Question 1

If the nominal interest rate is 5 percent, and the rate of inflation is 3 percent, then the real interest rate is equal to

Accepted Answer

A)  2 percent. 
B)  0.6 percent. 
C)  1.7 percent. 
D)  15 percent. 
A)  2 percent. 
B)  0.6 percent. 
C)  1.7 percent. 
D)  15 percent.

Question 2

If 2012 is the base year, then the inflation rate for 2012 equals

Accepted Answer

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

Question 3

Which of the following statements is correct?

Accepted Answer

A)  In order to calculate the inflation rate for the year 2011, we need to know the values of the consumer price index for the years 2009, 2010, and 2011. 
B)  Changes in the consumer price index are often thought to be useful in predicting changes in the producer price index. 
C)  Despite its name, the "consumer price index" really measures the overall cost of the goods and services bought by consumers, business firms, and units of government. 
D)  If the prices of all goods and services changed proportionately over time, then the consumer price index would reflect no substitution bias. 
A)  In order to calculate the inflation rate for the year 2011, we need to know the values of the consumer price index for the years 2009, 2010, and 2011. 
B)  Changes in the consumer price index are often thought to be useful in predicting changes in the producer price index. 
C)  Despite its name, the "consumer price index" really measures the overall cost of the goods and services bought by consumers, business firms, and units of government. 
D)  If the prices of all goods and services changed proportionately over time, then the consumer price index would reflect no substitution bias.

Question 4

Suppose the typical consumer buys more bananas than oranges. In fixing the basket of goods and services for the purpose of calculating the consumer price index, the Bureau of Labor Statistics

Accepted Answer

A)  ignores the fact that the typical consumer buys more bananas than orange; this procedure does not affect the value of the index. 
B)  ignores the fact that the typical consumer buys more bananas than orange; this procedure results in a potentially-serious bias in the index. 
C)  places more weight on the price of bananas than on the price of oranges; the weights of the two prices are determined by surveying consumers. 
D)  places more weight on the price of bananas than on the price of oranges; the weights of the two prices are determined by the extent to which those prices have changed over the previous year. 
A)  ignores the fact that the typical consumer buys more bananas than orange; this procedure does not affect the value of the index. 
B)  ignores the fact that the typical consumer buys more bananas than orange; this procedure results in a potentially-serious bias in the index. 
C)  places more weight on the price of bananas than on the price of oranges; the weights of the two prices are determined by surveying consumers. 
D)  places more weight on the price of bananas than on the price of oranges; the weights of the two prices are determined by the extent to which those prices have changed over the previous year.

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. If 2012 is the base year, then the inflation rate in 2013 was

Accepted Answer

A)  23.5 percent. 
B)  1.04 percent. 
C)  10 percent. 
D)  4.4 percent. 
A)  23.5 percent. 
B)  1.04 percent. 
C)  10 percent. 
D)  4.4 percent.

Question 6

With respect to the consumer price index, the substitution bias arises because

Accepted Answer

A)  prices of goods and services do not change in the same proportion from year to year. 
B)  consumers are slow to adjust their buying patterns from year to year in response to price changes. 
C)  consumers are eager to buy new products as they are introduced, despite their lack of full information about the quality of those products until they buy and use them. 
D)  All of the above are correct. 
A)  prices of goods and services do not change in the same proportion from year to year. 
B)  consumers are slow to adjust their buying patterns from year to year in response to price changes. 
C)  consumers are eager to buy new products as they are introduced, despite their lack of full information about the quality of those products until they buy and use them. 
D)  All of the above are correct.

Question 7

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 2009 food expenditures in 2011 dollars amount to $5,670. Then

Accepted Answer

A)  the consumer price index was 11.8 percent higher in 2011 than it was in 2009. 
B)  the inflation rate in 2011 was 8 percent. 
C)  Will's 2011 food expenditures in 2009 dollars amount to $5,740. 
D)  Will's 2010 food expenditures in 2011 dollars amount to $6,210. 
A)  the consumer price index was 11.8 percent higher in 2011 than it was in 2009. 
B)  the inflation rate in 2011 was 8 percent. 
C)  Will's 2011 food expenditures in 2009 dollars amount to $5,740. 
D)  Will's 2010 food expenditures in 2011 dollars amount to $6,210.

Question 8

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 2013, then the consumer price index was

Accepted Answer

A)  80 in 2013, 100 in 2014, and 60 in 2015. 
B)  100 in 2013, 300 in 2014, and -100 in 2015. 
C)  180 in 2013, 200 in 2014, and 160 in 2015. 
D)  100 in 2013, 111.1 in 2014, and 88.9 in 2015. 
A)  80 in 2013, 100 in 2014, and 60 in 2015. 
B)  100 in 2013, 300 in 2014, and -100 in 2015. 
C)  180 in 2013, 200 in 2014, and 160 in 2015. 
D)  100 in 2013, 111.1 in 2014, and 88.9 in 2015.

Question 9

Scenario 24-2
The price tag on a golf ball in 1975 read $0.20, and the price tag on a golf ball in 2005 read $2.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3.
-Refer to Scenario 24-2. The price of a 1975 golf ball in 2005 dollars is

Accepted Answer

A)  $0.05. 
B)  $0.53. 
C)  $0.73. 
D)  $2.00. 
A)  $0.05. 
B)  $0.53. 
C)  $0.73. 
D)  $2.00.

Question 10

The relative importance of housing in the breakdown of consumer spending is

Accepted Answer

A)  41 percent. 
B)  15 percent. 
C)  6 percent. 
D)  4 percent. 
A)  41 percent. 
B)  15 percent. 
C)  6 percent. 
D)  4 percent.

Question 11

If the CPI was 127 in 1972 and is 324 today, then $10 in 1972 purchased the same amount of goods and services as

Accepted Answer

A)  $3.92 purchases today. 
B)  $25.51 purchases today. 
C)  $207.00 purchases today. 
D)  $324.00 purchases today. 
A)  $3.92 purchases today. 
B)  $25.51 purchases today. 
C)  $207.00 purchases today. 
D)  $324.00 purchases today.

Question 12

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 $50; in 2014, the basket's cost was $52; and in 2016, the basket's cost was $55. The value of the CPI in 2016 was

Accepted Answer

A)  90.9. 
B)  104.0. 
C)  105.0. 
D)  110.0. 
A)  90.9. 
B)  104.0. 
C)  105.0. 
D)  110.0.

Question 13

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 2010 as the base year, what is the inflation rate in 2010?

Accepted Answer

The inflat

Question 14

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 CPI in each year?

Accepted Answer

In 2009 the CPI is 1

Question 15

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 16

Suppose that the CPI in 1990 was 150, that the inflation rate in 1991 was 6%, and that the inflation rate in 1992 was 4%. What was the CPI in 1991 and 1992?

Accepted Answer

The CPI in 1991 was

Question 17

The CPI is calculated

Accepted Answer

A)  weekly. 
B)  monthly. 
C)  quarterly. 
D)  yearly. 
A)  weekly. 
B)  monthly. 
C)  quarterly. 
D)  yearly.

Question 18

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. If 2013 is the base year, then the CPI for 2013 was

Accepted Answer

A)  75.3. 
B)  100.0. 
C)  116.0. 
D)  132.8. 
A)  75.3. 
B)  100.0. 
C)  116.0. 
D)  132.8.

Question 19

In which of the following cases would there be an effect on the value of the U.S. consumer price index, but not on the value of the U.S. GDP deflator?

Accepted Answer

A)  All of the truck tires that are produced by a certain company in South Korea are sold to the U.S. military, and the price of these tires decreases. 
B)  All of the truck tires that are produced by a certain company in California are sold to the U.S. military, and the price of these tires decreases. 
C)  Most of the bananas that are produced by a certain company in Honduras end up in U.S. grocery stores, and the price of these bananas increases. 
D)  Most of the earth-moving machines that are produced by a certain company in Illinois are exported to other countries, and the price of these machines increases. 
A)  All of the truck tires that are produced by a certain company in South Korea are sold to the U.S. military, and the price of these tires decreases. 
B)  All of the truck tires that are produced by a certain company in California are sold to the U.S. military, and the price of these tires decreases. 
C)  Most of the bananas that are produced by a certain company in Honduras end up in U.S. grocery stores, and the price of these bananas increases. 
D)  Most of the earth-moving machines that are produced by a certain company in Illinois are exported to other countries, and the price of these machines increases.

Question 20

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 2 percent during the year the money was deposited, then Bob's purchasing power has increased by 3 percent.

Accepted Answer

A) True 
 B)False

Exam 11: Measuring the Cost of Living

If the nominal interest rate is 5 percent, and the rate of inflation is 3 percent, then the real interest rate is equal to

If 2012 is the base year, then the inflation rate for 2012 equals

Which of the following statements is correct?

Suppose the typical consumer buys more bananas than oranges. In fixing the basket of goods and services for the purpose of calculating the consumer price index, the Bureau of Labor Statistics

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 2012 is the base year, then the inflation rate in 2013 was

With respect to the consumer price index, the substitution bias arises because

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 2009 food expenditures in 2011 dollars amount to $5,670. Then

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 2013, then the consumer price index was

Scenario 24-2 The price tag on a golf ball in 1975 read $0.20, and the price tag on a golf ball in 2005 read $2.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3. -Refer to Scenario 24-2. The price of a 1975 golf ball in 2005 dollars is

The relative importance of housing in the breakdown of consumer spending is

If the CPI was 127 in 1972 and is 324 today, then $10 in 1972 purchased the same amount of goods and services as

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 $50; in 2014, the basket's cost was $52; and in 2016, the basket's cost was $55. The value of the CPI in 2016 was

Economists use the term inflation to describe a situation in which

Suppose that the CPI in 1990 was 150, that the inflation rate in 1991 was 6%, and that the inflation rate in 1992 was 4%. What was the CPI in 1991 and 1992?

The CPI is calculated

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. If 2013 is the base year, then the CPI for 2013 was

In which of the following cases would there be an effect on the value of the U.S. consumer price index, but not on the value of the U.S. GDP deflator?

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 2 percent during the year the money was deposited, then Bob's purchasing power has increased by 3 percent.

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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