower nominal interest rates and higher real interest rates in the late 1990s.

Table 24-6 The table below pertains to Napandsnack, an economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs. -Refer to Table 24-6. If the base year is 2010, then the consumer price index was

Which of the following agencies calculates the CPI?

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. The cost of the basket in 2012 was

Suppose the consumer price index was 184 in 2009 and 198.17 in 2010. The nominal interest rate during this period was 5.8 percent. What was the real interest rate during this period?

Which of the following is the correct formula for calculating the inflation rate?

Table 24-10 The table below shows the prices of baseballs and baseball bats for three years. Assume the typical consumer's basket consists of 6 baseballs and 2 baseball bats. -Refer to Table 24-10. If 2009 is the base year, then the consumer price index was

Explain how the prices of goods and services used in the CPI differ from the prices used in the PPI.

In 1954, Mickey Mantle earned $21,000 playing for the New York Yankees. The CPI in 1954 was 26.9, and the CPI in 2010 was 218.06. What is Mickey Mantle's 1954 salary in 2010 dollars?

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

Changes in the quality of a good

One of the differences between the GDP deflator and the consumer price index is

Many economists believe the bias in the CPI is now only about half as large as it once was.

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. If 2012 is the base year, then the CPI for 2013 was

When the price of Italian wine rises, this change is reflected in the U.S. CPI but not in the U.S. GDP deflator.

The goal of the consumer price index is to gauge how much incomes must rise to maintain a constant standard of living.

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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