Question 1

Sophia puts money in the bank and earns a 5 percent nominal interest rate. If the inflation rate is 2 percent, then after one year,

Accepted Answer

A)  Sophia will have 3 percent more money, which will purchase 5 percent more goods. 
B)  Sophia will have 3 percent more money, which will purchase 7 percent more goods. 
C)  Sophia will have 5 percent more money, which will purchase 3 percent more goods. 
D)  Sophia will have 5 percent more money, which will purchase 7 percent more goods. 
A)  Sophia will have 3 percent more money, which will purchase 5 percent more goods. 
B)  Sophia will have 3 percent more money, which will purchase 7 percent more goods. 
C)  Sophia will have 5 percent more money, which will purchase 3 percent more goods. 
D)  Sophia will have 5 percent more money, which will purchase 7 percent more goods.

Question 2

For any given year, the CPI is the price of the basket of goods and services in the

Accepted Answer

A)  given year divided by the price of the basket in the base year, then multiplied by 100. 
B)  given year divided by the price of the basket in the previous year, then multiplied by 100. 
C)  base year divided by the price of the basket in the given year, then multiplied by 100. 
D)  previous year divided by the price of the basket in the given year, then multiplied by 100. 
A)  given year divided by the price of the basket in the base year, then multiplied by 100. 
B)  given year divided by the price of the basket in the previous year, then multiplied by 100. 
C)  base year divided by the price of the basket in the given year, then multiplied by 100. 
D)  previous year divided by the price of the basket in the given year, then multiplied by 100.

Question 3

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 x, the consumer price index for 2011, has a value of

Accepted Answer

A)  184.0. 
B)  185.8. 
C)  187.5. 
D)  189.4. 
A)  184.0. 
B)  185.8. 
C)  187.5. 
D)  189.4.

Question 4

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 the consumer price index is 15.5 percent higher in 2011 than in 2009. Then Will's food expenditures for 2010 in 2011 dollars amount to

Accepted Answer

A)  $6,352. 
B)  $6,380. 
C)  $6,426. 
D)  $6,651. 
A)  $6,352. 
B)  $6,380. 
C)  $6,426. 
D)  $6,651.

Question 5

What is the difference between the Consumer Price Index and the Producer Price Index?

Accepted Answer

The CPI measures the cost of a

Question 6

Social Security payments are indexed for inflation using the CPI. A recent newspaper editorial claimed that Social Security recipients are harmed by years of low inflation because they do not receive as large an increase in their payments as they do in years of high inflation. Which of the following statements is correct?

Accepted Answer

A)  The newspaper editorial is correct under all circumstances. 
B)  The newspaper editorial is correct if the market basket consumed by Social Security recipients is the same as the market basket used to compute the CPI. 
C)  The newspaper editorial could be correct if the prices of the goods consumed by Social Security recipients change at a different rate than the prices of the goods in the market basket used to compute the CPI 
D)  The newspaper editorial is incorrect under all circumstances. 
A)  The newspaper editorial is correct under all circumstances. 
B)  The newspaper editorial is correct if the market basket consumed by Social Security recipients is the same as the market basket used to compute the CPI. 
C)  The newspaper editorial could be correct if the prices of the goods consumed by Social Security recipients change at a different rate than the prices of the goods in the market basket used to compute the CPI 
D)  The newspaper editorial is incorrect under all circumstances.

Question 7

The three problems with using the consumer price index as a measure of the cost of living are

Accepted Answer

A)  widely acknowledged and easy to solve. 
B)  widely acknowledged and difficult to solve. 
C)  nearly unacknowledged and easy to solve. 
D)  nearly unacknowledged and difficult to solve. 
A)  widely acknowledged and easy to solve. 
B)  widely acknowledged and difficult to solve. 
C)  nearly unacknowledged and easy to solve. 
D)  nearly unacknowledged and difficult to solve.

Question 8

The price of milk increases dramatically, causing a 0.5 percent increase in the CPI. The price increase will most likely cause the GDP deflator to increase by

Accepted Answer

A)  more than 0.5 percent. 
B)  less than 0.5 percent. 
C)  0.5 percent. 
D)  None of the above is correct; this particular price increase will not affect the GDP deflator. 
A)  more than 0.5 percent. 
B)  less than 0.5 percent. 
C)  0.5 percent. 
D)  None of the above is correct; this particular price increase will not affect the GDP deflator.

Question 9

If the real value of an item bought ten years ago is less than it's nominal value at that time, what can one infer about the change in the overall price level during this ten year period?

Accepted Answer

One can infer that t

Question 10

A worker received $5 for a daily wage in 1930. What is the value of that wage today if the CPI was 17 in 1930 and is 230 today?

Accepted Answer

A)  37 cents 
B)  $4.63 
C)  $67.65 
D)  $37.86 
A)  37 cents 
B)  $4.63 
C)  $67.65 
D)  $37.86

Question 11

Kristine has a savings account at a bank. If the nominal interest rate she earns exceeds the rate of inflation, then her purchasing power increases over time.

Accepted Answer

A) True 
 B)False

Question 12

If the nominal interest rate is 5 percent and the rate of inflation is 9 percent, then the real interest rate is

Accepted Answer

A)  -4 percent. 
B)  -0.44 percent. 
C)  4 percent. 
D)  14 percent. 
A)  -4 percent. 
B)  -0.44 percent. 
C)  4 percent. 
D)  14 percent.

Question 13

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. Between 2010 and 2011, the cost of living increased by

Accepted Answer

A)  5.30 percent. 
B)  6.36 percent. 
C)  7.78 percent. 
D)  We need to know the base year in order to answer this question. 
A)  5.30 percent. 
B)  6.36 percent. 
C)  7.78 percent. 
D)  We need to know the base year in order to answer this question.

Question 14

Dewey earned a salary of $75,000 in 2001 and $95,000 in 2006. The consumer price index was 177 in 2001 and 266 in 2006. Dewey's 2006 salary in 2001 dollars is

Accepted Answer

A)  $47,768.36. 
B)  $63,214.29. 
C)  $84,550.00. 
D)  $142,768.36. 
A)  $47,768.36. 
B)  $63,214.29. 
C)  $84,550.00. 
D)  $142,768.36.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

The inflation rate is defined as the

Accepted Answer

A)  price level in an economy. 
B)  change in the price level from one period to the next. 
C)  percentage change in the price level from the previous period. 
D)  price level minus the price level from the previous period. 
A)  price level in an economy. 
B)  change in the price level from one period to the next. 
C)  percentage change in the price level from the previous period. 
D)  price level minus the price level from the previous period.

Question 17

If the price index was 90 in year 1, 100 in year 2, and 95 in year 3, then the economy experienced

Accepted Answer

A)  10 percent inflation between years 1 and 2, and 5 percent inflation between years 2 and 3. 
B)  10 percent inflation between years 1 and 2, and 5 percent deflation between years 2 and 3. 
C)  11.1 percent inflation between years 1 and 2, and 5 percent inflation between years 2 and 3. 
D)  11.1 percent inflation between years 1 and 2, and 5 percent deflation between years 2 and 3. 
A)  10 percent inflation between years 1 and 2, and 5 percent inflation between years 2 and 3. 
B)  10 percent inflation between years 1 and 2, and 5 percent deflation between years 2 and 3. 
C)  11.1 percent inflation between years 1 and 2, and 5 percent inflation between years 2 and 3. 
D)  11.1 percent inflation between years 1 and 2, and 5 percent deflation between years 2 and 3.

Question 18

Which of the following is the most accurate statement about the effects of quality change on the CPI?

Accepted Answer

A)  Even though the BLS adjusts the prices of products in the CPI basket when the quality of the products changes, changes in quality are still a problem because quality is so hard to measure. 
B)  Because the BLS adjusts the prices of products in the CPI basket when the quality of the products changes, changes in quality are no longer a problem for the CPI. 
C)  The BLS does not adjust the CPI for quality changes. 
D)  Most economists believe that changes in the quality of goods included in the CPI basket do not bias the CPI as a measure of the cost of living. 
A)  Even though the BLS adjusts the prices of products in the CPI basket when the quality of the products changes, changes in quality are still a problem because quality is so hard to measure. 
B)  Because the BLS adjusts the prices of products in the CPI basket when the quality of the products changes, changes in quality are no longer a problem for the CPI. 
C)  The BLS does not adjust the CPI for quality changes. 
D)  Most economists believe that changes in the quality of goods included in the CPI basket do not bias the CPI as a measure of the cost of living.

Question 19

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. Using 2010 as the base year, what is the CPI in each year?

Accepted Answer

In 2009 the CPI is 9

Question 20

Which of the following is not a widely acknowledged problem with using the CPI as a measure of the cost of living?

Accepted Answer

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

Exam 24: Measuring the Cost of Living

Sophia puts money in the bank and earns a 5 percent nominal interest rate. If the inflation rate is 2 percent, then after one year,

For any given year, the CPI is the price of the basket of goods and services in the

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 x, the consumer price index for 2011, has a value of

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 the consumer price index is 15.5 percent higher in 2011 than in 2009. Then Will's food expenditures for 2010 in 2011 dollars amount to

What is the difference between the Consumer Price Index and the Producer Price Index?

The three problems with using the consumer price index as a measure of the cost of living are

The price of milk increases dramatically, causing a 0.5 percent increase in the CPI. The price increase will most likely cause the GDP deflator to increase by

If the real value of an item bought ten years ago is less than it's nominal value at that time, what can one infer about the change in the overall price level during this ten year period?

A worker received $5 for a daily wage in 1930. What is the value of that wage today if the CPI was 17 in 1930 and is 230 today?

Kristine has a savings account at a bank. If the nominal interest rate she earns exceeds the rate of inflation, then her purchasing power increases over time.

If the nominal interest rate is 5 percent and the rate of inflation is 9 percent, then the real interest rate 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. Between 2010 and 2011, the cost of living increased by

Dewey earned a salary of $75,000 in 2001 and $95,000 in 2006. The consumer price index was 177 in 2001 and 266 in 2006. Dewey's 2006 salary in 2001 dollars is

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

The inflation rate is defined as the

If the price index was 90 in year 1, 100 in year 2, and 95 in year 3, then the economy experienced

Which of the following is the most accurate statement about the effects of quality change on the CPI?

Which of the following is not a widely acknowledged problem with using the CPI as a measure of 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

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