Question 1

The Bureau of Labor Statistics determines which prices are most important to the typical consumer by surveying consumers.

Accepted Answer

A) True 
 B)False

Question 2

In the calculation of the CPI, tea is given greater weight than beer if

Accepted Answer

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

Question 3

In the U.S., when the price of oil rises, the CPI rises by much more than does the GDP deflator.

Accepted Answer

A) True 
 B)False

Question 4

If the CPI was 110 this year and 100 last year, then

Accepted Answer

A)  the cost of the CPI basket of goods and services increased by 10 percent this year. 
B)  the price level increased by 110 percent this year. 
C)  the inflation rate for this year was 10 percent higher than the inflation rate for last year. 
D)  All of the above are correct. 
A)  the cost of the CPI basket of goods and services increased by 10 percent this year. 
B)  the price level increased by 110 percent this year. 
C)  the inflation rate for this year was 10 percent higher than the inflation rate for last year. 
D)  All of the above are correct.

Question 5

The goal of the consumer price index is to gauge how much incomes must rise to maintain a constant standard of living.

Accepted Answer

A) True 
 B)False

Question 6

Consumer price index =   × 100.

Accepted Answer

A) True 
 B)False

Question 7

Suppose that over the past year, the real interest rate was 5 percent and the inflation rate was 3 percent. It follows that

Accepted Answer

A)  the dollar value of savings increased at 5 percent, and the purchasing power of savings increased at 2 percent. 
B)  the dollar value of savings increased at 5 percent, and the purchasing power of savings increased at 8 percent. 
C)  the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 2 percent. 
D)  the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 5 percent. 
A)  the dollar value of savings increased at 5 percent, and the purchasing power of savings increased at 2 percent. 
B)  the dollar value of savings increased at 5 percent, and the purchasing power of savings increased at 8 percent. 
C)  the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 2 percent. 
D)  the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 5 percent.

Question 8

Scenario 24-6
A small economy produced and consumed goods X and Y in 2010 and 2011 in the amounts shown in the table below. Assume that the market basket for the CPI is defined in the base year.
  
-Refer to Scenario 24-6. Using 2010 as the base year, what is the inflation rate in 2011?

Accepted Answer

The inflat

Question 9

When the relative price of a good decreases, consumers respond by buying

Accepted Answer

A)  a larger quantity of that good and a larger quantity of substitutes for that good. 
B)  a larger quantity of that good and a smaller quantity of substitutes for that good. 
C)  a smaller quantity of that good and a larger quantity of substitutes for that good. 
D)  a smaller quantity of that good and a smaller quantity of substitutes for that good. 
A)  a larger quantity of that good and a larger quantity of substitutes for that good. 
B)  a larger quantity of that good and a smaller quantity of substitutes for that good. 
C)  a smaller quantity of that good and a larger quantity of substitutes for that good. 
D)  a smaller quantity of that good and a smaller quantity of substitutes for that good.

Question 10

The three problems with using the consumer price index as a measure of the cost of living are

Accepted Answer

A)  widely acknowledged and easy to solve. 
B)  widely acknowledged and difficult to solve. 
C)  nearly unacknowledged and easy to solve. 
D)  nearly unacknowledged and difficult to solve. 
A)  widely acknowledged and easy to solve. 
B)  widely acknowledged and difficult to solve. 
C)  nearly unacknowledged and easy to solve. 
D)  nearly unacknowledged and difficult to solve.

Question 11

Corey deposits $1,000 in a savings account that pays an annual interest rate of 5 percent. Over the course of a year, the inflation rate is 1.7 percent. At the end of the year, Corey has

Accepted Answer

A)  $17 more in his account, and his purchasing power has increased by $10. 
B)  $30 more in his account, and his purchasing power has increased by $50. 
C)  $40 more in his account, and his purchasing power has increased by $33. 
D)  $50 more in his account, and his purchasing power has increased by $33. 
A)  $17 more in his account, and his purchasing power has increased by $10. 
B)  $30 more in his account, and his purchasing power has increased by $50. 
C)  $40 more in his account, and his purchasing power has increased by $33. 
D)  $50 more in his account, and his purchasing power has increased by $33.

Question 12

In 1983, one could buy a model radio-controlled airplane for $11.50 each. Those same planes are available today and the price increased at exactly the rate of inflation. If the CPI today is 220.5 and in 1983 was 105, what is the price of the airplane today?

Accepted Answer

A)  $24.15 
B)  $11.50 
C)  $5.48 
D)  $2.10 
A)  $24.15 
B)  $11.50 
C)  $5.48 
D)  $2.10

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. What are the prices of books, CDs, and DVDs in 2010?

Accepted Answer

In 2009, books are $

Question 14

Suppose a basket of goods and services has been selected to calculate the CPI and 2014 has been selected as the base year. In 2013, the basket's cost was $80; in 2014, the basket's cost was $86; and in 2015, the basket's cost was $90. The value of the CPI in 2015 was

Accepted Answer

A)  112.5 and the inflation rate was 12.5%. 
B)  112.5 and the inflation rate was 4.6%. 
C)  104.6 and the inflation rate was 4.6%. 
D)  104.6 and the inflation rate was 12.5%. 
A)  112.5 and the inflation rate was 12.5%. 
B)  112.5 and the inflation rate was 4.6%. 
C)  104.6 and the inflation rate was 4.6%. 
D)  104.6 and the inflation rate was 12.5%.

Question 15

When some dollar amount is automatically corrected for inflation by law or contract, the amount is said to be indexed for inflation.

Accepted Answer

A) True 
 B)False

Question 16

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 inflation rate was

Accepted Answer

A)  negative in 2005 and negative in 2006. 
B)  negative in 2005 and positive in 2006. 
C)  positive in 2005 and negative in 2006. 
D)  positive in 2005 and positive in 2006. 
A)  negative in 2005 and negative in 2006. 
B)  negative in 2005 and positive in 2006. 
C)  positive in 2005 and negative in 2006. 
D)  positive in 2005 and positive in 2006.

Question 17

An increase in the price of dairy products produced domestically will be reflected in

Accepted Answer

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

Question 18

Scenario 24-6
A small economy produced and consumed goods X and Y in 2010 and 2011 in the amounts shown in the table below. Assume that the market basket for the CPI is defined in the base year.
  
-Refer to Scenario 24-6. Using 2011 as the base year, what is the inflation rate in 2011?

Accepted Answer

The inflat

Question 19

In 1970, Professor Plum earned $12,000; in 1980, he earned $24,000; and in 1990, he earned $36,000. If the CPI was 40 in 1970, 70 in 1980, and 130 in 1990, then in real terms, Professor Plum's salary was highest in

Accepted Answer

A)  1970 and lowest in 1980. 
B)  1970 and lowest in 1990. 
C)  1980 and lowest in 1970. 
D)  1980 and lowest in 1990. 
A)  1970 and lowest in 1980. 
B)  1970 and lowest in 1990. 
C)  1980 and lowest in 1970. 
D)  1980 and lowest in 1990.

Question 20

For some racquet sports, there have been increases in the size of the racquets; also, the methods and materials used for making racquets have improved. 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 bias 
A)  substitution bias 
B)  introduction of new goods 
C)  unmeasured quality change 
D)  income bias

Exam 11: Measuring the Cost of Living

The Bureau of Labor Statistics determines which prices are most important to the typical consumer by surveying consumers.

In the calculation of the CPI, tea is given greater weight than beer if

In the U.S., when the price of oil rises, the CPI rises by much more than does the GDP deflator.

If the CPI was 110 this year and 100 last year, then

The goal of the consumer price index is to gauge how much incomes must rise to maintain a constant standard of living.

Consumer price index = × 100.

Suppose that over the past year, the real interest rate was 5 percent and the inflation rate was 3 percent. It follows that

Scenario 24-6 A small economy produced and consumed goods X and Y in 2010 and 2011 in the amounts shown in the table below. Assume that the market basket for the CPI is defined in the base year. -Refer to Scenario 24-6. Using 2010 as the base year, what is the inflation rate in 2011?

When the relative price of a good decreases, consumers respond by buying

The three problems with using the consumer price index as a measure of the cost of living are

Corey deposits $1,000 in a savings account that pays an annual interest rate of 5 percent. Over the course of a year, the inflation rate is 1.7 percent. At the end of the year, Corey has

In 1983, one could buy a model radio-controlled airplane for $11.50 each. Those same planes are available today and the price increased at exactly the rate of inflation. If the CPI today is 220.5 and in 1983 was 105, what is the price of the airplane today?

Suppose a basket of goods and services has been selected to calculate the CPI and 2014 has been selected as the base year. In 2013, the basket's cost was $80; in 2014, the basket's cost was $86; and in 2015, the basket's cost was $90. The value of the CPI in 2015 was

When some dollar amount is automatically corrected for inflation by law or contract, the amount is said to be indexed for inflation.

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 inflation rate was

An increase in the price of dairy products produced domestically will be reflected in

Scenario 24-6 A small economy produced and consumed goods X and Y in 2010 and 2011 in the amounts shown in the table below. Assume that the market basket for the CPI is defined in the base year. -Refer to Scenario 24-6. Using 2011 as the base year, what is the inflation rate in 2011?

In 1970, Professor Plum earned $12,000; in 1980, he earned $24,000; and in 1990, he earned $36,000. If the CPI was 40 in 1970, 70 in 1980, and 130 in 1990, then in real terms, Professor Plum's salary was highest in

For some racquet sports, there have been increases in the size of the racquets; also, the methods and materials used for making racquets have improved. To which problem in the construction of the CPI is this situation most relevant?

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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