Question 1

The nominal interest rate tells you

Accepted Answer

A)  how fast the number of dollars in your bank account rises over time. 
B)  how fast the purchasing power of your bank account rises over time. 
C)  the number of dollars in your bank account today. 
D)  the purchasing power of your bank account today. 
A)  how fast the number of dollars in your bank account rises over time. 
B)  how fast the purchasing power of your bank account rises over time. 
C)  the number of dollars in your bank account today. 
D)  the purchasing power of your bank account today.

Question 2

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 3

Every unit of good x that is produced in the United States is exported to other countries. An increase in the price of good x 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 4

Consider a small economy in which consumers buy only two goods: pretzels and cookies. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that

Accepted Answer

A)  the percentage change in the price of pretzels is equal to the percentage change in the price of cookies from year to year. 
B)  the number of pretzels bought by the typical consumer is equal to the number of cookies bought by the typical consumer in each year. 
C)  neither the number of pretzels nor the number of cookies bought by the typical consumer changes from year to year. 
D)  neither the price of pretzels nor the price of cookies changes from year to year. 
A)  the percentage change in the price of pretzels is equal to the percentage change in the price of cookies from year to year. 
B)  the number of pretzels bought by the typical consumer is equal to the number of cookies bought by the typical consumer in each year. 
C)  neither the number of pretzels nor the number of cookies bought by the typical consumer changes from year to year. 
D)  neither the price of pretzels nor the price of cookies changes from year to year.

Question 5

The introduction of the video cassette recorder in the 1970s exemplified a problem in measuring the cost of living; that problem is the problem of

Accepted Answer

A)  substitution bias. 
B)  product-improvement bias. 
C)  introduction of new goods. 
D)  unmeasured quality change. 
A)  substitution bias. 
B)  product-improvement bias. 
C)  introduction of new goods. 
D)  unmeasured quality change.

Question 6

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 2009, then the consumer price index was

Accepted Answer

A)  100 in 2009, 115 in 2010, and 116 in 2011. 
B)  100 in 2009, 115 in 2010, and 135 in 2011. 
C)  100 in 2009, 120 in 2010, and 116 in 2011. 
D)  120 in 2009, 125 in 2010, and 135 in 2011. 
A)  100 in 2009, 115 in 2010, and 116 in 2011. 
B)  100 in 2009, 115 in 2010, and 135 in 2011. 
C)  100 in 2009, 120 in 2010, and 116 in 2011. 
D)  120 in 2009, 125 in 2010, and 135 in 2011.

Question 7

If the CPI was 104 in 1967 and is 390 today, then $10 in 1967 purchased the same amount of goods and services as

Accepted Answer

A)  $2.67 purchases today. 
B)  $37.50 purchases today. 
C)  $39.00 purchases today. 
D)  $104.00 purchases today. 
A)  $2.67 purchases today. 
B)  $37.50 purchases today. 
C)  $39.00 purchases today. 
D)  $104.00 purchases today.

Question 8

To calculate the CPI, the Bureau of Labor Statistics uses

Accepted Answer

A)  the prices of all goods and services produced domestically. 
B)  the prices of all final goods and services. 
C)  the prices of all consumer goods. 
D)  the prices of some consumer goods. 
A)  the prices of all goods and services produced domestically. 
B)  the prices of all final goods and services. 
C)  the prices of all consumer goods. 
D)  the prices of some consumer goods.

Question 9

The GDP deflator reflects the prices of all goods and services produced around the world, whereas the consumer price index reflects the prices of all goods and services bought by consumers.

Accepted Answer

A) True 
 B)False

Question 10

Arlo is offered a job in Des Moines, where the CPI is 60, and a job in New York, where the CPI is 125. Arlo's job offer in Des Moines is for $48,000. How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?

Accepted Answer

A)  $23,040 
B)  $52,000 
C)  $79,200 
D)  $100,000 
A)  $23,040 
B)  $52,000 
C)  $79,200 
D)  $100,000

Question 11

Arlo is offered a job in Des Moines, where the CPI is 80, and a job in New York, where the CPI is 125. Arlo's job offer in Des Moines is for $42,000. How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?

Accepted Answer

A)  $42,000 
B)  $65,625 
C)  $68,880 
D)  $189,000 
A)  $42,000 
B)  $65,625 
C)  $68,880 
D)  $189,000

Question 12

If the real interest rate is 5 percent and the inflation rate is 2 percent, then the nominal interest rate is 7 percent.

Accepted Answer

A) True 
 B)False

Question 13

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 14

When the consumer price index falls, the typical family

Accepted Answer

A)  has to spend more dollars to maintain the same standard of living. 
B)  can spend fewer dollars to maintain the same standard of living. 
C)  finds that its standard of living is not affected. 
D)  can save less because they do not need to offset the effects of rising prices. 
A)  has to spend more dollars to maintain the same standard of living. 
B)  can spend fewer dollars to maintain the same standard of living. 
C)  finds that its standard of living is not affected. 
D)  can save less because they do not need to offset the effects of rising prices.

Question 15

List the five steps for calculating the consumer price index and inflation rate.

Accepted Answer

(1) Survey consumers to determine a fixe

Question 16

Which of the following is correct?

Accepted Answer

A)  The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers. 
B)  The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers. 
C)  The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers. 
D)  The GDP deflator is more commonly used as a gauge of inflation than the CPI is. 
A)  The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers. 
B)  The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers. 
C)  The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers. 
D)  The GDP deflator is more commonly used as a gauge of inflation than the CPI is.

Question 17

Assume an economy experienced a positive rate of inflation between 2003 and 2004 and again between 2004 and 2005. However, the inflation rate was lower between 2004 and 2005 than it was between 2003 and 2004. Which of the following scenarios is consistent with this assumption?

Accepted Answer

A)  The CPI was 100 in 2003, 110 in 2004, and 105 in 2005. 
B)  The CPI was 100 in 2003, 120 in 2004, and 135 in 2005. 
C)  The CPI was 100 in 2003, 105 in 2004, and 130 in 2005. 
D)  The CPI was 100 in 2003, 90 in 2004, and 88 in 2005. 
A)  The CPI was 100 in 2003, 110 in 2004, and 105 in 2005. 
B)  The CPI was 100 in 2003, 120 in 2004, and 135 in 2005. 
C)  The CPI was 100 in 2003, 105 in 2004, and 130 in 2005. 
D)  The CPI was 100 in 2003, 90 in 2004, and 88 in 2005.

Question 18

Recent changes in methods used to compute the CPI have made the

Accepted Answer

A)  upward bias in the CPI inflation rate more severe than it used to be. 
B)  upward bias in the CPI inflation rate less severe than it used to be. 
C)  downward bias in the CPI inflation rate more severe than it used to be. 
D)  downward bias in the CPI inflation rate less severe than it used to be. 
A)  upward bias in the CPI inflation rate more severe than it used to be. 
B)  upward bias in the CPI inflation rate less severe than it used to be. 
C)  downward bias in the CPI inflation rate more severe than it used to be. 
D)  downward bias in the CPI inflation rate less severe than it used to be.

Question 19

Michelle bought word-processing software in 2009 for $75. Michelle's cousin, Barry, bought an upgrade of the same software in 2010 for $75. To which problem in the construction of the CPI is this situation most relevant?

Accepted Answer

A)  substitution bias 
B)  unmeasured quality change 
C)  introduction of new goods 
D)  income bias 
A)  substitution bias 
B)  unmeasured quality change 
C)  introduction of new goods 
D)  income bias

Question 20

Data from the Bureau of Labor Statistics show that consumer spending on transportation is only slightly higher than consumer spending on food and beverages.

Accepted Answer

A) True 
 B)False

Exam 24: Measuring the Cost of Living

The nominal interest rate tells you

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

Every unit of good x that is produced in the United States is exported to other countries. An increase in the price of good x shows up

Consider a small economy in which consumers buy only two goods: pretzels and cookies. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that

The introduction of the video cassette recorder in the 1970s exemplified a problem in measuring the cost of living; that problem is the problem of

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 2009, then the consumer price index was

If the CPI was 104 in 1967 and is 390 today, then $10 in 1967 purchased the same amount of goods and services as

To calculate the CPI, the Bureau of Labor Statistics uses

The GDP deflator reflects the prices of all goods and services produced around the world, whereas the consumer price index reflects the prices of all goods and services bought by consumers.

Arlo is offered a job in Des Moines, where the CPI is 60, and a job in New York, where the CPI is 125. Arlo's job offer in Des Moines is for $48,000. How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?

Arlo is offered a job in Des Moines, where the CPI is 80, and a job in New York, where the CPI is 125. Arlo's job offer in Des Moines is for $42,000. How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?

If the real interest rate is 5 percent and the inflation rate is 2 percent, then the nominal interest rate is 7 percent.

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?

When the consumer price index falls, the typical family

List the five steps for calculating the consumer price index and inflation rate.

Which of the following is correct?

Assume an economy experienced a positive rate of inflation between 2003 and 2004 and again between 2004 and 2005. However, the inflation rate was lower between 2004 and 2005 than it was between 2003 and 2004. Which of the following scenarios is consistent with this assumption?

Recent changes in methods used to compute the CPI have made the

Michelle bought word-processing software in 2009 for $75. Michelle's cousin, Barry, bought an upgrade of the same software in 2010 for $75. To which problem in the construction of the CPI is this situation most relevant?

Data from the Bureau of Labor Statistics show that consumer spending on transportation is only slightly higher than consumer spending on food and beverages.

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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