Question 1

For the purpose of calculating the consumer price index, the basket of goods

Accepted Answer

A)  is kept the same from year to year so that the effects of price changes are isolated from the effect of any quantity changes that might be occurring at the same time. 
B)  is kept the same from year to year; otherwise, the value of the index would remain constant from year to year. 
C)  varies from year to year; otherwise, the value of the index would remain constant from year to year. 
D)  varies from year to year so that consumers' buying patterns are updated in a timely fashion. 
A)  is kept the same from year to year so that the effects of price changes are isolated from the effect of any quantity changes that might be occurring at the same time. 
B)  is kept the same from year to year; otherwise, the value of the index would remain constant from year to year. 
C)  varies from year to year; otherwise, the value of the index would remain constant from year to year. 
D)  varies from year to year so that consumers' buying patterns are updated in a timely fashion.

Question 2

Table 24-13. Olivia's expenditures on clothing for three consecutive years, along with some values for the CPI, are presented in the table below.
  
-Refer to Table 24-13. Suppose Olivia's 2009 clothing expenditure in 2010 dollars amounts to $1,440. Then X, the consumer price index for 2009, has a value of

Accepted Answer

A)  120. 
B)  130. 
C)  140. 
D)  150. 
A)  120. 
B)  130. 
C)  140. 
D)  150.

Question 3

In general, if a consumer good is produced domestically and consumed domestically, an increase in its price will have which of the following effects?

Accepted Answer

A)  The consumer price index will increase relatively more than will the GDP deflator. 
B)  The consumer price index and the GDP deflator will increase by the same amount. 
C)  The consumer price index will increase relatively less than will the GDP deflator. 
D)  One cannot generalize about the increase in the consumer price index relative to the increase in the GDP deflator. 
A)  The consumer price index will increase relatively more than will the GDP deflator. 
B)  The consumer price index and the GDP deflator will increase by the same amount. 
C)  The consumer price index will increase relatively less than will the GDP deflator. 
D)  One cannot generalize about the increase in the consumer price index relative to the increase in the GDP deflator.

Question 4

Which is likely to have the larger effect on the CPI, a 2 percent increase in the price of food or a 3 percent increase in the price of diamond rings? Explain.

Accepted Answer

The 2 percent increase in the

Question 5

If 2010 is the base year, then the inflation rate in 2015 equals

Accepted Answer

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

Question 6

Table 24-8
The table below relates to the economy of Mainland, where the typical consumer's market basket consists of 2 televisions and 300 hamburgers.
  
-Refer to Table 24-8. If the base year is 2013, then the economy's inflation rate in 2014 is

Accepted Answer

A)  11.1 percent. 
B)  200 percent. 
C)  10 percent. 
D)  90 percent. 
A)  11.1 percent. 
B)  200 percent. 
C)  10 percent. 
D)  90 percent.

Question 7

When some dollar amount is automatically corrected for inflation by law or contract, the amount is said to be indexed for inflation.

Accepted Answer

A) True 
 B)False

Question 8

Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best baseball players can earn more than 400 times as much as Babe Ruth earned in 1931. However, prices have also risen since 1931. We can conclude that

Accepted Answer

A)  the best baseball players today are about 400 times better off than Babe Ruth was in 1931. 
B)  because prices have also risen, the standard of living of baseball stars hasn't changed since 1931. 
C)  one cannot make judgments about changes in the standard of living based on changes in prices and changes in incomes. 
D)  one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931. 
A)  the best baseball players today are about 400 times better off than Babe Ruth was in 1931. 
B)  because prices have also risen, the standard of living of baseball stars hasn't changed since 1931. 
C)  one cannot make judgments about changes in the standard of living based on changes in prices and changes in incomes. 
D)  one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931.

Question 9

Suppose the typical basket for the calculation of the CPI includes one computer. Since computers have gotten better over time as a result of technological change, what problem does this create for calculating the CPI?

Accepted Answer

The improvement in t

Question 10

Data from the Bureau of Labor Statistics show that consumer spending on transportation is only slightly higher than consumer spending on food and beverages.

Accepted Answer

A) True 
 B)False

Question 11

The price index that measures the cost of a basket of goods and services bought by firms is called the

Accepted Answer

A)  industrial price index. 
B)  producer price index. 
C)  core price index. 
D)  GDP deflator. 
A)  industrial price index. 
B)  producer price index. 
C)  core price index. 
D)  GDP deflator.

Question 12

Recent changes in methods used to compute the CPI have made the

Accepted Answer

A)  upward bias in the CPI inflation rate more severe than it used to be. 
B)  upward bias in the CPI inflation rate less severe than it used to be. 
C)  downward bias in the CPI inflation rate more severe than it used to be. 
D)  downward bias in the CPI inflation rate less severe than it used to be. 
A)  upward bias in the CPI inflation rate more severe than it used to be. 
B)  upward bias in the CPI inflation rate less severe than it used to be. 
C)  downward bias in the CPI inflation rate more severe than it used to be. 
D)  downward bias in the CPI inflation rate less severe than it used to be.

Question 13

To calculate the CPI, the Bureau of Labor Statistics uses

Accepted Answer

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

Question 14

In computing the consumer price index, a base year is chosen. Which of the following statements about the base year is correct?

Accepted Answer

A)  The base year is always the first year among the years for which computations are being made. 
B)  It is necessary to designate a base year only in the simplest case of two goods; in more realistic cases, it is not necessary to designate a base year. 
C)  The value of the consumer price index is always 100 in the base year. 
D)  The base year is always the year in which the cost of the basket was highest among the years for which computations are being made. 
A)  The base year is always the first year among the years for which computations are being made. 
B)  It is necessary to designate a base year only in the simplest case of two goods; in more realistic cases, it is not necessary to designate a base year. 
C)  The value of the consumer price index is always 100 in the base year. 
D)  The base year is always the year in which the cost of the basket was highest among the years for which computations are being made.

Question 15

The U.S. income tax system is completely indexed for inflation.

Accepted Answer

A) True 
 B)False

Question 16

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $50; in 2014, the basket's cost was $52; and in 2016, the basket's cost was $55. The value of the CPI in 2016 was

Accepted Answer

A)  90.9. 
B)  104.0. 
C)  105.0. 
D)  110.0. 
A)  90.9. 
B)  104.0. 
C)  105.0. 
D)  110.0.

Question 17

Kristine has a savings account at a bank. If the nominal interest rate she earns exceeds the rate of inflation, then her purchasing power increases over time.

Accepted Answer

A) True 
 B)False

Question 18

Suppose that U.S. mining companies purchase German-made ore trucks at a reduced price. By itself, what effect will this purchase have on the GDP deflator and on the consumer price index?

Accepted Answer

A)  The consumer price index and the GDP deflator will both fall. 
B)  The consumer price index and the GDP deflator will both be unaffected. 
C)  The consumer price index will fall, and the GDP deflator will be unaffected. 
D)  The consumer price index will be unaffected, and the GDP deflator will fall. 
A)  The consumer price index and the GDP deflator will both fall. 
B)  The consumer price index and the GDP deflator will both be unaffected. 
C)  The consumer price index will fall, and the GDP deflator will be unaffected. 
D)  The consumer price index will be unaffected, and the GDP deflator will fall.

Question 19

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 2009, then the economy's inflation rate in 2010 is

Accepted Answer

A)  20 percent. 
B)  25 percent. 
C)  30 percent. 
D)  120 percent. 
A)  20 percent. 
B)  25 percent. 
C)  30 percent. 
D)  120 percent.

Question 20

Jay and Joyce meet George, the banker, to work out the details of a mortgage. They all expect that inflation will be 2 percent over the term of the loan, and they agree on a nominal interest rate of 6 percent. As it turns out, the inflation rate is 5 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 benefited and who lost because of the unexpected inflation?

Accepted Answer

a. The expected real interest rate was 4

Exam 16: Measuring the Cost of Living

For the purpose of calculating the consumer price index, the basket of goods

In general, if a consumer good is produced domestically and consumed domestically, an increase in its price will have which of the following effects?

Which is likely to have the larger effect on the CPI, a 2 percent increase in the price of food or a 3 percent increase in the price of diamond rings? Explain.

If 2010 is the base year, then the inflation rate in 2015 equals

Table 24-8 The table below relates to the economy of Mainland, where the typical consumer's market basket consists of 2 televisions and 300 hamburgers. -Refer to Table 24-8. If the base year is 2013, then the economy's inflation rate in 2014 is

When some dollar amount is automatically corrected for inflation by law or contract, the amount is said to be indexed for inflation.

Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best baseball players can earn more than 400 times as much as Babe Ruth earned in 1931. However, prices have also risen since 1931. We can conclude that

Suppose the typical basket for the calculation of the CPI includes one computer. Since computers have gotten better over time as a result of technological change, what problem does this create for calculating the CPI?

Data from the Bureau of Labor Statistics show that consumer spending on transportation is only slightly higher than consumer spending on food and beverages.

The price index that measures the cost of a basket of goods and services bought by firms is called the

Recent changes in methods used to compute the CPI have made the

To calculate the CPI, the Bureau of Labor Statistics uses

In computing the consumer price index, a base year is chosen. Which of the following statements about the base year is correct?

The U.S. income tax system is completely indexed for inflation.

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $50; in 2014, the basket's cost was $52; and in 2016, the basket's cost was $55. The value of the CPI in 2016 was

Kristine has a savings account at a bank. If the nominal interest rate she earns exceeds the rate of inflation, then her purchasing power increases over time.

Suppose that U.S. mining companies purchase German-made ore trucks at a reduced price. By itself, what effect will this purchase have on the GDP deflator and on the consumer price index?

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 2009, then the economy's inflation rate in 2010 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

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