Question 1

If the real interest rate is 10.3% and the nominal interest rate is 12.6%, what is the inflation rate?

Accepted Answer

The inflat

Question 2

The price index was 150 in the first year, 142.5 in the second year, and 138.2 in the third year. The economy experienced

Accepted Answer

A)  5.0 percent deflation between the first and second years, and 3.0 percent deflation between the second and third years. 
B)  7.5 percent deflation between the first and second years, and 4.3 percent deflation between the second and third years. 
C)  5.3 percent inflation between the first and second years, and 4.1 percent inflation between the second and third years. 
D)  7.5 percent inflation between the first and second years, and 4.3 percent inflation between the second and third years. 
A)  5.0 percent deflation between the first and second years, and 3.0 percent deflation between the second and third years. 
B)  7.5 percent deflation between the first and second years, and 4.3 percent deflation between the second and third years. 
C)  5.3 percent inflation between the first and second years, and 4.1 percent inflation between the second and third years. 
D)  7.5 percent inflation between the first and second years, and 4.3 percent inflation between the second and third years.

Question 3

Table 24-13. Olivia's expenditures on clothing for three consecutive years, along with some values for the CPI, are presented in the table below.  
-Refer to Table 24-13. To the nearest dollar, how much is Olivia's 2010 clothing expenditure in 2011 dollars?

Accepted Answer

A)  $1,683 
B)  $1,778 
C)  $1,800 
D)  $3,600 
A)  $1,683 
B)  $1,778 
C)  $1,800 
D)  $3,600

Question 4

Table 24-9
The table below lists the per gallon prices of gas and milk for the months of April, May, and June. Assume that the typical consumer buys 60 gallons of gas and 4 gallons of milk each month, and that April is the base period.  
-Refer to Table 24-9. What is the consumer price index for May?

Accepted Answer

A)  60 
B)  132 
C)  166 
D)  123 
A)  60 
B)  132 
C)  166 
D)  123

Question 5

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. The cost of the basket

Accepted Answer

A)  increased from 2009 to 2010 and increased from 2010 to 2011. 
B)  increased from 2009 to 2010 and decreased from 2010 to 2011. 
C)  decreased from 2009 to 2010 and increased from 2010 to 2011. 
D)  decreased from 2009 to 2010 and decreased from 2010 to 2011. 
A)  increased from 2009 to 2010 and increased from 2010 to 2011. 
B)  increased from 2009 to 2010 and decreased from 2010 to 2011. 
C)  decreased from 2009 to 2010 and increased from 2010 to 2011. 
D)  decreased from 2009 to 2010 and decreased from 2010 to 2011.

Question 6

Jay and Joyce meet George, the banker, to work out the details of a mortgage. They all expect that inflation will be 2 percent over the term of the loan, and they agree on a nominal interest rate of 6 percent. As it turns out, the inflation rate is 5 percent over the term of the loan.
a. What was the expected real interest rate?
b. What was the actual real interest rate?
c. Who benefited and who lost because of the unexpected inflation?

Accepted Answer

a. The expected real interest rate was 4

Question 7

The CPI is always 1 in the base year.

Accepted Answer

A) True 
 B)False

Question 8

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because

Accepted Answer

A)  the CPI is easier to measure. 
B)  the CPI is calculated more often than the GDP deflator is. 
C)  the CPI better reflects the goods and services bought by consumers. 
D)  the GDP deflator cannot be used to gauge inflation. 
A)  the CPI is easier to measure. 
B)  the CPI is calculated more often than the GDP deflator is. 
C)  the CPI better reflects the goods and services bought by consumers. 
D)  the GDP deflator cannot be used to gauge inflation.

Question 9

Consumer spending in what category is the largest component of the CPI?

Accepted Answer

The answer of Consumer spending in what category is the...

Question 10

The consumer price index tries to gauge how much incomes must rise to maintain

Accepted Answer

A)  an increasing standard of living. 
B)  a constant standard of living. 
C)  a decreasing standard of living. 
D)  the highest standard of living possible. 
A)  an increasing standard of living. 
B)  a constant standard of living. 
C)  a decreasing standard of living. 
D)  the highest standard of living possible.

Question 11

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 12

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 2009 food expenditures in 2011 dollars amount to $5,750. Then the inflation rate for 2011 is about

Accepted Answer

A)  9.08 percent. 
B)  9.52 percent. 
C)  10.24 percent. 
D)  10.78 percent. 
A)  9.08 percent. 
B)  9.52 percent. 
C)  10.24 percent. 
D)  10.78 percent.

Question 13

List the three major problems in using the CPI as a measure of the cost of living.

Accepted Answer

(1) Substitution bias. The CPI ignores t

Question 14

Which is the most accurate statement about the GDP deflator and the consumer price index?

Accepted Answer

A)  The GDP deflator compares the price of a fixed basket of goods and services to the price of the basket in the base year, whereas the consumer price index compares the price of currently produced goods and services to the price of the same goods and services in the base year. 
B)  The consumer price index compares the price of a fixed basket of goods and services to the price of the basket in the base year, whereas the GDP deflator compares the price of currently produced goods and services to the price of the same goods and services in the base year. 
C)  Both the GDP deflator and the consumer price index compare the price of a fixed basket of goods and services to the price of the basket in the base year. 
D)  Both the GDP deflator and the consumer price index compare the price of currently produced goods and services to the price of the same goods and services in the base year. 
A)  The GDP deflator compares the price of a fixed basket of goods and services to the price of the basket in the base year, whereas the consumer price index compares the price of currently produced goods and services to the price of the same goods and services in the base year. 
B)  The consumer price index compares the price of a fixed basket of goods and services to the price of the basket in the base year, whereas the GDP deflator compares the price of currently produced goods and services to the price of the same goods and services in the base year. 
C)  Both the GDP deflator and the consumer price index compare the price of a fixed basket of goods and services to the price of the basket in the base year. 
D)  Both the GDP deflator and the consumer price index compare the price of currently produced goods and services to the price of the same goods and services in the base year.

Question 15

The price index was 150 in the first year, 160 in the second year, and 165 in the third year. Which of the following statements is correct?

Accepted Answer

A)  The price level was higher in the second year than in the first year, and it was higher in the third year than in the second year. 
B)  The inflation rate was positive between the first and second years, and it was positive between the second and third years. 
C)  The inflation rate was lower between the second and third years than it was between the first and second years. 
D)  All of the above are correct. 
A)  The price level was higher in the second year than in the first year, and it was higher in the third year than in the second year. 
B)  The inflation rate was positive between the first and second years, and it was positive between the second and third years. 
C)  The inflation rate was lower between the second and third years than it was between the first and second years. 
D)  All of the above are correct.

Question 16

Economists use the term inflation to describe a situation in which

Accepted Answer

A)  some prices are rising faster than others. 
B)  the economy's overall price level is rising. 
C)  the economy's overall price level is high, but not necessarily rising. 
D)  the economy's overall output of goods and services is rising faster than the economy's overall price level. 
A)  some prices are rising faster than others. 
B)  the economy's overall price level is rising. 
C)  the economy's overall price level is high, but not necessarily rising. 
D)  the economy's overall output of goods and services is rising faster than the economy's overall price level.

Question 17

The real 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 18

Table 24-2
The table below pertains to Pieway, an economy in which the typical consumer's basket consists of 15 bushels of peaches and 10 bushels of pecans.  
-Refer to Table 24-2. If 2012 is the base year, then the CPI for 2012 was

Accepted Answer

A)  95.7. 
B)  100.0. 
C)  90.0. 
D)  110.0. 
A)  95.7. 
B)  100.0. 
C)  90.0. 
D)  110.0.

Question 19

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

Question 20

The nominal interest rate for a consumer loan lasting from 2007 to 2008 is 8.5 percent and the real interest rate is 4.5 percent. If the consumer price index was 200 in 2007, what would the consumer price index value be in 2008?

Accepted Answer

A)  192 
B)  208 
C)  209 
D)  217 
A)  192 
B)  208 
C)  209 
D)  217

Exam 24: Measuring the Cost of Living

If the real interest rate is 10.3% and the nominal interest rate is 12.6%, what is the inflation rate?

The price index was 150 in the first year, 142.5 in the second year, and 138.2 in the third year. The economy experienced

Table 24-13. Olivia's expenditures on clothing for three consecutive years, along with some values for the CPI, are presented in the table below. -Refer to Table 24-13. To the nearest dollar, how much is Olivia's 2010 clothing expenditure in 2011 dollars?

Table 24-9 The table below lists the per gallon prices of gas and milk for the months of April, May, and June. Assume that the typical consumer buys 60 gallons of gas and 4 gallons of milk each month, and that April is the base period. -Refer to Table 24-9. What is the consumer price index for May?

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. The cost of the basket

The CPI is always 1 in the base year.

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because

Consumer spending in what category is the largest component of the CPI?

The consumer price index tries to gauge how much incomes must rise to maintain

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?

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 2009 food expenditures in 2011 dollars amount to $5,750. Then the inflation rate for 2011 is about

List the three major problems in using the CPI as a measure of the cost of living.

Which is the most accurate statement about the GDP deflator and the consumer price index?

The price index was 150 in the first year, 160 in the second year, and 165 in the third year. Which of the following statements is correct?

Economists use the term inflation to describe a situation in which

The real interest rate tells you

Table 24-2 The table below pertains to Pieway, an economy in which the typical consumer's basket consists of 15 bushels of peaches and 10 bushels of pecans. -Refer to Table 24-2. If 2012 is the base year, then the CPI for 2012 was

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?

The nominal interest rate for a consumer loan lasting from 2007 to 2008 is 8.5 percent and the real interest rate is 4.5 percent. If the consumer price index was 200 in 2007, what would the consumer price index value be in 2008?

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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