Question 1

The substitution bias in the consumer price index refers to the

Accepted Answer

A)  substitution by consumers toward new goods and away from old goods. 
B)  substitution by consumers toward a smaller number of high-quality goods and away from a larger number of low-quality goods. 
C)  substitution by consumers toward goods that have become relatively less expensive and away from goods that have become relatively more expensive. 
D)  substitution of new prices for old prices in the CPI basket of goods and services from one year to the next. 
A)  substitution by consumers toward new goods and away from old goods. 
B)  substitution by consumers toward a smaller number of high-quality goods and away from a larger number of low-quality goods. 
C)  substitution by consumers toward goods that have become relatively less expensive and away from goods that have become relatively more expensive. 
D)  substitution of new prices for old prices in the CPI basket of goods and services from one year to the next.

Question 2

The inflation rate for 2007 is computed by dividing the CPI in 2007 minus the CPI in 2006) by the CPI in 2006, then multiplying by 100.

Accepted Answer

A) True 
 B)False

Question 3

Samantha goes to the grocery store to make her monthly purchase of ginger ale. As she enters the soft drink section, she notices that the price of ginger ale has increased 15 percent, so she decides to buy some peppermint tea instead. 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 effect 
A)  substitution bias 
B)  introduction of new goods 
C)  unmeasured quality change 
D)  income effect

Question 4

Jake loaned Elwood $5,000 for one year at a nominal interest rate of 10 percent. After Elwood repaid the loan in full, Jake complained that he could buy 4 percent fewer goods with the money Elwood gave him than he could before he loaned Elwood the $5,000. From this, we can conclude that the rate of inflation during the year was

Accepted Answer

A)  -4 percent. 
B)  4 percent. 
C)  6 percent. 
D)  14 percent. 
A)  -4 percent. 
B)  4 percent. 
C)  6 percent. 
D)  14 percent.

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. The cost of the basket

Accepted Answer

A)  increased by $8 from 2012 to 2013. 
B)  increased by $41 from 2012 to 2013. 
C)  increased by $50 from 2012 to 2013. 
D)  increased by $60 from 2012 to 2013. 
A)  increased by $8 from 2012 to 2013. 
B)  increased by $41 from 2012 to 2013. 
C)  increased by $50 from 2012 to 2013. 
D)  increased by $60 from 2012 to 2013.

Question 6

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. The inflation rate was

Accepted Answer

A)  10.03 percent in 2009 and 17.43 percent in 2010. 
B)  17.00 percent in 2009 and 32.50 percent in 2010. 
C)  10.03 percent in 2009 and 29.20 percent in 2010. 
D)  17.00 percent in 2009 and 29.20 percent in 2010. 
A)  10.03 percent in 2009 and 17.43 percent in 2010. 
B)  17.00 percent in 2009 and 32.50 percent in 2010. 
C)  10.03 percent in 2009 and 29.20 percent in 2010. 
D)  17.00 percent in 2009 and 29.20 percent in 2010.

Question 7

In the calculation of the CPI, books are given greater weight than magazines if

Accepted Answer

A)  consumers buy more books than magazines. 
B)  the price of books is higher than the price of magazines. 
C)  it costs more to produce books than it costs to produce magazines. 
D)  books are more readily available than magazines to the typical consumer. 
A)  consumers buy more books than magazines. 
B)  the price of books is higher than the price of magazines. 
C)  it costs more to produce books than it costs to produce magazines. 
D)  books are more readily available than magazines to the typical consumer.

Question 8

If the nominal interest rate is 5 percent and the real interest rate is 7 percent, then the inflation rate is

Accepted Answer

A)  -2 percent. 
B)  0.4 percent. 
C)  2 percent. 
D)  12 percent. 
A)  -2 percent. 
B)  0.4 percent. 
C)  2 percent. 
D)  12 percent.

Question 9

Which of the following statements is correct about the relationship between inflation and interest rates?

Accepted Answer

A)  There is no relationship between inflation and interest rates. 
B)  The interest rate is determined by the rate of inflation. 
C)  In order to fully understand inflation, we need to know how to correct for the effects of interest rates. 
D)  In order to fully understand interest rates, we need to know how to correct for the effects of inflation. 
A)  There is no relationship between inflation and interest rates. 
B)  The interest rate is determined by the rate of inflation. 
C)  In order to fully understand inflation, we need to know how to correct for the effects of interest rates. 
D)  In order to fully understand interest rates, we need to know how to correct for the effects of inflation.

Question 10

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. Suppose Will's 2010 food expenditures in 2011 dollars amount to $6,235. Then x, the consumer price index for 2011, has a value of

Accepted Answer

A)  171.2. 
B)  175.0. 
C)  177.5. 
D)  180.6. 
A)  171.2. 
B)  175.0. 
C)  177.5. 
D)  180.6.

Question 11

Which of the following is not an example of a price index computed by the Bureau of Labor Statistics?

Accepted Answer

A)  the Los Angeles price index 
B)  the energy price index 
C)  the producer price index 
D)  the stock price index 
A)  the Los Angeles price index 
B)  the energy price index 
C)  the producer price index 
D)  the stock price index

Question 12

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. The cost of the basket in 2013 was

Accepted Answer

A)  $150.50. 
B)  $147. 
C)  $154. 
D)  $301. 
A)  $150.50. 
B)  $147. 
C)  $154. 
D)  $301.

Question 13

If the nominal interest rate is 6 percent and the rate of inflation is 2 percent, then the real interest rate is

Accepted Answer

A)  -4 percent. 
B)  3 percent. 
C)  4 percent. 
D)  8 percent. 
A)  -4 percent. 
B)  3 percent. 
C)  4 percent. 
D)  8 percent.

Question 14

The GDP deflator reflects the prices of all goods and services produced around the world, whereas the consumer price index reflects the prices of all goods and services bought by consumers.

Accepted Answer

A) True 
 B)False

Question 15

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. The nominal interest rate for 2012 is

Accepted Answer

A)  0.93 percent. 
B)  6.70 percent. 
C)  4.44 percent. 
D)  4.47 percent. 
A)  0.93 percent. 
B)  6.70 percent. 
C)  4.44 percent. 
D)  4.47 percent.

Question 16

If the nominal interest rate is 9 percent and the real interest rate is 3 percent, then the inflation rate is

Accepted Answer

A)  -6 percent. 
B)  3 percent. 
C)  6 percent. 
D)  12 percent. 
A)  -6 percent. 
B)  3 percent. 
C)  6 percent. 
D)  12 percent.

Question 17

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 2008 is the base year, then the consumer price index was

Accepted Answer

A)  100.00 in 2008, 110.03 in 2009, and 117.43 in 2010. 
B)  100.00 in 2008, 110.03 in 2009, and 129.20 in 2010. 
C)  100.00 in 2008, 117.00 in 2009, and 132.50 in 2010. 
D)  169.50 in 2008, 186.50 in 2009, and 219.00 in 2010. 
A)  100.00 in 2008, 110.03 in 2009, and 117.43 in 2010. 
B)  100.00 in 2008, 110.03 in 2009, and 129.20 in 2010. 
C)  100.00 in 2008, 117.00 in 2009, and 132.50 in 2010. 
D)  169.50 in 2008, 186.50 in 2009, and 219.00 in 2010.

Question 18

The CPI is calculated

Accepted Answer

A)  monthly by the Department of Commerce. 
B)  monthly by the Bureau of Labor Statistics. 
C)  quarterly by the Department of Commerce. 
D)  quarterly by the Bureau of Labor Statistics. 
A)  monthly by the Department of Commerce. 
B)  monthly by the Bureau of Labor Statistics. 
C)  quarterly by the Department of Commerce. 
D)  quarterly by the Bureau of Labor Statistics.

Question 19

If the nominal interest rate is 4 percent and the real interest rate is 7 percent, then the inflation rate is

Accepted Answer

A)  -3 percent. 
B)  0.75 percent. 
C)  3 percent. 
D)  11 percent. 
A)  -3 percent. 
B)  0.75 percent. 
C)  3 percent. 
D)  11 percent.

Question 20

A worker received $5 for a daily wage in 1930, which has the equivalent value of $63.24 today. If the CPI was 17 in 1930 what is the value of the CPI today, rounded to the nearest whole number?

Accepted Answer

A)  215 
B)  134 
C)  17 
D)  1.3 
A)  215 
B)  134 
C)  17 
D)  1.3

Exam 16: Measuring the Cost of Living

The substitution bias in the consumer price index refers to the

The inflation rate for 2007 is computed by dividing the CPI in 2007 minus the CPI in 2006) by the CPI in 2006, then multiplying by 100.

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

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. The inflation rate was

In the calculation of the CPI, books are given greater weight than magazines if

If the nominal interest rate is 5 percent and the real interest rate is 7 percent, then the inflation rate is

Which of the following statements is correct about the relationship between inflation and interest rates?

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. Suppose Will's 2010 food expenditures in 2011 dollars amount to $6,235. Then x, the consumer price index for 2011, has a value of

Which of the following is not an example of a price index computed by the Bureau of Labor Statistics?

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. The cost of the basket in 2013 was

If the nominal interest rate is 6 percent and the rate of inflation is 2 percent, then the real interest rate is

The GDP deflator reflects the prices of all goods and services produced around the world, whereas the consumer price index reflects the prices of all goods and services bought by consumers.

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. The nominal interest rate for 2012 is

If the nominal interest rate is 9 percent and the real interest rate is 3 percent, then the inflation rate is

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 2008 is the base year, then the consumer price index was

The CPI is calculated

If the nominal interest rate is 4 percent and the real interest rate is 7 percent, then the inflation rate is

A worker received $5 for a daily wage in 1930, which has the equivalent value of $63.24 today. If the CPI was 17 in 1930 what is the value of the CPI today, rounded to the nearest whole number?

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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