Question 1

When new goods are introduced, consumers have more variety from which to choose. As a result, each dollar is worth

Accepted Answer

A)  more, and the cost of living increases. 
B)  more, and the cost of living decreases. 
C)  less, and the cost of living increases. 
D)  less, and the cost of living decreases. 
A)  more, and the cost of living increases. 
B)  more, and the cost of living decreases. 
C)  less, and the cost of living increases. 
D)  less, and the cost of living decreases.

Question 2

Social Security payments are indexed for inflation using

Accepted Answer

A)  the CPI. 
B)  the PPI. 
C)  the GDP deflator. 
D)  real interest rates. 
A)  the CPI. 
B)  the PPI. 
C)  the GDP deflator. 
D)  real interest rates.

Question 3

The substitution bias in the consumer price index refers to the

Accepted Answer

A)  substitution by consumers toward new goods and away from old goods. 
B)  substitution by consumers toward a smaller number of high-quality goods and away from a larger number of low-quality goods. 
C)  substitution by consumers toward goods that have become relatively less expensive and away from goods that have become relatively more expensive. 
D)  substitution of new prices for old prices in the CPI basket of goods and services from one year to the next. 
A)  substitution by consumers toward new goods and away from old goods. 
B)  substitution by consumers toward a smaller number of high-quality goods and away from a larger number of low-quality goods. 
C)  substitution by consumers toward goods that have become relatively less expensive and away from goods that have become relatively more expensive. 
D)  substitution of new prices for old prices in the CPI basket of goods and services from one year to the next.

Question 4

Suppose the nominal interest rate this year is 6.5% and that the economy experiences 2.3% deflation. What is the real interest rate?

Accepted Answer

The real i

Question 5

If the nominal interest rate is 6 percent and the rate of inflation is 10 percent, then the real interest rate is

Accepted Answer

A)  -16 percent. 
B)  -4 percent. 
C)  4 percent. 
D)  16 percent. 
A)  -16 percent. 
B)  -4 percent. 
C)  4 percent. 
D)  16 percent.

Question 6

The real interest rate tells you how fast the purchasing power of your bank account rises over time.

Accepted Answer

A) True 
 B)False

Question 7

Substitution bias causes the CPI to understate the increase in the cost of living from one year to the next.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following changes in the price index produces the greatest rate of inflation: 12 to 15, 20 to 24, or 30 to 35?

Accepted Answer

A)  12 to 15 
B)  20 to 24 
C)  30 to 35 
D)  All of these changes produce the same rate of inflation. 
A)  12 to 15 
B)  20 to 24 
C)  30 to 35 
D)  All of these changes produce the same rate of inflation.

Question 9

In calculating the CPI, a fixed basket of goods and services is used. The quantities of the goods and services in the fixed basket are determined by

Accepted Answer

A)  surveying consumers. 
B)  surveying sellers of the goods and services. 
C)  working backward from the rate of inflation to arrive at imputed values for those quantities. 
D)  arbitrary choices made by federal government employees. 
A)  surveying consumers. 
B)  surveying sellers of the goods and services. 
C)  working backward from the rate of inflation to arrive at imputed values for those quantities. 
D)  arbitrary choices made by federal government employees.

Question 10

If the CPI was 68 in 1965 and is 285 today, then $100 today purchases the same amount of goods and services as

Accepted Answer

A)  $23.86 purchased in 1965. 
B)  $32.47 purchased in 1965. 
C)  $68.00 purchased in 1965. 
D)  $419.12 purchased in 1965. 
A)  $23.86 purchased in 1965. 
B)  $32.47 purchased in 1965. 
C)  $68.00 purchased in 1965. 
D)  $419.12 purchased in 1965.

Question 11

Janelle earned a salary of $40,000 in 1996 and $65,000 in 2006. The consumer price index was 160 in 1996 and 266 in 2006. Janelle's 2006 salary in 1996 dollars is

Accepted Answer

A)  $39,097.74. 
B)  $43,062.50. 
C)  $68,900.00. 
D)  $108,062.50. 
A)  $39,097.74. 
B)  $43,062.50. 
C)  $68,900.00. 
D)  $108,062.50.

Question 12

Table 24-7. The table below applies to an economy with only two goods - hamburgers and hot dogs. The fixed basket consists of 4 hamburgers and 8 hot dogs.  
-Refer to Table 24-7. If the base year is 2010, then the economy's inflation rate is

Accepted Answer

A)  2 percent in 2010 and 7 percent in 2011. 
B)  4.5 percent in 2010 and 5.2 percent in 2011. 
C)  9 percent in 2010 and 5.5 percent in 2011. 
D)  10 percent in 2010 and 6.36 percent in 2011. 
A)  2 percent in 2010 and 7 percent in 2011. 
B)  4.5 percent in 2010 and 5.2 percent in 2011. 
C)  9 percent in 2010 and 5.5 percent in 2011. 
D)  10 percent in 2010 and 6.36 percent in 2011.

Question 13

Suppose that over the past year, the real interest rate was 6 percent and the inflation rate was -2 percent. It follows that

Accepted Answer

A)  the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 6 percent. 
B)  the dollar value of savings increased at 4 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 4 percent. 
D)  the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 6 percent. 
A)  the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 6 percent. 
B)  the dollar value of savings increased at 4 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 4 percent. 
D)  the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 6 percent.

Question 14

Suppose that in 2010, the producer price index increases by 1.5 percent. As a result, economists most likely will predict that

Accepted Answer

A)  GDP will increase in 2011. 
B)  the producer price index will increase by more than 1.5 percent in 2011. 
C)  interest rates will decrease in the future. 
D)  the consumer price index will increase in the future. 
A)  GDP will increase in 2011. 
B)  the producer price index will increase by more than 1.5 percent in 2011. 
C)  interest rates will decrease in the future. 
D)  the consumer price index will increase in the future.

Question 15

As long as prices are rising over time, then

Accepted Answer

A)  the nominal interest rate exceeds the real interest rate. 
B)  the real interest rate exceeds the nominal interest rate. 
C)  the real interest rate is positive. 
D)  the nominal interest rate is a better indicator than the real interest rate of how fast the purchasing power of your bank account is changing over time. 
A)  the nominal interest rate exceeds the real interest rate. 
B)  the real interest rate exceeds the nominal interest rate. 
C)  the real interest rate is positive. 
D)  the nominal interest rate is a better indicator than the real interest rate of how fast the purchasing power of your bank account is changing over time.

Question 16

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, 60 in 1980, and 100 in 1990, then in real terms, Professor Plum's salary was highest in

Accepted Answer

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

Question 17

Table 24-14
The table below lists the per pound prices of meat and potatoes for the months of January, February, and March. Assume that the typical consumer buys 25 pounds of meat and 15 pounds of potatoes each month, and that January is the base period.  
-Refer to Table 24-14. Calculate the inflation rate for February.

Accepted Answer

The answer of Table 24-14
The table below lists the per...

Question 18

If the consumer price index changes from 125 in September to 150 in October, what is the rate of inflation?

Accepted Answer

A)  45.5% 
B)  20.0% 
C)  16.7% 
D)  9.1% 
A)  45.5% 
B)  20.0% 
C)  16.7% 
D)  9.1%

Question 19

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 inflation rate in 2006 was

Accepted Answer

A)  44.4%. 
B)  50%. 
C)  62.5%. 
D)  80%. 
A)  44.4%. 
B)  50%. 
C)  62.5%. 
D)  80%.

Question 20

In 1931 the price of a movie ticket was $0.25. The consumer price index was 15.2 in 1931, and 210 in 2008. Using 2008 prices, the real price of a movie in 1931 was

Accepted Answer

A)  $13.82. 
B)  $52.50. 
C)  $1.81. 
D)  $3.45. 
A)  $13.82. 
B)  $52.50. 
C)  $1.81. 
D)  $3.45.

Exam 24: Measuring the Cost of Living

When new goods are introduced, consumers have more variety from which to choose. As a result, each dollar is worth

Social Security payments are indexed for inflation using

The substitution bias in the consumer price index refers to the

Suppose the nominal interest rate this year is 6.5% and that the economy experiences 2.3% deflation. What is the real interest rate?

If the nominal interest rate is 6 percent and the rate of inflation is 10 percent, then the real interest rate is

The real interest rate tells you how fast the purchasing power of your bank account rises over time.

Substitution bias causes the CPI to understate the increase in the cost of living from one year to the next.

Which of the following changes in the price index produces the greatest rate of inflation: 12 to 15, 20 to 24, or 30 to 35?

In calculating the CPI, a fixed basket of goods and services is used. The quantities of the goods and services in the fixed basket are determined by

If the CPI was 68 in 1965 and is 285 today, then $100 today purchases the same amount of goods and services as

Janelle earned a salary of $40,000 in 1996 and $65,000 in 2006. The consumer price index was 160 in 1996 and 266 in 2006. Janelle's 2006 salary in 1996 dollars is

Table 24-7. The table below applies to an economy with only two goods - hamburgers and hot dogs. The fixed basket consists of 4 hamburgers and 8 hot dogs. -Refer to Table 24-7. If the base year is 2010, then the economy's inflation rate is

Suppose that over the past year, the real interest rate was 6 percent and the inflation rate was -2 percent. It follows that

Suppose that in 2010, the producer price index increases by 1.5 percent. As a result, economists most likely will predict that

As long as prices are rising over time, then

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, 60 in 1980, and 100 in 1990, then in real terms, Professor Plum's salary was highest in

If the consumer price index changes from 125 in September to 150 in October, what is the rate of 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. If the base year is 2004, then the inflation rate in 2006 was

In 1931 the price of a movie ticket was $0.25. The consumer price index was 15.2 in 1931, and 210 in 2008. Using 2008 prices, the real price of a movie in 1931 was

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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