Question 1

The consumer price index is used to monitor changes in an economy's production of goods and services over time.

Accepted Answer

A) True 
 B)False

Question 2

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 3

Table 24-1
The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year.
  
-Refer to Table 24-1. What belongs in space E?

Accepted Answer

A)  60% 
B)  6% 
C)  3.9% 
D)  6.7% 
A)  60% 
B)  6% 
C)  3.9% 
D)  6.7%

Question 4

Suppose prices of personal computers fall significantly and consumers respond by buying more personal computers. The consumer price index

Accepted Answer

A)  reflects this price decrease accurately. 
B)  understates this price decrease due to the substitution bias. 
C)  overstates this price decrease due to the income bias. 
D)  overstates this price decrease due to the substitution bias. 
A)  reflects this price decrease accurately. 
B)  understates this price decrease due to the substitution bias. 
C)  overstates this price decrease due to the income bias. 
D)  overstates this price decrease due to the substitution bias.

Question 5

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 6

What basket of goods and services is used to construct the CPI?

Accepted Answer

A)  a random sample of all goods and services produced in the economy 
B)  the goods and services that are typically bought by consumers as determined by government surveys 
C)  only food, clothing, transportation, entertainment, and education 
D)  the least expensive and the most expensive goods and services in each major category of consumer expenditures 
A)  a random sample of all goods and services produced in the economy 
B)  the goods and services that are typically bought by consumers as determined by government surveys 
C)  only food, clothing, transportation, entertainment, and education 
D)  the least expensive and the most expensive goods and services in each major category of consumer expenditures

Question 7

Inflation can be measured using either the GDP deflator or the consumer price index.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements is correct?

Accepted Answer

A)  The consumer price index is a measure of the overall level of prices, whereas the GDP deflator is not a measure of the overall level of prices. 
B)  If, in the year 2011, the consumer price index has a value of 123.50, then the inflation rate for 2011 must be 23.50 percent. 
C)  Compared to the GDP deflator, the consumer price index is the more common gauge of inflation. 
D)  The consumer price index and the GDP deflator reflect the goods and services bought by consumers equally well. 
A)  The consumer price index is a measure of the overall level of prices, whereas the GDP deflator is not a measure of the overall level of prices. 
B)  If, in the year 2011, the consumer price index has a value of 123.50, then the inflation rate for 2011 must be 23.50 percent. 
C)  Compared to the GDP deflator, the consumer price index is the more common gauge of inflation. 
D)  The consumer price index and the GDP deflator reflect the goods and services bought by consumers equally well.

Question 9

Indexation refers to

Accepted Answer

A)  a process of adjusting the nominal interest rate so that it is equal to the real interest rate. 
B)  using a law or contract to automatically correct a dollar amount for the effects of inflation. 
C)  using a price index to deflate dollar values. 
D)  an adjustment made by the Bureau of Labor Statistics to the CPI so that the index is in line with the GDP deflator. 
A)  a process of adjusting the nominal interest rate so that it is equal to the real interest rate. 
B)  using a law or contract to automatically correct a dollar amount for the effects of inflation. 
C)  using a price index to deflate dollar values. 
D)  an adjustment made by the Bureau of Labor Statistics to the CPI so that the index is in line with the GDP deflator.

Question 10

The economy's inflation rate is the

Accepted Answer

A)  price level in the current period. 
B)  change in the price level from the previous period. 
C)  change in the gross domestic product from the previous period. 
D)  percentage change in the price level from the previous period. 
A)  price level in the current period. 
B)  change in the price level from the previous period. 
C)  change in the gross domestic product from the previous period. 
D)  percentage change in the price level from the previous period.

Question 11

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 12

In calculating the CPI, a fixed basket of goods and services is used. The quantities of the goods and services in the fixed basket are determined by

Accepted Answer

A)  surveying consumers. 
B)  surveying sellers of the goods and services. 
C)  working backward from the rate of inflation to arrive at imputed values for those quantities. 
D)  arbitrary choices made by federal government employees. 
A)  surveying consumers. 
B)  surveying sellers of the goods and services. 
C)  working backward from the rate of inflation to arrive at imputed values for those quantities. 
D)  arbitrary choices made by federal government employees.

Question 13

The consumer price index was 200 in 2008 and 190 in 2009. The nominal interest rate during this period was 4.5 percent. What was the real interest rate during this period?

Accepted Answer

A)  - 0.75 percent 
B)  - 0.5 percent 
C)  9.5 percent 
D)  9.75 percent 
A)  - 0.75 percent 
B)  - 0.5 percent 
C)  9.5 percent 
D)  9.75 percent

Question 14

The inflation rate is calculated

Accepted Answer

A)  by determining the change in the price index from the preceding period. 
B)  by adding up the price increases of all goods and services. 
C)  by computing a simple average of the price increases for all goods and services. 
D)  by determining the percentage increase in the price index from the preceding period. 
A)  by determining the change in the price index from the preceding period. 
B)  by adding up the price increases of all goods and services. 
C)  by computing a simple average of the price increases for all goods and services. 
D)  by determining the percentage increase in the price index from the preceding period.

Question 15

Changes in the consumer price index are useful in predicting changes in the producer price index.

Accepted Answer

A) True 
 B)False

Question 16

For an imaginary economy, the consumer price index was 115.00 in 2004, 126.50 in 2005, and 136.62 in 2006. Which of the following statements is correct?

Accepted Answer

A)  For this economy, the base year must be 2004. 
B)  If the basket of goods that is used to calculate the CPI cost $75.00 in the base year, then that basket of goods cost $115.00 in 2004. 
C)  This economy's rate of inflation for 2006 is 10.12 percent. 
D)  None of the above is correct. 
A)  For this economy, the base year must be 2004. 
B)  If the basket of goods that is used to calculate the CPI cost $75.00 in the base year, then that basket of goods cost $115.00 in 2004. 
C)  This economy's rate of inflation for 2006 is 10.12 percent. 
D)  None of the above is correct.

Question 17

Harry spent $39,000 in 2009 and $42,000 in 2014 on goods and services. The consumer price index was 220 for 2009 and 231 for 2014. Harry's 2014 spending in 2009 dollars is about

Accepted Answer

A)  $40,000. 
B)  $44,100. 
C)  $37,838. 
D)  $40,091. 
A)  $40,000. 
B)  $44,100. 
C)  $37,838. 
D)  $40,091.

Question 18

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 $77; in 2013, the basket's cost was $82; and in 2014, the basket's cost was $90. The value of the CPI in 2014 was

Accepted Answer

A)  109.8 and the inflation rate was 9.8%. 
B)  109.8 and the inflation rate was 16.9%. 
C)  116.9 and the inflation rate was 9.8%. 
D)  116.9 and the inflation rate was 16.9%. 
A)  109.8 and the inflation rate was 9.8%. 
B)  109.8 and the inflation rate was 16.9%. 
C)  116.9 and the inflation rate was 9.8%. 
D)  116.9 and the inflation rate was 16.9%.

Question 19

If the price index was 90 in year 1, 100 in year 2, and 95 in year 3, then the economy experienced

Accepted Answer

A)  10 percent inflation between years 1 and 2, and 5 percent inflation between years 2 and 3. 
B)  10 percent inflation between years 1 and 2, and 5 percent deflation between years 2 and 3. 
C)  11.1 percent inflation between years 1 and 2, and 5 percent inflation between years 2 and 3. 
D)  11.1 percent inflation between years 1 and 2, and 5 percent deflation between years 2 and 3. 
A)  10 percent inflation between years 1 and 2, and 5 percent inflation between years 2 and 3. 
B)  10 percent inflation between years 1 and 2, and 5 percent deflation between years 2 and 3. 
C)  11.1 percent inflation between years 1 and 2, and 5 percent inflation between years 2 and 3. 
D)  11.1 percent inflation between years 1 and 2, and 5 percent deflation between years 2 and 3.

Question 20

Persistent increases in the overall level of prices have been the norm.

Accepted Answer

A) True 
 B)False

Exam 11: Measuring the Cost of Living

The consumer price index is used to monitor changes in an economy's production of goods and services over time.

Table 24-1 The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year. -Refer to Table 24-1. What belongs in space E?

Suppose prices of personal computers fall significantly and consumers respond by buying more personal computers. The consumer price index

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

What basket of goods and services is used to construct the CPI?

Inflation can be measured using either the GDP deflator or the consumer price index.

Which of the following statements is correct?

Indexation refers to

The economy's inflation rate is the

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

In calculating the CPI, a fixed basket of goods and services is used. The quantities of the goods and services in the fixed basket are determined by

The consumer price index was 200 in 2008 and 190 in 2009. The nominal interest rate during this period was 4.5 percent. What was the real interest rate during this period?

The inflation rate is calculated

Changes in the consumer price index are useful in predicting changes in the producer price index.

For an imaginary economy, the consumer price index was 115.00 in 2004, 126.50 in 2005, and 136.62 in 2006. Which of the following statements is correct?

Harry spent $39,000 in 2009 and $42,000 in 2014 on goods and services. The consumer price index was 220 for 2009 and 231 for 2014. Harry's 2014 spending in 2009 dollars is about

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 $77; in 2013, the basket's cost was $82; and in 2014, the basket's cost was $90. The value of the CPI in 2014 was

If the price index was 90 in year 1, 100 in year 2, and 95 in year 3, then the economy experienced

Persistent increases in the overall level of prices have been the norm.

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

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

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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