Question 1

To which of the problems in the construction of the CPI is the creation of the mobile phone 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 2

Write the formula for finding the rate of inflation in 2011 if you have only the CPI for the years 2010, 2011, and 2012.

Accepted Answer

The answer of Write the formula for finding the rate...

Question 3

Table 24-2
The table below pertains to Pieway, an economy in which the typical consumer's basket consists of 15 bushels of peaches and 10 bushels of pecans.
  
-Refer to Table 24-2. If 2013 is the base year, then the inflation rate in 2013 was

Accepted Answer

A)  22.5 percent. 
B)  2.35 percent. 
C)  10 percent. 
D)  4.4 percent. 
A)  22.5 percent. 
B)  2.35 percent. 
C)  10 percent. 
D)  4.4 percent.

Question 4

The consumer price index is subject to substitution bias because

Accepted Answer

A)  some pairs of goods are complements rather than substitutes. 
B)  some goods are inferior rather than normal. 
C)  the law of demand applies to most, if not all, goods. 
D)  the index does not take into account the likelihood that consumers substitute newly-introduced goods for more- established goods. 
A)  some pairs of goods are complements rather than substitutes. 
B)  some goods are inferior rather than normal. 
C)  the law of demand applies to most, if not all, goods. 
D)  the index does not take into account the likelihood that consumers substitute newly-introduced goods for more- established goods.

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 2011, then the CPI

Accepted Answer

A)  increased from 2009 to 2010 and increased from 2010 to 2011. 
B)  increased from 2009 to 2010 and decreased from 2010 to 2011. 
C)  decreased from 2009 to 2010 and increased from 2010 to 2011. 
D)  decreased from 2009 to 2010 and decreased from 2010 to 2011. 
A)  increased from 2009 to 2010 and increased from 2010 to 2011. 
B)  increased from 2009 to 2010 and decreased from 2010 to 2011. 
C)  decreased from 2009 to 2010 and increased from 2010 to 2011. 
D)  decreased from 2009 to 2010 and decreased from 2010 to 2011.

Question 6

Which of the following is not correct?

Accepted Answer

A)  The consumer price index gives economists a way of turning dollar figures into meaningful measures of purchasing power. 
B)  The consumer price index is used to monitor changes in the cost of living over time. 
C)  The consumer price index is used by economists to measure the inflation rate. 
D)  The consumer price index is used to measure the quantity of goods and services that the economy is producing. 
A)  The consumer price index gives economists a way of turning dollar figures into meaningful measures of purchasing power. 
B)  The consumer price index is used to monitor changes in the cost of living over time. 
C)  The consumer price index is used by economists to measure the inflation rate. 
D)  The consumer price index is used to measure the quantity of goods and services that the economy is producing.

Question 7

The consumer price index tries to gauge how much incomes must rise to maintain

Accepted Answer

A)  an increasing standard of living. 
B)  a constant standard of living. 
C)  a decreasing standard of living. 
D)  the highest standard of living possible. 
A)  an increasing standard of living. 
B)  a constant standard of living. 
C)  a decreasing standard of living. 
D)  the highest standard of living possible.

Question 8

For an imaginary economy, the consumer price index was 80 in 2014, 100 in 2015, and 140 in 2016. Which of the following statements is correct?

Accepted Answer

A)  If the basket of goods that is used to calculate the CPI cost $40 in 2014, then that basket of goods cost $60 in 2015. 
B)  If the basket of goods that is used to calculate the CPI cost $25 in 2015, then that basket of goods cost $35 in 2016. 
C)  The overall level of prices increased by 60 percent between 2014 and 2016. 
D)  All of the above are correct. 
A)  If the basket of goods that is used to calculate the CPI cost $40 in 2014, then that basket of goods cost $60 in 2015. 
B)  If the basket of goods that is used to calculate the CPI cost $25 in 2015, then that basket of goods cost $35 in 2016. 
C)  The overall level of prices increased by 60 percent between 2014 and 2016. 
D)  All of the above are correct.

Question 9

You know that a candy bar cost five cents in 1962. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in today's prices?

Accepted Answer

A)  five cents × 1962 CPI / today's CPI) 
B)  five cents × today's CPI - 1962 CPI)/1962 CPI) 
C)  five cents × today's CPI / 1962 CPI) 
D)  five cents × today's CPI - five cents   1962 CPI. 
A)  five cents × 1962 CPI / today's CPI) 
B)  five cents × today's CPI - 1962 CPI)/1962 CPI) 
C)  five cents × today's CPI / 1962 CPI) 
D)  five cents × today's CPI - five cents   1962 CPI.

Question 10

Which of the following statements about real and nominal interest rates is correct?

Accepted Answer

A)  When the nominal interest rate is rising, the real interest rate is necessarily rising; when the nominal interest rate is falling, the real interest rate is necessarily falling. 
B)  If the nominal interest rate is 4 percent and the inflation rate is 3 percent, then the real interest rate is 7 percent. 
C)  An increase in the real interest rate is necessarily accompanied by either an increase in the nominal interest rate, an increase in the inflation rate, or both. 
D)  When the inflation rate is positive, the nominal interest rate is necessarily greater than the real interest rate. 
A)  When the nominal interest rate is rising, the real interest rate is necessarily rising; when the nominal interest rate is falling, the real interest rate is necessarily falling. 
B)  If the nominal interest rate is 4 percent and the inflation rate is 3 percent, then the real interest rate is 7 percent. 
C)  An increase in the real interest rate is necessarily accompanied by either an increase in the nominal interest rate, an increase in the inflation rate, or both. 
D)  When the inflation rate is positive, the nominal interest rate is necessarily greater than the real interest rate.

Question 11

The consumer price index is used to

Accepted Answer

A)  monitor changes in the level of wholesale prices in the economy. 
B)  monitor changes in the cost of living over time. 
C)  monitor changes in the level of real GDP over time. 
D)  monitor changes in the stock market. 
A)  monitor changes in the level of wholesale prices in the economy. 
B)  monitor changes in the cost of living over time. 
C)  monitor changes in the level of real GDP over time. 
D)  monitor changes in the stock market.

Question 12

In the United States in the late 1970s, nominal interest rates were high and inflation rates were very high. As a result, real interest rates were

Accepted Answer

A)  very high. 
B)  high. 
C)  low, but never negative. 
D)  low, and in some years they were negative. 
A)  very high. 
B)  high. 
C)  low, but never negative. 
D)  low, and in some years they were negative.

Question 13

In an imaginary economy, consumers buy only razors and cologne. The fixed basket consists of 6 razors and 4 bottles of cologne. A razor cost $20 in 2009 and $25 in 2010. A bottle of cologne cost $30 in 2009 and $40 in 2010. Using 2009 as the base year, which of the following statements is correct?

Accepted Answer

A)  For the typical consumer, the number of dollars spent on razors is equal to the number of dollars spent on cologne in each of the two years. 
B)  The consumer price index is 310 in 2010. 
C)  The rate of inflation is 29.17% in 2010. 
D)  None of the above is correct. 
A)  For the typical consumer, the number of dollars spent on razors is equal to the number of dollars spent on cologne in each of the two years. 
B)  The consumer price index is 310 in 2010. 
C)  The rate of inflation is 29.17% in 2010. 
D)  None of the above is correct.

Question 14

The three problems with using the consumer price index as a measure of the cost of living are

Accepted Answer

A)  widely acknowledged and easy to solve. 
B)  widely acknowledged and difficult to solve. 
C)  nearly unacknowledged and easy to solve. 
D)  nearly unacknowledged and difficult to solve. 
A)  widely acknowledged and easy to solve. 
B)  widely acknowledged and difficult to solve. 
C)  nearly unacknowledged and easy to solve. 
D)  nearly unacknowledged and difficult to solve.

Question 15

If the price of beef rises and consumers buy more chicken and less beef, what kind of bias does the consumer price index exhibit?

Accepted Answer

The answer of If the price of beef rises and...

Question 16

For any given year, the CPI is the price of the basket of goods and services in the

Accepted Answer

A)  given year divided by the price of the basket in the base year, then multiplied by 100. 
B)  given year divided by the price of the basket in the previous year, then multiplied by 100. 
C)  base year divided by the price of the basket in the given year, then multiplied by 100. 
D)  previous year divided by the price of the basket in the given year, then multiplied by 100. 
A)  given year divided by the price of the basket in the base year, then multiplied by 100. 
B)  given year divided by the price of the basket in the previous year, then multiplied by 100. 
C)  base year divided by the price of the basket in the given year, then multiplied by 100. 
D)  previous year divided by the price of the basket in the given year, then multiplied by 100.

Question 17

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 inflation rate in 2010?

Accepted Answer

In 2010 th

Question 18

If the current year CPI is 90, then the price level has decreased 10 percent since the base year.

Accepted Answer

A) True 
 B)False

Question 19

Economists use the term inflation to describe a situation in which

Accepted Answer

A)  some prices are rising faster than others. 
B)  the economy's overall price level is rising. 
C)  the economy's overall price level is high, but not necessarily rising. 
D)  the economy's overall output of goods and services is rising faster than the economy's overall price level. 
A)  some prices are rising faster than others. 
B)  the economy's overall price level is rising. 
C)  the economy's overall price level is high, but not necessarily rising. 
D)  the economy's overall output of goods and services is rising faster than the economy's overall price level.

Question 20

Wilson is offered a job in Kansas City that pays $50,000 and a job in Dallas that pays $60,000. Which pair of CPIs would ensure that the two salaries have the same purchasing power?

Accepted Answer

A)  80 in Kansas City and 100 in Dallas 
B)  125 in Kansas City and 150 in Dallas 
C)  100 in Kansas City and 124.5 in Dallas 
D)  100 in Kansas City and 140 in Dallas 
A)  80 in Kansas City and 100 in Dallas 
B)  125 in Kansas City and 150 in Dallas 
C)  100 in Kansas City and 124.5 in Dallas 
D)  100 in Kansas City and 140 in Dallas

Exam 16: Measuring the Cost of Living

To which of the problems in the construction of the CPI is the creation of the mobile phone most relevant?

Write the formula for finding the rate of inflation in 2011 if you have only the CPI for the years 2010, 2011, and 2012.

Table 24-2 The table below pertains to Pieway, an economy in which the typical consumer's basket consists of 15 bushels of peaches and 10 bushels of pecans. -Refer to Table 24-2. If 2013 is the base year, then the inflation rate in 2013 was

The consumer price index is subject to substitution bias because

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 2011, then the CPI

Which of the following is not correct?

The consumer price index tries to gauge how much incomes must rise to maintain

For an imaginary economy, the consumer price index was 80 in 2014, 100 in 2015, and 140 in 2016. Which of the following statements is correct?

You know that a candy bar cost five cents in 1962. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in today's prices?

Which of the following statements about real and nominal interest rates is correct?

The consumer price index is used to

In the United States in the late 1970s, nominal interest rates were high and inflation rates were very high. As a result, real interest rates were

In an imaginary economy, consumers buy only razors and cologne. The fixed basket consists of 6 razors and 4 bottles of cologne. A razor cost $20 in 2009 and $25 in 2010. A bottle of cologne cost $30 in 2009 and $40 in 2010. Using 2009 as the base year, which of the following statements is correct?

The three problems with using the consumer price index as a measure of the cost of living are

If the price of beef rises and consumers buy more chicken and less beef, what kind of bias does the consumer price index exhibit?

For any given year, the CPI is the price of the basket of goods and services in the

If the current year CPI is 90, then the price level has decreased 10 percent since the base year.

Economists use the term inflation to describe a situation in which

Wilson is offered a job in Kansas City that pays $50,000 and a job in Dallas that pays $60,000. Which pair of CPIs would ensure that the two salaries have the same purchasing power?

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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