Question 1

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 2

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. If the base year is 2004, then the CPI in 2005 was

Accepted Answer

A)  88.9. 
B)  90. 
C)  100. 
D)  112.5. 
A)  88.9. 
B)  90. 
C)  100. 
D)  112.5.

Question 3

Many economists believe the bias in the CPI is now only about half as large as it once was.

Accepted Answer

A) True 
 B)False

Question 4

The Bureau of Labor Statistics is part of the U.S. Department of Labor.

Accepted Answer

A) True 
 B)False

Question 5

The term inflation is used to describe a situation in which

Accepted Answer

A)  the overall level of prices in the economy is increasing. 
B)  incomes in the economy are increasing. 
C)  stock-market prices are rising. 
D)  the economy is growing rapidly. 
A)  the overall level of prices in the economy is increasing. 
B)  incomes in the economy are increasing. 
C)  stock-market prices are rising. 
D)  the economy is growing rapidly.

Question 6

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 7

Suppose the price index was 100 in 2014, 109 in 2015, and the inflation rate was lower between 2015 and 2016 than it was between 2014 and 2015. This means that

Accepted Answer

A)  the price index in 2016 was lower than 109.0. 
B)  the price index in 2016 was lower than 118.9. 
C)  the price index in 2016 was lower than 118.0. 
D)  the inflation rate between 2015 and 2016 was lower than 1.09 percent. 
A)  the price index in 2016 was lower than 109.0. 
B)  the price index in 2016 was lower than 118.9. 
C)  the price index in 2016 was lower than 118.0. 
D)  the inflation rate between 2015 and 2016 was lower than 1.09 percent.

Question 8

The price index was 170 in the first year, 180 in the second year, and 195 in the third year. The inflation rate was about

Accepted Answer

A)  5.6 percent between the first and second years, and 7.7 percent between the second and third years. 
B)  5.9 percent between the first and second years, and 8.3 percent between the second and third years. 
C)  10 percent between the first and second years, and 15 percent between the second and third years. 
D)  80 percent between the first and second years, and 95 percent between the second and third years. 
A)  5.6 percent between the first and second years, and 7.7 percent between the second and third years. 
B)  5.9 percent between the first and second years, and 8.3 percent between the second and third years. 
C)  10 percent between the first and second years, and 15 percent between the second and third years. 
D)  80 percent between the first and second years, and 95 percent between the second and third years.

Question 9

The CPI is a measure of the overall cost of the goods and services bought by

Accepted Answer

A)  a typical consumer, and the CPI is computed and reported by the Department of the Treasury. 
B)  typical consumers and typical business firms, and the CPI is computed and reported by the Department of the Treasury. 
C)  a typical consumer, and the CPI is computed and reported by the Bureau of Labor Statistics. 
D)  typical consumers and typical business firms, and the CPI is computed and reported by the Bureau of Labor Statistics. 
A)  a typical consumer, and the CPI is computed and reported by the Department of the Treasury. 
B)  typical consumers and typical business firms, and the CPI is computed and reported by the Department of the Treasury. 
C)  a typical consumer, and the CPI is computed and reported by the Bureau of Labor Statistics. 
D)  typical consumers and typical business firms, and the CPI is computed and reported by the Bureau of Labor Statistics.

Question 10

The CPI is a measure of the overall cost of

Accepted Answer

A)  the inputs purchased by a typical producer. 
B)  the goods and services purchased by a typical consumer. 
C)  the goods and services produced in the economy. 
D)  the stocks on the New York Stock Exchange. 
A)  the inputs purchased by a typical producer. 
B)  the goods and services purchased by a typical consumer. 
C)  the goods and services produced in the economy. 
D)  the stocks on the New York Stock Exchange.

Question 11

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 12

Suppose the price of a gallon of ice cream rises from $4 to $5 and the price of a can of coffee rises from $2 to $2.50. If the CPI rises from 150 to 177, then people likely will buy

Accepted Answer

A)  more ice cream and more coffee. 
B)  more ice cream and less coffee. 
C)  less ice cream and more coffee. 
D)  less ice cream and less coffee. 
A)  more ice cream and more coffee. 
B)  more ice cream and less coffee. 
C)  less ice cream and more coffee. 
D)  less ice cream and less coffee.

Question 13

Ms. Lane borrowed $1,000 from her bank for one year at an interest rate of 10 percent. During that year, the price level went up by 15 percent. Which of the following statements is correct?

Accepted Answer

A)  Ms. Lane will repay the bank fewer dollars than she initially borrowed. 
B)  Ms. Lane's repayment will give the bank less purchasing power than it originally loaned her. 
C)  Ms. Lane's repayment will give the bank greater purchasing power than it originally loaned her. 
D)  Ms. Lane's repayment will give the bank the same purchasing power that it originally loaned her. 
A)  Ms. Lane will repay the bank fewer dollars than she initially borrowed. 
B)  Ms. Lane's repayment will give the bank less purchasing power than it originally loaned her. 
C)  Ms. Lane's repayment will give the bank greater purchasing power than it originally loaned her. 
D)  Ms. Lane's repayment will give the bank the same purchasing power that it originally loaned her.

Question 14

One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI

Accepted Answer

A)  fails to measure all changes in the quality of goods. 
B)  displays a housing bias. 
C)  accounts for changes in prices of some goods, but prices of certain goods are assumed to remain constant. 
D)  All of the above are correct. 
A)  fails to measure all changes in the quality of goods. 
B)  displays a housing bias. 
C)  accounts for changes in prices of some goods, but prices of certain goods are assumed to remain constant. 
D)  All of the above are correct.

Question 15

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. If the base year is 2004, then the CPI in 2004 was

Accepted Answer

A)  0. 
B)  1. 
C)  80. 
D)  100. 
A)  0. 
B)  1. 
C)  80. 
D)  100.

Question 16

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. In 1975 dollars, a 1975 golf ball cost $0.20 and a 2005 golf ball cost

Accepted Answer

A)  $0.55, so golf balls were cheaper in 1975. 
B)  $0.55, so golf balls were cheaper in 2005. 
C)  $7.32, so golf balls were cheaper in 1975. 
D)  $7.32, so golf balls were cheaper in 2005. 
A)  $0.55, so golf balls were cheaper in 1975. 
B)  $0.55, so golf balls were cheaper in 2005. 
C)  $7.32, so golf balls were cheaper in 1975. 
D)  $7.32, so golf balls were cheaper in 2005.

Question 17

The CPI does not reflect the increase in the value of the dollar that arises from the introduction of new goods.

Accepted Answer

A) True 
 B)False

Question 18

Jake loaned Elwood $5,000 for one year at a nominal interest rate of 10 percent. After Elwood repaid the loan in full, Jake complained that he could buy 4 percent fewer goods with the money Elwood gave him than he could before he loaned Elwood the $5,000. From this, we can conclude that the rate of inflation during the year was

Accepted Answer

A)  -4 percent. 
B)  4 percent. 
C)  6 percent. 
D)  14 percent. 
A)  -4 percent. 
B)  4 percent. 
C)  6 percent. 
D)  14 percent.

Question 19

The price index was 136 in one year and 142 in the next year. What was the inflation rate between the two years?

Accepted Answer

A)  1.04 percent 
B)  4.41 percent 
C)  6.00 percent 
D)  42.00 percent 
A)  1.04 percent 
B)  4.41 percent 
C)  6.00 percent 
D)  42.00 percent

Question 20

Suppose the quality of televisions changes over time, but the quality change goes unmeasured for the purpose of computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality change be most severe?

Accepted Answer

A)  The quality of televisions deteriorates and televisions become more expensive relative to other goods. 
B)  The quality of televisions improves and televisions become less expensive relative to other goods. 
C)  The quality of televisions improves and televisions become more expensive relative to other goods. 
D)  The quality of televisions deteriorates and the price of televisions relative to other prices remains unchanged. 
A)  The quality of televisions deteriorates and televisions become more expensive relative to other goods. 
B)  The quality of televisions improves and televisions become less expensive relative to other goods. 
C)  The quality of televisions improves and televisions become more expensive relative to other goods. 
D)  The quality of televisions deteriorates and the price of televisions relative to other prices remains unchanged.

Exam 24: Measuring the Cost of Living

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

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. If the base year is 2004, then the CPI in 2005 was

Many economists believe the bias in the CPI is now only about half as large as it once was.

The Bureau of Labor Statistics is part of the U.S. Department of Labor.

The term inflation is used to describe a situation in which

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?

Suppose the price index was 100 in 2014, 109 in 2015, and the inflation rate was lower between 2015 and 2016 than it was between 2014 and 2015. This means that

The price index was 170 in the first year, 180 in the second year, and 195 in the third year. The inflation rate was about

The CPI is a measure of the overall cost of the goods and services bought by

The CPI is a measure of the overall cost of

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

Suppose the price of a gallon of ice cream rises from $4 to $5 and the price of a can of coffee rises from $2 to $2.50. If the CPI rises from 150 to 177, then people likely will buy

Ms. Lane borrowed $1,000 from her bank for one year at an interest rate of 10 percent. During that year, the price level went up by 15 percent. Which of the following statements is correct?

One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI

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. If the base year is 2004, then the CPI in 2004 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. In 1975 dollars, a 1975 golf ball cost $0.20 and a 2005 golf ball cost

The CPI does not reflect the increase in the value of the dollar that arises from the introduction of new goods.

The price index was 136 in one year and 142 in the next year. What was the inflation rate between the two years?

Suppose the quality of televisions changes over time, but the quality change goes unmeasured for the purpose of computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality change be most severe?

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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

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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