Question 1

In 2001, Pablo earned $200 per week at his job. In 2011, Pablo earned $240 per week. If the CPI in 2001 was 100 and the CPI in 2011 was 152, then

Accepted Answer

A) Pablo was better off in 2011 because his weekly wage was higher. 
B) the 2001 wage measured in 2011 dollars is $157.89. 
C) the 2011 wage measured in 2001 dollars is $157.89. 
D) the 2001 wage measured in 2011 dollars is $131.58. 
E) the 2001 wage measured in 2011 dollars is $100.

Question 2

The average starting salary for a history major is $29,500. If the CPI was 147.5, the real salary is

Accepted Answer

A) $200.00 an hour. 
B) $20,000. 
C) $35,000. 
D) $43,513. 
E) $14,750.

Question 3

Which of the following is NOT a source of bias in the CPI?
I. quality change bias
Ii. new goods bias
Iii. quantity change bias

Accepted Answer

A) i only 
B) ii only 
C) iii only 
D) i and ii 
E) ii and iii

Question 4

In 1979, the price of gasoline was $1.389 per gallon and the CPI was 72.6. In 2003, the price of gasoline was $1.589 per gallon and the CPI was 182.9. Find the real price of gasoline in 1979 and 2003 in terms of base period dollars.

Accepted Answer

The answer of In 1979, the price of gasoline was...

Question 5

During this year, nominal GDP in Syldavia was $720 billion and real GDP was $720 billion. The GDP price index in Syldavia in this year was

Accepted Answer

A) 0, because nominal GDP equaled real GDP. 
B) 100. 
C) 720. 
D) -1. 
E) 720 billion.

Question 6

In 2013, the reference base period for the CPI for the nation of Webot, a typical consumer spent $30 on potatoes and $150 on steak. If the price of steak is $15 and the price of potatoes is $1 then there are ________ units of steak and ________ units of potatoes in the CPI market basket.

Accepted Answer

A) 30; 150 
B) 10; 30 
C) 150; 30 
D) 5; 30 
E) None of the above answers is correct.

Question 7

If the bank returns $1,060 on the $1,000 deposited for a year during which inflation was 4 percent, the real interest rate is

Accepted Answer

A) 6 percent. 
B) 10 percent. 
C) -2 percent. 
D) 2 percent. 
E) 16 percent.

Question 8

To convert the nominal interest rate to the real interest rate, we

Accepted Answer

A) divide the nominal interest rate by the inflation rate. 
B) multiply the nominal interest rate by the inflation rate. 
C) subtract the inflation rate from the nominal interest rate. 
D) add the inflation rate to the nominal interest rate. 
E) subtract the nominal interest rate from the inflation rate and then multiply by 100.

Question 9

If your real income in base year prices is $50,000, then if the CPI is 170, what is your nominal income?

Accepted Answer

A) $29,411.76 
B) $50,000.00 
C) $85,000.00 
D) $71,428.57 
E) $70,000.00

Question 10

Nominal and real wage rates

Accepted Answer

A) must always change by the same amount. 
B) must always change in opposite directions by the same amount. 
C) must always change in the same direction but could change by different amounts. 
D) could change in opposite directions. 
E) must always change in the same direction and the nominal wage rate must change more rapidly than the real wage rate.

Question 11

The Consumer Price Index is calculated by the

Accepted Answer

A) Bureau of Labor Statistics. 
B) Department of Labor. 
C) Department of Commerce. 
D) Federal Reserve Bank of New York. 
E) Society for Consumer Protection.

Question 12

The nominal wage rate is the

Accepted Answer

A) minimum hourly wage that a company can legally pay a worker. 
B) average hourly wage rate measured in the dollars of a given reference base year. 
C) minimum hourly wage rate measured in the dollars of a given reference base year. 
D) average hourly wage rate measured in current dollars. 
E) wage rate after inflation has been adjusted out of it.

Question 13

$$\begin{array} { c c c c c } 
\text { Item } & \begin{array} { c } 
\text { Quantity } \
\mathbf { ( 2 0 1 0 ) }
\end{array} & \begin{array} { c } 
\text { Price } \
\mathbf { ( 2 0 1 0 ) }
\end{array} & \begin{array} { c } 
\text { Quantity } \
\mathbf { ( 2 0 1 1 ) }
\end{array} & \begin{array} { c } 
\text { Price } \
\mathbf { ( 2 0 1 1 ) }
\end{array} \
\hline \text { Restaurant meals } & 100 & \$ 10.00 & 100 & \$ 12.00 \
\text { Weeks of parking } & 50 & \$ 100.00 & 50 & \$ 97.50 \
\hline
\end{array}$$
-The table above gives the purchases of a typical consumer in a country comprised of one large city. These consumers purchase only restaurant meals and parking. The year 2010 is the reference base period.
a. Find the total cost of the CPI market basket for 2010 and 2011.
b. What is the CPI in 2010 and in 2011?
c. What is the inflation rate between 2010 and 2011?

Accepted Answer

The answer of \[\begin{array} { c c c c c...

Question 14

$$\begin{array} { l c c l } 
 { \text { Item } } & \begin{array} { c } 
\text { Quantity } \
\mathbf { ( 2 0 0 0 ) }
\end{array} & \begin{array} { c } 
\text { Price } \
\mathbf { ( 2 0 0 0 ) }
\end{array} & \begin{array} { l } 
\text { Price } \
\mathbf { ( 2 0 1 0 ) }
\end{array} \
\hline \text { Movie tickets } & 4 & \$ 5.00 & \$ 7.50 \
\text { Bags of popcorn } & 2 & \$ 3.00 & \$ 3.00 \
\text { Cups of Mt. Dew } & 4 & \$ 1.00 & \$ 1.50 \
\hline
\end{array}$$
-The information in the above table gives the 2000 base period market basket and prices used to construct the CPI for a small nation. The table also has 2010 prices. What is the value of the CPI for 2010?

Accepted Answer

A) 140 
B) 133 
C) 100 
D) 71.4 
E) 142

Question 15

If we look at real and nominal interest rates in the United States since 1971, we see that

Accepted Answer

A) the nominal interest rate has always been less than the real interest rate because of inflation. 
B) the real interest rate has almost always been less than the nominal interest rate because of inflation. 
C) at times the nominal interest rate has been greater than the real interest rate and at times has been less than it. 
D) the difference between the nominal and real interest rates has widened during the 1990s because of inflation. 
E) both the nominal and real interest rates were negative in the highly inflationary 1970s.

Question 16

Since 1305, of the following centuries the inflation rate has been the highest during the

Accepted Answer

A) 17th century. 
B) 16th century. 
C) 20th century. 
D) 14th century. 
E) 15th century.

Question 17

The CPI bias was estimated by the Congressional Advisory Commission on the Consumer Price Index as

Accepted Answer

A) understating the actual inflation rate by about 5 percentage points a year. 
B) understating the actual inflation rate by more than 5 percentage points a year. 
C) overstating the actual inflation rate by about 1 percentage point a year. 
D) overstating the actual inflation rate by more than 5 percentage points a year. 
E) understating the actual inflation rate by about 1 percentage point a year.

Question 18

Suppose higher prices lead consumers to switch from shopping at Abercrombie & Fitch to shopping at Wal-Mart. If the CPI does not reflect this change, it is referred to as

Accepted Answer

A) a new goods bias. 
B) a quality change bias. 
C) an outlet substitution bias. 
D) a new price bias. 
E) store bias.

Question 19

According to the CPI basket, the largest item in the households' budgets is

Accepted Answer

A) food. 
B) housing. 
C) transportation. 
D) education. 
E) apparel.

Question 20

The outlet substitution bias is most likely to put ________ and so ________ the inflation rate.

Accepted Answer

A) a downward bias into the CPI; understate 
B) an upward bias into the CPI; understate 
C) an upward bias into the CPI; overstate 
D) a downward bias into the CPI; overstate 
E) no bias into the CPI because it is such a small effect; have no effect on

Exam 16: The Cpi and the Cost of Living