Question 1

Renee earned a salary of $60,000 in 2001 and $80,000 in 2006.The consumer price index was 177 for 2001 and 221.25 for 2006.Renee's 2006 salary in 2001 dollars is

Accepted Answer

A) $45,198; thus, Renee's purchasing power decreased between 2001 and 2006. 
B) $64,000; thus, Renee's purchasing power increased between 2001 and 2006. 
C) $64,000; thus, Renee's purchasing power decreased between 2001 and 2006. 
D) $75,000; thus, Renee's purchasing power increased between 2001 and 2006.

Question 2

In the 1970s,nominal interest rates were high and real interest rates were low.In the 1990s,nominal interest rates were low and real interest rates were high.

Accepted Answer

A) True 
 B)False

Question 3

The CPI is calculated

Accepted Answer

A) monthly by the Department of Commerce. 
B) monthly by the Bureau of Labor Statistics. 
C) quarterly by the Department of Commerce. 
D) quarterly by the Bureau of Labor Statistics.

Question 4

If the real interest rate relevant to a bank account is 5 percent and the expected inflation rate is 4 percent,then after a year a person expects to have,relative to today,

Accepted Answer

A) 9 percent more dollars in the bank account, which will purchase 5 percent more goods. 
B) 5 percent more dollars in the bank account, which will purchase 4 percent more goods. 
C) 5 percent more dollars in the bank account, which will purchase 4 percent more goods 
D) 4 percent more dollars in the bank account, which will purchase 1 percent more goods.

Question 5

Ethel purchased a bag of groceries in 1970 for $8.She purchased the same bag of groceries in 2006 for $25.If the price index was 38.8 in 1970 and was 180 in 2006,what is the price of a 1970 bag of groceries in 2006 prices?

Accepted Answer

A) $25.00 
B) $29.11 
C) $37.11 
D) $43.22

Question 6

In the United States,if the price of imported oil rises so that the price of gasoline and heating oil rise the

Accepted Answer

A) GDP deflator rises much more than does the consumer price index. 
B) consumer price index rises much more than does the GDP deflator. 
C) GDP deflator and the consumer price index rise by about the same amount. 
D) consumer price index rises slightly more than does the GDP deflator.

Question 7

In the calculation of the CPI,coffee is given greater weight than tea if

Accepted Answer

A) consumers buy more coffee than tea. 
B) the price of coffee is higher than the price of tea. 
C) it costs more to produce coffee than it costs to produce tea. 
D) coffee is more readily available than is tea to the typical consumer.

Question 8

When calculating the CPI,the Bureau of Labor Statistics uses a statistical technique called

Accepted Answer

A) hedonics in an attempt to account for changes in the quality of products. 
B) hedonics in an attempt to account for substitution by consumers of one product for another. 
C) qualonics in an attempt to account for changes in the quality of products. 
D) qualonics in an attempt to account for substitution by consumers of one product for another.

Question 9

Let 2004 be the base year;then

Accepted Answer

A) Inflation rate in 2005 =  
B) Inflation rate in 2005 =  
C) Inflation rate in 2005 =  
D) Inflation rate in 2005 =

Question 10

Which of these changes in the price index produces the greatest rate of inflation: 100 to 110,150 to 165,or 180 to 198?

Accepted Answer

A) 100 to 110 
B) 150 to 165 
C) 180 to 198 
D) All three changes show the same rate of inflation.

Question 11

Table 24-2
 
-Refer to Table 24-2.Suppose the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn.What is the consumer price index for 2006 if the base year is 2005?

Accepted Answer

A) 73.47 
B) 109.22 
C) 136.11 
D) 150.00

Question 12

The producer price index measures the cost of a basket of goods and services

Accepted Answer

A) typical of those produced in the economy. 
B) produced for a typical consumer. 
C) sold by producers. 
D) bought by firms.

Question 13

If the consumer price index was 100 in the base year and 107 in the following year,the inflation rate was

Accepted Answer

A) 107 percent. 
B) 10.7 percent. 
C) 7 percent. 
D) 1.07 percent.

Question 14

Changes in the producer price index are often thought to be useful in predicting changes in

Accepted Answer

A) stock prices. 
B) the consumer price index. 
C) the unemployment rate. 
D) the rate of output of goods and services.

Question 15

If the nominal interest rate is 6 percent and the rate of inflation is 9 percent,then the real interest rate is

Accepted Answer

A) 15 percent. 
B) 3 percent. 
C) -3 percent. 
D) -15 percent.

Question 16

To calculate the CPI,the Bureau of Labor Statistics uses

Accepted Answer

A) all prices of all goods and services produced domestically. 
B) the prices of all final goods and services. 
C) the prices of all consumer goods. 
D) the prices of some consumer goods.

Question 17

If the current year CPI is 140,then,since the base year the price level has increased 40 percent.

Accepted Answer

A) True 
 B)False

Question 18

If the cost of transportation and the cost of food and beverages both increase by 30 percent,other things the same,the CPI is likely to increase by about

Accepted Answer

A) 3 percent. 
B) 6.4 percent. 
C) 9.6 percent. 
D) 16 percent.

Question 19

Jake loaned Elwood $5,000 for one year at a nominal interest rate of 10 percent.After Elwood repaid the loan in full,Jake complained that he could buy 4 percent fewer goods with the money Elwood gave him than he could before he loaned Elwood the $5,000.From this we can conclude that the rate of inflation during the year was

Accepted Answer

A) 2.5 percent. 
B) 6 percent. 
C) 8 percent. 
D) 14 percent.

Question 20

To which of the problems in the construction of the CPI is the creation of the mobile phone most relevant?

Accepted Answer

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

Exam 24: Measuring the Cost of Living

Renee earned a salary of $60,000 in 2001 and $80,000 in 2006.The consumer price index was 177 for 2001 and 221.25 for 2006.Renee's 2006 salary in 2001 dollars is

In the 1970s,nominal interest rates were high and real interest rates were low.In the 1990s,nominal interest rates were low and real interest rates were high.

The CPI is calculated

If the real interest rate relevant to a bank account is 5 percent and the expected inflation rate is 4 percent,then after a year a person expects to have,relative to today,

Ethel purchased a bag of groceries in 1970 for $8.She purchased the same bag of groceries in 2006 for $25.If the price index was 38.8 in 1970 and was 180 in 2006,what is the price of a 1970 bag of groceries in 2006 prices?

In the United States,if the price of imported oil rises so that the price of gasoline and heating oil rise the

In the calculation of the CPI,coffee is given greater weight than tea if

When calculating the CPI,the Bureau of Labor Statistics uses a statistical technique called

Let 2004 be the base year;then

Which of these changes in the price index produces the greatest rate of inflation: 100 to 110,150 to 165,or 180 to 198?

Table 24-2 -Refer to Table 24-2.Suppose the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn.What is the consumer price index for 2006 if the base year is 2005?

The producer price index measures the cost of a basket of goods and services

If the consumer price index was 100 in the base year and 107 in the following year,the inflation rate was

Changes in the producer price index are often thought to be useful in predicting changes in

If the nominal interest rate is 6 percent and the rate of inflation is 9 percent,then the real interest rate is

To calculate the CPI,the Bureau of Labor Statistics uses

If the current year CPI is 140,then,since the base year the price level has increased 40 percent.

If the cost of transportation and the cost of food and beverages both increase by 30 percent,other things the same,the CPI is likely to increase by about

To which of the problems in the construction of the CPI is the creation of the mobile phone most relevant?