Question 1

If the nominal interest rate is 4 percent and the real interest rate is -2.5 percent, then the inflation rate is

Accepted Answer

A)  -6.5 percent. 
B)  -1.5 percent. 
C)  1.5 percent. 
D)  6.5 percent. 
A)  -6.5 percent. 
B)  -1.5 percent. 
C)  1.5 percent. 
D)  6.5 percent.

Question 2

If the quality of a good improves while its price remains the same, then the value of a dollar

Accepted Answer

A)  rises and the cost of living increases. 
B)  rises and the cost of living decreases. 
C)  falls and the cost of living increases. 
D)  falls and the cost of living decreases. 
A)  rises and the cost of living increases. 
B)  rises and the cost of living decreases. 
C)  falls and the cost of living increases. 
D)  falls and the cost of living decreases.

Question 3

When the price of nuclear missiles rises, this change is reflected in the CPI but not in the GDP deflator.

Accepted Answer

A) True 
 B)False

Question 4

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 2006, then the CPI

Accepted Answer

A)  increased from 2004 to 2005 and increased from 2005 to 2006. 
B)  increased from 2004 to 2005 and decreased from 2005 to 2006. 
C)  decreased from 2004 to 2005 and increased from 2005 to 2006. 
D)  decreased from 2004 to 2005 and decreased from 2005 to 2006. 
A)  increased from 2004 to 2005 and increased from 2005 to 2006. 
B)  increased from 2004 to 2005 and decreased from 2005 to 2006. 
C)  decreased from 2004 to 2005 and increased from 2005 to 2006. 
D)  decreased from 2004 to 2005 and decreased from 2005 to 2006.

Question 5

The price index was 220 in one year and 238.2 in the next year. What was the inflation rate?

Accepted Answer

A)  8.3 percent 
B)  108.3 percent 
C)  4.8 percent 
D)  38.2 percent 
A)  8.3 percent 
B)  108.3 percent 
C)  4.8 percent 
D)  38.2 percent

Question 6

The producer price index measures the cost of a basket of goods and services bought by firms rather than consumers.

Accepted Answer

A) True 
 B)False

Question 7

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 2011, then the consumer price index was

Accepted Answer

A)  125.0 in 2009, 150.0 in 2010, and 145.0 in 2011. 
B)  86.2 in 2009, 96.7 in 2010, and 100.0 in 2011. 
C)  86.2 in 2009, 103.4 in 2010, and 100.0 in 2011. 
D)  124.1 in 2009, 103.4 in 2010, and 100.0 in 2011. 
A)  125.0 in 2009, 150.0 in 2010, and 145.0 in 2011. 
B)  86.2 in 2009, 96.7 in 2010, and 100.0 in 2011. 
C)  86.2 in 2009, 103.4 in 2010, and 100.0 in 2011. 
D)  124.1 in 2009, 103.4 in 2010, and 100.0 in 2011.

Question 8

The CPI was 96 in 1982, and the CPI was 230 in 2012. How much money would you have needed in 2012 in order to buy what you could have bought with $500 in 1982?

Accepted Answer

A)  $208.96 
B)  $1,197.92 
C)  $697.92 
D)  $1,697.92 
A)  $208.96 
B)  $1,197.92 
C)  $697.92 
D)  $1,697.92

Question 9

Indexation refers to

Accepted Answer

A)  a process of adjusting the nominal interest rate so that it is equal to the real interest rate. 
B)  using a law or contract to automatically correct a dollar amount for the effects of inflation. 
C)  using a price index to deflate dollar values. 
D)  an adjustment made by the Bureau of Labor Statistics to the CPI so that the index is in line with the GDP deflator. 
A)  a process of adjusting the nominal interest rate so that it is equal to the real interest rate. 
B)  using a law or contract to automatically correct a dollar amount for the effects of inflation. 
C)  using a price index to deflate dollar values. 
D)  an adjustment made by the Bureau of Labor Statistics to the CPI so that the index is in line with the GDP deflator.

Question 10

Which of the following is the most accurate statement?

Accepted Answer

A)  In the 1970s, the late 1980s, 1990s, and 2000s, the GDP deflator and the CPI both showed high rates of inflation. 
B)  In the 1970s, both the GDP deflator and the consumer price index showed high rates of inflation, and in the late 1980s, 1990s, and 2000s, both measures showed low rates of inflation. 
C)  In the 1970s, both the GDP deflator and the consumer price index showed low rates of inflation, and in the late 1980s, 1990s, and 2000s, both measures showed high rates of inflation. 
D)  In the 1970s, the late 1980s, 1990s, and 2000s, the GDP deflator and the CPI both showed low rates of inflation. 
A)  In the 1970s, the late 1980s, 1990s, and 2000s, the GDP deflator and the CPI both showed high rates of inflation. 
B)  In the 1970s, both the GDP deflator and the consumer price index showed high rates of inflation, and in the late 1980s, 1990s, and 2000s, both measures showed low rates of inflation. 
C)  In the 1970s, both the GDP deflator and the consumer price index showed low rates of inflation, and in the late 1980s, 1990s, and 2000s, both measures showed high rates of inflation. 
D)  In the 1970s, the late 1980s, 1990s, and 2000s, the GDP deflator and the CPI both showed low rates of inflation.

Question 11

Suppose the price for one gallon of gasoline rises from $3.50 to $4.00 and the price of one gallon of milk rises from $3.00 to $3.20. If the CPI rises from 120 to 132, then people likely will buy

Accepted Answer

A)  more gasoline and more milk. 
B)  more gasoline and fewer milk. 
C)  less gasoline and more milk. 
D)  less gasoline and fewer milk. 
A)  more gasoline and more milk. 
B)  more gasoline and fewer milk. 
C)  less gasoline and more milk. 
D)  less gasoline and fewer milk.

Question 12

The purpose of measuring the overall level of prices in the economy is to permit comparison between dollar figures from different times.

Accepted Answer

A) True 
 B)False

Question 13

In the United States, real interest rates were

Accepted Answer

A)  high in the 1970s and 1990s. 
B)  low in the 1970s and 1990s. 
C)  high in the 1970s and low in the 1990s. 
D)  low in the 1970s and high in the 1990s. 
A)  high in the 1970s and 1990s. 
B)  low in the 1970s and 1990s. 
C)  high in the 1970s and low in the 1990s. 
D)  low in the 1970s and high in the 1990s.

Question 14

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. The cost of the basket in 2013 was

Accepted Answer

A)  $150.50. 
B)  $147. 
C)  $154. 
D)  $301. 
A)  $150.50. 
B)  $147. 
C)  $154. 
D)  $301.

Question 15

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 2009?

Accepted Answer

In 2009, books are $

Question 16

In 1969, Malcolm bought a Pontiac Firebird for $2,500. If the price index was 36.7 in 1969 and the price index was 235 in 2013, then what is the price of the Firebird in 2013 dollars?

Accepted Answer

A)  $4,609.57 
B)  $4,957.51 
C)  $13,508.17 
D)  $16,008.17 
A)  $4,609.57 
B)  $4,957.51 
C)  $13,508.17 
D)  $16,008.17

Question 17

For a country like the United States, explain why the CPI would increase at a faster rate than the GDP deflator during periods of oil and gasoline price increases.

Accepted Answer

The U.S. i

Question 18

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 2010 food expenditures in 2011 dollars amount to $6,235. Then x, the consumer price index for 2011, has a value of

Accepted Answer

A)  171.2. 
B)  175.0. 
C)  177.5. 
D)  180.6. 
A)  171.2. 
B)  175.0. 
C)  177.5. 
D)  180.6.

Question 19

There is no longer much debate among economists concerning the severity of and the solution to the problems in using the CPI to measure the cost of living.

Accepted Answer

A) True 
 B)False

Question 20

Table 24-11. Megan's salary for three consecutive years, along with other values, are presented in the table below.  
-Refer to Table 24-11. Suppose the consumer price index for 2013 is not necessarily 235. If the nominal interest rate for 2013 is 7.3 percent , then the consumer price index for 2013 is, in fact,

Accepted Answer

A)  239.1. 
B)  235.5. 
C)  242.7. 
D)  250.9. 
A)  239.1. 
B)  235.5. 
C)  242.7. 
D)  250.9.

Exam 24: Measuring the Cost of Living

If the nominal interest rate is 4 percent and the real interest rate is -2.5 percent, then the inflation rate is

If the quality of a good improves while its price remains the same, then the value of a dollar

When the price of nuclear missiles rises, this change is reflected in the CPI but not in the GDP deflator.

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 2006, then the CPI

The price index was 220 in one year and 238.2 in the next year. What was the inflation rate?

The producer price index measures the cost of a basket of goods and services bought by firms rather than consumers.

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 2011, then the consumer price index was

The CPI was 96 in 1982, and the CPI was 230 in 2012. How much money would you have needed in 2012 in order to buy what you could have bought with $500 in 1982?

Indexation refers to

Which of the following is the most accurate statement?

Suppose the price for one gallon of gasoline rises from $3.50 to $4.00 and the price of one gallon of milk rises from $3.00 to $3.20. If the CPI rises from 120 to 132, then people likely will buy

The purpose of measuring the overall level of prices in the economy is to permit comparison between dollar figures from different times.

In the United States, real interest rates were

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. The cost of the basket in 2013 was

In 1969, Malcolm bought a Pontiac Firebird for $2,500. If the price index was 36.7 in 1969 and the price index was 235 in 2013, then what is the price of the Firebird in 2013 dollars?

For a country like the United States, explain why the CPI would increase at a faster rate than the GDP deflator during periods of oil and gasoline price increases.

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 2010 food expenditures in 2011 dollars amount to $6,235. Then x, the consumer price index for 2011, has a value of

There is no longer much debate among economists concerning the severity of and the solution to the problems in using the CPI to measure the cost of living.

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

Filters