Question 1

Data from the Bureau of Labor Statistics show that apparel makes up 14 percent of the typical consumer's budget.

Accepted Answer

A) True 
 B)False

Question 2

Which entity within the U.S. government is responsible for computing and reporting the CPI?

Accepted Answer

A)  the Department of Commerce 
B)  the Department of Labor 
C)  the General Accounting Office 
D)  the Council of Economic Advisers 
A)  the Department of Commerce 
B)  the Department of Labor 
C)  the General Accounting Office 
D)  the Council of Economic Advisers

Question 3

If the cost of medical care increases by 40 percent, then, other things the same, the CPI is likely to increase by about

Accepted Answer

A)  0.9 percent. 
B)  2.8 percent. 
C)  8.0 percent. 
D)  40 percent. 
A)  0.9 percent. 
B)  2.8 percent. 
C)  8.0 percent. 
D)  40 percent.

Question 4

When the quality of a good deteriorates while its price remains the same, the purchasing power of the dollar

Accepted Answer

A)  increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for. 
B)  increases, so the CPI understates the change in the cost of living if the quality change is not accounted for. 
C)  decreases, so the CPI overstates the change in the cost of living if the quality change is not accounted for. 
D)  decreases, so the CPI understates the change in the cost of living if the quality change is not accounted for. 
A)  increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for. 
B)  increases, so the CPI understates the change in the cost of living if the quality change is not accounted for. 
C)  decreases, so the CPI overstates the change in the cost of living if the quality change is not accounted for. 
D)  decreases, so the CPI understates the change in the cost of living if the quality change is not accounted for.

Question 5

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $77; in 2013, the basket's cost was $82; and in 2014, the basket's cost was $90. The value of the CPI in 2014 was

Accepted Answer

A)  109.8 and the inflation rate was 9.8%. 
B)  109.8 and the inflation rate was 16.9%. 
C)  116.9 and the inflation rate was 9.8%. 
D)  116.9 and the inflation rate was 16.9%. 
A)  109.8 and the inflation rate was 9.8%. 
B)  109.8 and the inflation rate was 16.9%. 
C)  116.9 and the inflation rate was 9.8%. 
D)  116.9 and the inflation rate was 16.9%.

Question 6

Suppose the price index was 105 in 2017, 126 in 2018, and the inflation rate was lower between 2018 and 2019 than it was between 2017 and 2018. This means that

Accepted Answer

A)  the price index in 2019 was lower than 126.0. 
B)  the price index in 2019 was lower than 147.0. 
C)  the price index in 2019 was lower than 151.2. 
D)  the inflation rate between 2018 and 2019 was lower than 1.2 percent. 
A)  the price index in 2019 was lower than 126.0. 
B)  the price index in 2019 was lower than 147.0. 
C)  the price index in 2019 was lower than 151.2. 
D)  the inflation rate between 2018 and 2019 was lower than 1.2 percent.

Question 7

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 2009 as the base year, what is the CPI in each year?

Accepted Answer

In 2009 the CPI is 1

Question 8

Suppose that over the past year, the real interest rate was 3 percent and the inflation rate was 1 percent. It follows that

Accepted Answer

A)  the dollar value of savings increased at 2 percent, and the purchasing power of savings increased at 3 percent. 
B)  the dollar value of savings increased at 2 percent, and the purchasing power of savings increased at 4 percent. 
C)  the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 2 percent. 
D)  the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 3 percent. 
A)  the dollar value of savings increased at 2 percent, and the purchasing power of savings increased at 3 percent. 
B)  the dollar value of savings increased at 2 percent, and the purchasing power of savings increased at 4 percent. 
C)  the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 2 percent. 
D)  the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 3 percent.

Question 9

In an imaginary economy, consumers buy only hot dogs and hamburgers. The fixed basket consists of 10 hot dogs and 6 hamburgers. A hot dog cost $3 in 2006 and $5.40 in 2007. A hamburger cost $5 in 2006 and $6 in 2007. Which of the following statements is correct?

Accepted Answer

A)  When 2006 is chosen as the base year, the consumer price index is 90 in 2007. 
B)  When 2006 is chosen as the base year, the inflation rate is 150 percent in 2007. 
C)  When 2007 is chosen as the base year, the consumer price index is 100 in 2006. 
D)  When 2007 is chosen as the base year, the inflation rate is 50 percent in 2007. 
A)  When 2006 is chosen as the base year, the consumer price index is 90 in 2007. 
B)  When 2006 is chosen as the base year, the inflation rate is 150 percent in 2007. 
C)  When 2007 is chosen as the base year, the consumer price index is 100 in 2006. 
D)  When 2007 is chosen as the base year, the inflation rate is 50 percent in 2007.

Question 10

Scenario 24-4
Quinn has job offers in Wrexington and across the country in Charlieville. The Wrexington job would pay a salary of $50,000 per year, and the Charlieville job would pay a salary of $40,000 per year. The CPI in Wrexington is 150, and the CPI in Charlieville is 90.
-Refer to Scenario 24-4. The Charlieville salary in Wrexington dollars is

Accepted Answer

A)  $24,000.00. 
B)  $26,666.67. 
C)  $60,000.00 
D)  $66,666.67. 
A)  $24,000.00. 
B)  $26,666.67. 
C)  $60,000.00 
D)  $66,666.67.

Question 11

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. The cost of the basket

Accepted Answer

A)  decreased by $2 from 2004 to 2005. 
B)  increased by $3 from 2004 to 2005. 
C)  increased by $7 from 2004 to 2005. 
D)  increased by $10 from 2004 to 2005. 
A)  decreased by $2 from 2004 to 2005. 
B)  increased by $3 from 2004 to 2005. 
C)  increased by $7 from 2004 to 2005. 
D)  increased by $10 from 2004 to 2005.

Question 12

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)  education & communication 
B)  apparel 
C)  medical care 
D)  recreation 
A)  education & communication 
B)  apparel 
C)  medical care 
D)  recreation

Question 13

The inflation rate is calculated

Accepted Answer

A)  by determining the change in the price index from the preceding period. 
B)  by adding up the price increases of all goods and services. 
C)  by computing a simple average of the price increases for all goods and services. 
D)  by determining the percentage increase in the price index from the preceding period. 
A)  by determining the change in the price index from the preceding period. 
B)  by adding up the price increases of all goods and services. 
C)  by computing a simple average of the price increases for all goods and services. 
D)  by determining the percentage increase in the price index from the preceding period.

Question 14

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

Accepted Answer

A)  even the appearance of high rates of inflation cause voters to become disenchanted. 
B)  politicians have manipulated the measurement problems to their advantage. 
C)  many government programs use the CPI to adjust for changes in the overall level of prices. 
D)  if the price level is overstated, consumers will be taken advantage of by sellers of consumer goods. 
A)  even the appearance of high rates of inflation cause voters to become disenchanted. 
B)  politicians have manipulated the measurement problems to their advantage. 
C)  many government programs use the CPI to adjust for changes in the overall level of prices. 
D)  if the price level is overstated, consumers will be taken advantage of by sellers of consumer goods.

Question 15

The CPI and GDP deflator usually tell two different stories about how quickly prices are rising.

Accepted Answer

A) True 
 B)False

Question 16

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 2010?

Accepted Answer

In 2009, books are $

Question 17

The consumer price index was 225 in 2008 and 232.2 in 2009. The nominal interest rate during this period was 6.5 percent. What was the real interest rate during this period?

Accepted Answer

A)  1.6 percent 
B)  3.3 percent 
C)  5.1 percent 
D)  7.4 percent 
A)  1.6 percent 
B)  3.3 percent 
C)  5.1 percent 
D)  7.4 percent

Question 18

When the consumer price index rises, the typical family

Accepted Answer

A)  has to spend more dollars to maintain the same standard of living. 
B)  can spend fewer dollars to maintain the same standard of living. 
C)  finds that its standard of living is not affected. 
D)  can offset the effects of rising prices by saving more. 
A)  has to spend more dollars to maintain the same standard of living. 
B)  can spend fewer dollars to maintain the same standard of living. 
C)  finds that its standard of living is not affected. 
D)  can offset the effects of rising prices by saving more.

Question 19

Suppose Stan Musial earned $115,000 in 1947. If the CPI was 82 in 1947, and was 246 in 1990, what is Stan Musial's 1947 salary in 1990 dollars?

Accepted Answer

Stan Musial's 1947 s

Question 20

By far the largest category of goods and services in the CPI basket is

Accepted Answer

A)  housing. 
B)  transportation. 
C)  education & communication. 
D)  food & beverages. 
A)  housing. 
B)  transportation. 
C)  education & communication. 
D)  food & beverages.

Exam 24: Measuring the Cost of Living

Data from the Bureau of Labor Statistics show that apparel makes up 14 percent of the typical consumer's budget.

Which entity within the U.S. government is responsible for computing and reporting the CPI?

If the cost of medical care increases by 40 percent, then, other things the same, the CPI is likely to increase by about

When the quality of a good deteriorates while its price remains the same, the purchasing power of the dollar

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $77; in 2013, the basket's cost was $82; and in 2014, the basket's cost was $90. The value of the CPI in 2014 was

Suppose the price index was 105 in 2017, 126 in 2018, and the inflation rate was lower between 2018 and 2019 than it was between 2017 and 2018. This means that

Suppose that over the past year, the real interest rate was 3 percent and the inflation rate was 1 percent. It follows that

In an imaginary economy, consumers buy only hot dogs and hamburgers. The fixed basket consists of 10 hot dogs and 6 hamburgers. A hot dog cost $3 in 2006 and $5.40 in 2007. A hamburger cost $5 in 2006 and $6 in 2007. Which of the following statements is correct?

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. The cost of the basket

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?

The inflation rate is calculated

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

The CPI and GDP deflator usually tell two different stories about how quickly prices are rising.

The consumer price index was 225 in 2008 and 232.2 in 2009. The nominal interest rate during this period was 6.5 percent. What was the real interest rate during this period?

When the consumer price index rises, the typical family

Suppose Stan Musial earned $115,000 in 1947. If the CPI was 82 in 1947, and was 246 in 1990, what is Stan Musial's 1947 salary in 1990 dollars?

By far the largest category of goods and services in the CPI basket is

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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