Question 1

What do real interest rates account for that nominal interest rates do not?

Accepted Answer

Unlike nominal interest rates,

Question 2

David earned a salary of $43,500 in 1994 and $89,000 in 2010. The consumer price index was 148.2 in 1994 and 215.3 in 2010. David's 1994 salary in 2010 dollars is

Accepted Answer

A)  $43,849.05 
B)  $61,263.43 
C)  $63,195.34 
D)  $93,655.50 
A)  $43,849.05 
B)  $61,263.43 
C)  $63,195.34 
D)  $93,655.50

Question 3

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 4

One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called

Accepted Answer

A)  price-change neglect. 
B)  unmeasured quality change. 
C)  substitution bias. 
D)  relative bias. 
A)  price-change neglect. 
B)  unmeasured quality change. 
C)  substitution bias. 
D)  relative bias.

Question 5

Which of the following agencies calculates the CPI?

Accepted Answer

A)  Bureau of Labor Statistics 
B)  Congressional Budget Office 
C)  Federal Reserve 
D)  Bureau of National Price Standards and Records 
A)  Bureau of Labor Statistics 
B)  Congressional Budget Office 
C)  Federal Reserve 
D)  Bureau of National Price Standards and Records

Question 6

In 1949, Sycamore, Illinois built a hospital for about $500,000. In 1987, the county restored the courthouse for about $2.4 million. A price index for nonresidential construction was 14 in 1949, 92 in 1987, and 114.5 in 2000. According to these numbers, the hospital cost about

Accepted Answer

A)  $3.6 million in 2000 dollars, which is less than the cost of the courthouse restoration in 2000 dollars. 
B)  $3.6 million in 2000 dollars, which is more than the cost of the courthouse restoration in 2000 dollars. 
C)  $4.1 million in 2000 dollars, which is less than the cost of the courthouse restoration in 2000 dollars. 
D)  $4.1 million in 2000 dollars, which is more than the cost of the courthouse restoration in 2000 dollars. 
A)  $3.6 million in 2000 dollars, which is less than the cost of the courthouse restoration in 2000 dollars. 
B)  $3.6 million in 2000 dollars, which is more than the cost of the courthouse restoration in 2000 dollars. 
C)  $4.1 million in 2000 dollars, which is less than the cost of the courthouse restoration in 2000 dollars. 
D)  $4.1 million in 2000 dollars, which is more than the cost of the courthouse restoration in 2000 dollars.

Question 7

Ethel purchased a bag of groceries in 1970 for $8. She purchased the same bag of groceries in 2006 for $25. If the price index was 38.8 in 1970 and the price index was 180 in 2006, then what is the price of the 1970 bag of groceries in 2006 dollars?

Accepted Answer

A)  $5.39 
B)  $25.00 
C)  $29.11 
D)  $37.11 
A)  $5.39 
B)  $25.00 
C)  $29.11 
D)  $37.11

Question 8

An increase in the price of imported coffee shows up

Accepted Answer

A)  in the consumer price index and in the GDP deflator. 
B)  in the consumer price index, but not in the GDP deflator. 
C)  in the GDP deflator, but not in the consumer price index. 
D)  in neither the consumer price index nor in the GDP deflator. 
A)  in the consumer price index and in the GDP deflator. 
B)  in the consumer price index, but not in the GDP deflator. 
C)  in the GDP deflator, but not in the consumer price index. 
D)  in neither the consumer price index nor in the GDP deflator.

Question 9

Suppose the price index was 105 in 2017, 126 in 2018, and the inflation rate was lower between 2018 and 2019 than it was between 2017 and 2018. This means that

Accepted Answer

A)  the price index in 2019 was lower than 126.0. 
B)  the price index in 2019 was lower than 147.0. 
C)  the price index in 2019 was lower than 151.2. 
D)  the inflation rate between 2018 and 2019 was lower than 1.2 percent. 
A)  the price index in 2019 was lower than 126.0. 
B)  the price index in 2019 was lower than 147.0. 
C)  the price index in 2019 was lower than 151.2. 
D)  the inflation rate between 2018 and 2019 was lower than 1.2 percent.

Question 10

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 11

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. If 2013 is the base year, then the consumer price index was

Accepted Answer

A)  80.8 in 2012, 100 in 2013, and 107.7 in 2014. 
B)  80.5 in 2012, 100 in 2013, and 107.3 in 2014. 
C)  247.5 in 2012, 307.5 in 2013, and 330 in 2014. 
D)  210 in 2012, 260 in 2013, and 280 in 2014. 
A)  80.8 in 2012, 100 in 2013, and 107.7 in 2014. 
B)  80.5 in 2012, 100 in 2013, and 107.3 in 2014. 
C)  247.5 in 2012, 307.5 in 2013, and 330 in 2014. 
D)  210 in 2012, 260 in 2013, and 280 in 2014.

Question 12

If the CPI was 95 in 1955 and is 475 today, then $100 today purchases the same amount of goods and services as

Accepted Answer

A)  $4.75 purchased in 1955. 
B)  $20.00 purchased in 1955. 
C)  $95.00 purchased in 1955. 
D)  $500 purchased in 1955. 
A)  $4.75 purchased in 1955. 
B)  $20.00 purchased in 1955. 
C)  $95.00 purchased in 1955. 
D)  $500 purchased in 1955.

Question 13

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

Accepted Answer

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

Question 14

Changes in the quality of a good

Accepted Answer

A)  do not present a problem in the construction of the consumer price index. 
B)  present a problem in the construction of the consumer price index, and that problem is sometimes referred to as substitution bias. 
C)  are not accounted for, as a matter of policy, by the Bureau of Labor Statistics. 
D)  can lead to either an increase or a decrease in the value of a dollar. 
A)  do not present a problem in the construction of the consumer price index. 
B)  present a problem in the construction of the consumer price index, and that problem is sometimes referred to as substitution bias. 
C)  are not accounted for, as a matter of policy, by the Bureau of Labor Statistics. 
D)  can lead to either an increase or a decrease in the value of a dollar.

Question 15

Because the CPI is based on a fixed basket of goods, the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living. This is so because

Accepted Answer

A)  new goods and services are always of higher quality than existing goods and services. 
B)  new goods and services cost less than existing goods and services. 
C)  new goods and services cost more than existing goods and services. 
D)  when a new good is introduced, it gives consumers greater choice, thus reducing the amount they must spend to maintain their standard of living. 
A)  new goods and services are always of higher quality than existing goods and services. 
B)  new goods and services cost less than existing goods and services. 
C)  new goods and services cost more than existing goods and services. 
D)  when a new good is introduced, it gives consumers greater choice, thus reducing the amount they must spend to maintain their standard of living.

Question 16

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 17

An increase in the price of Irish whiskey imported into the United States will be reflected in

Accepted Answer

A)  both the U.S. GDP deflator and the U.S. CPI. 
B)  neither the U.S. GDP deflator nor the U.S. CPI. 
C)  the U.S. GDP deflator, but not the U.S. CPI. 
D)  the U.S. CPI, but not the U.S. GDP deflator. 
A)  both the U.S. GDP deflator and the U.S. CPI. 
B)  neither the U.S. GDP deflator nor the U.S. CPI. 
C)  the U.S. GDP deflator, but not the U.S. CPI. 
D)  the U.S. CPI, but not the U.S. GDP deflator.

Question 18

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If deflation was 5 percent during the year the money was deposited, then Bob's purchasing power has not changed.

Accepted Answer

A) True 
 B)False

Question 19

The value of the consumer price index increased from 140 to 147 during 2006. Nathan opened a bank account at the beginning of 2006, and at the end of 2006 his account balance was $12,840. The purchasing power of Nathan's account increased by 2 percent during the year. We can conclude that Nathan opened his account with a deposit of $11,500 at the beginning of 2006.

Accepted Answer

A) True 
 B)False

Question 20

In the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the smallest?

Accepted Answer

A)  education & communication 
B)  apparel 
C)  medical care 
D)  recreation 
A)  education & communication 
B)  apparel 
C)  medical care 
D)  recreation

Exam 11: Measuring the Cost of Living

What do real interest rates account for that nominal interest rates do not?

David earned a salary of $43,500 in 1994 and $89,000 in 2010. The consumer price index was 148.2 in 1994 and 215.3 in 2010. David's 1994 salary in 2010 dollars is

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

One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called

Which of the following agencies calculates the CPI?

In 1949, Sycamore, Illinois built a hospital for about $500,000. In 1987, the county restored the courthouse for about $2.4 million. A price index for nonresidential construction was 14 in 1949, 92 in 1987, and 114.5 in 2000. According to these numbers, the hospital cost about

Ethel purchased a bag of groceries in 1970 for $8. She purchased the same bag of groceries in 2006 for $25. If the price index was 38.8 in 1970 and the price index was 180 in 2006, then what is the price of the 1970 bag of groceries in 2006 dollars?

An increase in the price of imported coffee shows up

Suppose the price index was 105 in 2017, 126 in 2018, and the inflation rate was lower between 2018 and 2019 than it was between 2017 and 2018. This means that

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

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. If 2013 is the base year, then the consumer price index was

If the CPI was 95 in 1955 and is 475 today, then $100 today purchases the same amount of goods and services as

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

Changes in the quality of a good

Because the CPI is based on a fixed basket of goods, the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living. This is so 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

An increase in the price of Irish whiskey imported into the United States will be reflected in

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If deflation was 5 percent during the year the money was deposited, then Bob's purchasing power has not changed.

In the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the smallest?

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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