Question 1

If the nominal interest rate is 8.3% and the inflation rate is 4.4%, what is the real interest rate?

Accepted Answer

The real i

Question 2

Which of the following changes in the price index produces the greatest rate of inflation: 80 to 100, 100 to 120, or 150 to 170?

Accepted Answer

A)  80 to 100 
B)  100 to 120 
C)  150 to 170 
D)  All of these changes produce the same rate of inflation. 
A)  80 to 100 
B)  100 to 120 
C)  150 to 170 
D)  All of these changes produce the same rate of inflation.

Question 3

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 4

Explain how the introduction of new goods might bias the calculation of the consumer price index.

Accepted Answer

Because the CPI is based on a fixed bask

Question 5

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. The cost of the basket in 2013 was

Accepted Answer

A)  $200. 
B)  $225. 
C)  $235. 
D)  $237.5. 
A)  $200. 
B)  $225. 
C)  $235. 
D)  $237.5.

Question 6

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 CPI for 2012 was

Accepted Answer

A)  95.7. 
B)  100.0. 
C)  90.0. 
D)  213.6. 
A)  95.7. 
B)  100.0. 
C)  90.0. 
D)  213.6.

Question 7

The largest sector in the consumer price index market basket is food and beverage purchases.

Accepted Answer

A) True 
 B)False

Question 8

Suppose a basket of goods and services has been selected to calculate the consumer price index. In 2005, the basket of goods cost $108.00; in 2006, it cost $135.00; and in 2007, it cost $168.75. Which of the following statements is correct?

Accepted Answer

A)  Using 2005 as the base year, the economy's inflation rate was higher in 2007 than it was in 2006. 
B)  If 2007 is the base year, then the CPI is 33.75 in 2006. 
C)  If the CPI is 156.25 in 2007, then 2005 is the base year. 
D)  Using 2005 as the base year, the economy's inflation rate for 2006 was 27 percent. 
A)  Using 2005 as the base year, the economy's inflation rate was higher in 2007 than it was in 2006. 
B)  If 2007 is the base year, then the CPI is 33.75 in 2006. 
C)  If the CPI is 156.25 in 2007, then 2005 is the base year. 
D)  Using 2005 as the base year, the economy's inflation rate for 2006 was 27 percent.

Question 9

The second largest category, by relative importance, in the CPI calculation is

Accepted Answer

A)  housing. 
B)  apparel. 
C)  transportation. 
D)  medical care. 
A)  housing. 
B)  apparel. 
C)  transportation. 
D)  medical care.

Question 10

The primary purpose of measuring the overall level of prices in the economy is to

Accepted Answer

A)  allow for the measurement of GDP. 
B)  allow consumers to know what kinds of prices to expect in the future. 
C)  allow for the comparison of dollar figures from different points in time. 
D)  allow for the comparison of dollar figures from the same point in time. 
A)  allow for the measurement of GDP. 
B)  allow consumers to know what kinds of prices to expect in the future. 
C)  allow for the comparison of dollar figures from different points in time. 
D)  allow for the comparison of dollar figures from the same point in time.

Question 11

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If inflation 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 12

The content of the basket of goods and services used to compute the CPI changes every month.

Accepted Answer

A) True 
 B)False

Question 13

Social Security payments are indexed for inflation using the CPI. A recent newspaper editorial claimed that Social Security recipients are harmed by years of low inflation because they do not receive as large an increase in their payments as they do in years of high inflation. Which of the following statements is correct?

Accepted Answer

A)  The newspaper editorial is correct under all circumstances. 
B)  The newspaper editorial is correct if the market basket consumed by Social Security recipients is the same as the market basket used to compute the CPI. 
C)  The newspaper editorial could be correct if the prices of the goods consumed by Social Security recipients change at a different rate than the prices of the goods in the market basket used to compute the CPI 
D)  The newspaper editorial is incorrect under all circumstances. 
A)  The newspaper editorial is correct under all circumstances. 
B)  The newspaper editorial is correct if the market basket consumed by Social Security recipients is the same as the market basket used to compute the CPI. 
C)  The newspaper editorial could be correct if the prices of the goods consumed by Social Security recipients change at a different rate than the prices of the goods in the market basket used to compute the CPI 
D)  The newspaper editorial is incorrect under all circumstances.

Question 14

The price index was 92 in 2014, and the inflation rate was 8.7 percent between 2013 and 2014. The price index in 2013 was

Accepted Answer

A)  100.0. 
B)  100.7. 
C)  83.3. 
D)  84.6. 
A)  100.0. 
B)  100.7. 
C)  83.3. 
D)  84.6.

Question 15

If the current year CPI is 140, then the price level has increased 40 percent since the base year.

Accepted Answer

A) True 
 B)False

Question 16

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 2014, then the consumer price index was

Accepted Answer

A)  80 in 2013, 100 in 2014, and 60 in 2015. 
B)  98 in 2013, 100 in 2014, and 96 in 2015. 
C)  90 in 2013, 100 in 2014, and 80 in 2015. 
D)  180 in 2013, 200 in 2014, and 160 in 2015. 
A)  80 in 2013, 100 in 2014, and 60 in 2015. 
B)  98 in 2013, 100 in 2014, and 96 in 2015. 
C)  90 in 2013, 100 in 2014, and 80 in 2015. 
D)  180 in 2013, 200 in 2014, and 160 in 2015.

Question 17

Sophia puts money in the bank and earns a 5 percent nominal interest rate. If the inflation rate is 2 percent, then after one year,

Accepted Answer

A)  Sophia will have 3 percent more money, which will purchase 5 percent more goods. 
B)  Sophia will have 3 percent more money, which will purchase 7 percent more goods. 
C)  Sophia will have 5 percent more money, which will purchase 3 percent more goods. 
D)  Sophia will have 5 percent more money, which will purchase 7 percent more goods. 
A)  Sophia will have 3 percent more money, which will purchase 5 percent more goods. 
B)  Sophia will have 3 percent more money, which will purchase 7 percent more goods. 
C)  Sophia will have 5 percent more money, which will purchase 3 percent more goods. 
D)  Sophia will have 5 percent more money, which will purchase 7 percent more goods.

Question 18

Table 24-5
The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys.
  
-Refer to Table 24-5. The cost of the basket in 2006 was

Accepted Answer

A)  $9. 
B)  $130. 
C)  $140. 
D)  $270. 
A)  $9. 
B)  $130. 
C)  $140. 
D)  $270.

Question 19

Suppose lawn mowers are part of the market basket used to compute the CPI. Suppose also that the quality of lawn mowers deteriorates while the price of lawn mowers stays the same. If the Bureau of Labor Statistics is able to precisely adjust the CPI for the improvement in quality, then, other things equal,

Accepted Answer

A)  the CPI will rise. 
B)  the CPI will fall. 
C)  the CPI will stay the same. 
D)  lawn mowers will no longer be included in the market basket. 
A)  the CPI will rise. 
B)  the CPI will fall. 
C)  the CPI will stay the same. 
D)  lawn mowers will no longer be included in the market basket.

Question 20

If the real interest rate is 10.3% and the nominal interest rate is 12.6%, what is the inflation rate?

Accepted Answer

The inflat

Exam 11: Measuring the Cost of Living

If the nominal interest rate is 8.3% and the inflation rate is 4.4%, what is the real interest rate?

Which of the following changes in the price index produces the greatest rate of inflation: 80 to 100, 100 to 120, or 150 to 170?

The CPI is calculated

Explain how the introduction of new goods might bias the calculation of the consumer price index.

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. The cost of the basket in 2013 was

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 CPI for 2012 was

The largest sector in the consumer price index market basket is food and beverage purchases.

Suppose a basket of goods and services has been selected to calculate the consumer price index. In 2005, the basket of goods cost $108.00; in 2006, it cost $135.00; and in 2007, it cost $168.75. Which of the following statements is correct?

The second largest category, by relative importance, in the CPI calculation is

The primary purpose of measuring the overall level of prices in the economy is to

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

The content of the basket of goods and services used to compute the CPI changes every month.

The price index was 92 in 2014, and the inflation rate was 8.7 percent between 2013 and 2014. The price index in 2013 was

If the current year CPI is 140, then the price level has increased 40 percent since the base year.

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 2014, then the consumer price index was

Sophia puts money in the bank and earns a 5 percent nominal interest rate. If the inflation rate is 2 percent, then after one year,

Table 24-5 The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. -Refer to Table 24-5. The cost of the basket in 2006 was

If the real interest rate is 10.3% and the nominal interest rate is 12.6%, what is the inflation rate?

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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