Question 1

Persistent increases in the overall level of prices have been the norm.

Accepted Answer

A) True 
 B)False

Question 2

The market basket used to calculate the CPI in Aquilonia is 4 loaves of bread, 6 gallons of milk, 2 shirts, and 2 pairs of pants. In 2005, bread cost $1.00 per loaf, milk cost $1.50 per gallon, shirts cost $6.00 each, and pants cost $10.00 per pair. In 2006, bread cost $1.50 per loaf, milk cost $2.00 per gallon, shirts cost $7.00 each, and pants cost $12.00 per pair. Using 2005 as the base year, what was Aquilonia's inflation rate in 2006?

Accepted Answer

A)  4 percent 
B)  11 percent 
C)  19.6 percent 
D)  24.4 percent 
A)  4 percent 
B)  11 percent 
C)  19.6 percent 
D)  24.4 percent

Question 3

A decrease in the price of domestically produced industrial robots will be reflected in

Accepted Answer

A)  both the GDP deflator and the consumer price index. 
B)  neither the GDP deflator nor the consumer price index. 
C)  the GDP deflator but not in the consumer price index. 
D)  the consumer price index but not in the GDP deflator. 
A)  both the GDP deflator and the consumer price index. 
B)  neither the GDP deflator nor the consumer price index. 
C)  the GDP deflator but not in the consumer price index. 
D)  the consumer price index but not in the GDP deflator.

Question 4

Suppose that U.S. mining companies purchase German-made ore trucks at a reduced price. By itself, what effect will this purchase have on the GDP deflator and on the consumer price index?

Accepted Answer

A)  The consumer price index and the GDP deflator will both fall. 
B)  The consumer price index and the GDP deflator will both be unaffected. 
C)  The consumer price index will fall, and the GDP deflator will be unaffected. 
D)  The consumer price index will be unaffected, and the GDP deflator will fall. 
A)  The consumer price index and the GDP deflator will both fall. 
B)  The consumer price index and the GDP deflator will both be unaffected. 
C)  The consumer price index will fall, and the GDP deflator will be unaffected. 
D)  The consumer price index will be unaffected, and the GDP deflator will fall.

Question 5

In which of the following cases would there be an effect on the value of the U.S. consumer price index, but not on the value of the U.S. GDP deflator?

Accepted Answer

A)  All of the truck tires that are produced by a certain company in South Korea are sold to the U.S. military, and the price of these tires decreases. 
B)  All of the truck tires that are produced by a certain company in California are sold to the U.S. military, and the price of these tires decreases. 
C)  Most of the bananas that are produced by a certain company in Honduras end up in U.S. grocery stores, and the price of these bananas increases. 
D)  Most of the earth-moving machines that are produced by a certain company in Illinois are exported to other countries, and the price of these machines increases. 
A)  All of the truck tires that are produced by a certain company in South Korea are sold to the U.S. military, and the price of these tires decreases. 
B)  All of the truck tires that are produced by a certain company in California are sold to the U.S. military, and the price of these tires decreases. 
C)  Most of the bananas that are produced by a certain company in Honduras end up in U.S. grocery stores, and the price of these bananas increases. 
D)  Most of the earth-moving machines that are produced by a certain company in Illinois are exported to other countries, and the price of these machines increases.

Question 6

Data from the Bureau of Labor Statistics show that the largest category of consumer spending is housing.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

In the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the smallest?

Accepted Answer

A)  food & beverages 
B)  recreation 
C)  housing 
D)  apparel 
A)  food & beverages 
B)  recreation 
C)  housing 
D)  apparel

Question 9

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If inflation was 5 percent during the year the money was deposited, then Bob's purchasing power has not changed.

Accepted Answer

A) True 
 B)False

Question 10

If the CPI today is 120 and the CPI five years ago was 80, then something that cost $1 five years ago would cost $1.50 in today's prices.

Accepted Answer

A) True 
 B)False

Question 11

When consumer spending is broken down into the major categories of goods and services, the largest single category is spending on transportation.

Accepted Answer

A) True 
 B)False

Question 12

By not taking into account the possibility of consumer substitution, the CPI

Accepted Answer

A)  understates the cost of living. 
B)  overstates the cost of living. 
C)  may overstate or understate the cost of living, depending on how quickly prices rise. 
D)  may overstate or understate the cost of living, regardless of how quickly prices rise. 
A)  understates the cost of living. 
B)  overstates the cost of living. 
C)  may overstate or understate the cost of living, depending on how quickly prices rise. 
D)  may overstate or understate the cost of living, regardless of how quickly prices rise.

Question 13

When the consumer price index is computed, the base year is always the first year among the years being considered.

Accepted Answer

A) True 
 B)False

Question 14

If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation rate is 3 percent.

Accepted Answer

A) True 
 B)False

Question 15

Table 24-1
The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year.  
-Refer to Table 24-1. What belongs in space E?

Accepted Answer

A)  60% 
B)  6% 
C)  3.9% 
D)  6.7% 
A)  60% 
B)  6% 
C)  3.9% 
D)  6.7%

Question 16

If the CPI was 127 in 1972 and is 324 today, then $10 in 1972 purchased the same amount of goods and services as

Accepted Answer

A)  $3.92 purchases today. 
B)  $25.51 purchases today. 
C)  $207.00 purchases today. 
D)  $324.00 purchases today. 
A)  $3.92 purchases today. 
B)  $25.51 purchases today. 
C)  $207.00 purchases today. 
D)  $324.00 purchases today.

Question 17

If the nominal interest rate is 8.3% and the inflation rate is 4.4%, what is the real interest rate?

Accepted Answer

The real i

Question 18

Because the consumer price index reflects the goods and services bought by consumers better than the GDP deflator does, it is the more common gauge of inflation.

Accepted Answer

A) True 
 B)False

Question 19

Scenario 24-1
The price tag on a tennis ball in 1975 read $0.10, and the price tag on a tennis ball in 2005 read $1.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3.
-Refer to Scenario 24-1. The price of a 1975 tennis ball in 2005 dollars is

Accepted Answer

A)  $0.03. 
B)  $0.27. 
C)  $0.37. 
D)  $1.00. 
A)  $0.03. 
B)  $0.27. 
C)  $0.37. 
D)  $1.00.

Question 20

Suppose a basket of goods and services has been selected to calculate the CPI and 2009 has been selected as the base year. In 2007, the basket's cost was $64; in 2009, the basket's cost was $68; and in 2011, the basket's cost was $70. The value of the CPI in 2011 was

Accepted Answer

A)  97.14. 
B)  100.10. 
C)  102.94. 
D)  109.38. 
A)  97.14. 
B)  100.10. 
C)  102.94. 
D)  109.38.

Exam 24: Measuring the Cost of Living

Persistent increases in the overall level of prices have been the norm.

A decrease in the price of domestically produced industrial robots will be reflected in

Suppose that U.S. mining companies purchase German-made ore trucks at a reduced price. By itself, what effect will this purchase have on the GDP deflator and on the consumer price index?

In which of the following cases would there be an effect on the value of the U.S. consumer price index, but not on the value of the U.S. GDP deflator?

Data from the Bureau of Labor Statistics show that the largest category of consumer spending is housing.

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

In the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the smallest?

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If inflation was 5 percent during the year the money was deposited, then Bob's purchasing power has not changed.

If the CPI today is 120 and the CPI five years ago was 80, then something that cost $1 five years ago would cost $1.50 in today's prices.

When consumer spending is broken down into the major categories of goods and services, the largest single category is spending on transportation.

By not taking into account the possibility of consumer substitution, the CPI

When the consumer price index is computed, the base year is always the first year among the years being considered.

If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation rate is 3 percent.

Table 24-1 The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year. -Refer to Table 24-1. What belongs in space E?

If the CPI was 127 in 1972 and is 324 today, then $10 in 1972 purchased the same amount of goods and services as

If the nominal interest rate is 8.3% and the inflation rate is 4.4%, what is the real interest rate?

Because the consumer price index reflects the goods and services bought by consumers better than the GDP deflator does, it is the more common gauge of inflation.

Scenario 24-1 The price tag on a tennis ball in 1975 read $0.10, and the price tag on a tennis ball in 2005 read $1.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3. -Refer to Scenario 24-1. The price of a 1975 tennis ball in 2005 dollars is

Suppose a basket of goods and services has been selected to calculate the CPI and 2009 has been selected as the base year. In 2007, the basket's cost was $64; in 2009, the basket's cost was $68; and in 2011, the basket's cost was $70. The value of the CPI in 2011 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

Filters