Question 1

Which of the following statements regarding the consumer price index and the GDP deflator is correct?

Accepted Answer

A)  The two price measures are always equal. 
B)  Divergence between the two price measures is the rule, not the exception. 
C)  Divergence between the two price measures is the exception, not the rule. 
D)  None of the above is correct. 
A)  The two price measures are always equal. 
B)  Divergence between the two price measures is the rule, not the exception. 
C)  Divergence between the two price measures is the exception, not the rule. 
D)  None of the above is correct.

Question 2

The consumer price index was 120 in 2013 and 126 in 2014. The nominal interest rate during this period was 8 percent. What was the real interest rate during this period?

Accepted Answer

A)  3 percent 
B)  2 percent 
C)  3.3 percent 
D)  12.8 percent 
A)  3 percent 
B)  2 percent 
C)  3.3 percent 
D)  12.8 percent

Question 3

Suppose the quality of beef changes over time, but the quality change goes unmeasured for the purpose of computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality change be least severe?

Accepted Answer

A)  The quality of beef deteriorates and beef becomes more expensive relative to other goods. 
B)  The quality of beef deteriorates and beef becomes less expensive relative to other goods. 
C)  The quality of beef improves and beef becomes more expensive relative to other goods. 
D)  The quality of beef improves and the price of beef relative to other prices remains unchanged. 
A)  The quality of beef deteriorates and beef becomes more expensive relative to other goods. 
B)  The quality of beef deteriorates and beef becomes less expensive relative to other goods. 
C)  The quality of beef improves and beef becomes more expensive relative to other goods. 
D)  The quality of beef improves and the price of beef relative to other prices remains unchanged.

Question 4

Data from the Bureau of Labor Statistics show that apparel makes up 14 percent of the typical consumer's budget.

Accepted Answer

A) True 
 B)False

Question 5

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If inflation was 7 percent during the year the money was deposited, then Bob's purchasing power has increased by 2 percent.

Accepted Answer

A) True 
 B)False

Question 6

If the CPI was 170 in 1998 and was 187 in 1999, what was the inflation rate in 1999?

Accepted Answer

The inflat

Question 7

If the CPI increased from 215 to 218 between the years 2012 and 2013, while the nominal interest rate increased from 3.25% to 3.80%, what is the real interest rate in 2013?

Accepted Answer

The answer of If the CPI increased from 215 to...

Question 8

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. Will's 2009 food expenditures in 2010 dollars amount to

Accepted Answer

A)  $5,500. 
B)  $5,250. 
C)  $4,975. 
D)  $3,625. 
A)  $5,500. 
B)  $5,250. 
C)  $4,975. 
D)  $3,625.

Question 9

Why does the GDP deflator give a different rate of inflation than the CPI?

Accepted Answer

The GDP deflator and the CPI differ in t

Question 10

Michelle bought word-processing software in 2009 for $75. Michelle's cousin, Barry, bought an upgrade of the same software in 2010 for $75. To which problem in the construction of the CPI is this situation most relevant?

Accepted Answer

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

Question 11

The real interest rate tells you how fast the purchasing power of your bank account rises over time.

Accepted Answer

A) True 
 B)False

Question 12

For some racquet sports, there have been increases in the size of the racquets; also, the methods and materials used for making racquets have improved. To which problem in the construction of the CPI is this situation 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 13

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been chosen as the base year. In 2012, the basket's cost was $80.00; in 2013, the basket's cost was $84; and in 2014, the basket's cost was $87.60. The value of the CPI was

Accepted Answer

A)  100 in 2012. 
B)  105 in 2013. 
C)  109.5 in 2014. 
D)  All of the above are correct. 
A)  100 in 2012. 
B)  105 in 2013. 
C)  109.5 in 2014. 
D)  All of the above are correct.

Question 14

The CPI was 220 in 2012 and 231 in 2013. Phil borrowed money in 2012 and repaid the loan in 2013. If the nominal interest rate on the loan was 10 percent, then the real interest rate was

Accepted Answer

A)  -5 percent. 
B)  -1 percent. 
C)  5 percent. 
D)  3.2 percent. 
A)  -5 percent. 
B)  -1 percent. 
C)  5 percent. 
D)  3.2 percent.

Question 15

When the price of nuclear missiles rises, this change is reflected in the CPI but not in the GDP deflator.

Accepted Answer

A) True 
 B)False

Question 16

Table 24-7. The table below applies to an economy with only two goods - hamburgers and hot dogs. The fixed basket consists of 4 hamburgers and 8 hot dogs.
  
-Refer to Table 24-7. If the base year is 2010, then the economy's inflation rate in 2010 is

Accepted Answer

A)  8 percent. 
B)  10 percent. 
C)  10.91 percent. 
D)  11.11 percent. 
A)  8 percent. 
B)  10 percent. 
C)  10.91 percent. 
D)  11.11 percent.

Question 17

Scenario 24-3
Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2013. The price index was 17.6 in 1944 and 218.4 in 2013.
-Refer to Scenario 24-3. In real terms, Sue Holloway's income amounts to about what percentage of Josh Holloway's income?

Accepted Answer

A)  11.0 percent 
B)  65.2 percent 
C)  70.9 percent 
D)  114.7 percent 
A)  11.0 percent 
B)  65.2 percent 
C)  70.9 percent 
D)  114.7 percent

Question 18

With respect to the consumer price index, which of the following does not serve as an example of how the substitution bias arises? Between 2010 and 2011, the price of a pound of peanuts

Accepted Answer

A)  rises from $0.80 to $1.00 while the price of a loaf of bread rises from $2.00 to $2.50. 
B)  rises from $1.00 to $1.30 while the price of a loaf of bread rises from $2.00 to $2.30. 
C)  remains constant, while the price of a loaf of bread rises from $2.00 to $2.30. 
D)  falls from $1.00 to $0.80 while the price of a loaf of bread falls from $2.00 to $1.80. 
A)  rises from $0.80 to $1.00 while the price of a loaf of bread rises from $2.00 to $2.50. 
B)  rises from $1.00 to $1.30 while the price of a loaf of bread rises from $2.00 to $2.30. 
C)  remains constant, while the price of a loaf of bread rises from $2.00 to $2.30. 
D)  falls from $1.00 to $0.80 while the price of a loaf of bread falls from $2.00 to $1.80.

Question 19

From 2009 to 2010, the CPI for education increased from 279.3 to 281.8. What was the inflation rate for education between 2009 and 2010?

Accepted Answer

A)  0.9% 
B)  9.0% 
C)  2.5% 
D)  90% 
A)  0.9% 
B)  9.0% 
C)  2.5% 
D)  90%

Question 20

If the nominal interest rate is 5 percent and the rate of inflation is -2.5 percent, then the real interest rate is

Accepted Answer

A)  -7.5 percent. 
B)  -2.5 percent. 
C)  2.5 percent. 
D)  7.5 percent. 
A)  -7.5 percent. 
B)  -2.5 percent. 
C)  2.5 percent. 
D)  7.5 percent.

Exam 16: Measuring the Cost of Living

Which of the following statements regarding the consumer price index and the GDP deflator is correct?

The consumer price index was 120 in 2013 and 126 in 2014. The nominal interest rate during this period was 8 percent. What was the real interest rate during this period?

Suppose the quality of beef changes over time, but the quality change goes unmeasured for the purpose of computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality change be least severe?

Data from the Bureau of Labor Statistics show that apparel makes up 14 percent of the typical consumer's budget.

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If inflation was 7 percent during the year the money was deposited, then Bob's purchasing power has increased by 2 percent.

If the CPI was 170 in 1998 and was 187 in 1999, what was the inflation rate in 1999?

If the CPI increased from 215 to 218 between the years 2012 and 2013, while the nominal interest rate increased from 3.25% to 3.80%, what is the real interest rate in 2013?

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. Will's 2009 food expenditures in 2010 dollars amount to

Why does the GDP deflator give a different rate of inflation than the CPI?

Michelle bought word-processing software in 2009 for $75. Michelle's cousin, Barry, bought an upgrade of the same software in 2010 for $75. To which problem in the construction of the CPI is this situation most relevant?

The real interest rate tells you how fast the purchasing power of your bank account rises over time.

For some racquet sports, there have been increases in the size of the racquets; also, the methods and materials used for making racquets have improved. To which problem in the construction of the CPI is this situation most relevant?

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been chosen as the base year. In 2012, the basket's cost was $80.00; in 2013, the basket's cost was $84; and in 2014, the basket's cost was $87.60. The value of the CPI was

The CPI was 220 in 2012 and 231 in 2013. Phil borrowed money in 2012 and repaid the loan in 2013. If the nominal interest rate on the loan was 10 percent, then the real interest rate was

When the price of nuclear missiles rises, this change is reflected in the CPI but not in the GDP deflator.

Table 24-7. The table below applies to an economy with only two goods - hamburgers and hot dogs. The fixed basket consists of 4 hamburgers and 8 hot dogs. -Refer to Table 24-7. If the base year is 2010, then the economy's inflation rate in 2010 is

With respect to the consumer price index, which of the following does not serve as an example of how the substitution bias arises? Between 2010 and 2011, the price of a pound of peanuts

From 2009 to 2010, the CPI for education increased from 279.3 to 281.8. What was the inflation rate for education between 2009 and 2010?

If the nominal interest rate is 5 percent and the rate of inflation is -2.5 percent, then the real interest rate is

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

Filters