Question 1

The consumer price index tries to gauge how much incomes must rise to maintain

Accepted Answer

A) an increasing standard of living. 
B) a constant standard of living. 
C) a decreasing standard of living. 
D) the highest standard of living possible.

Question 2

Wilson is offered a job in Kansas City that pays $50,000 and a job in Dallas that pays $60,000. Which pair of CPIs would ensure that the two salaries have the same purchasing power?

Accepted Answer

A) 80 in Kansas City and 100 in Dallas 
B) 125 in Kansas City and 150 in Dallas 
C) 100 in Kansas City and 124.5 in Dallas 
D) 100 in Kansas City and 140 in Dallas

Question 3

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

Question 4

Which of the following statements is correct?

Accepted Answer

A) In order to calculate the inflation rate for the year 2011, we need to know the values of the consumer price index for the years 2009, 2010, and 2011. 
B) Changes in the consumer price index are often thought to be useful in predicting changes in the producer price index. 
C) Despite its name, the "consumer price index" really measures the overall cost of the goods and services bought by consumers, business firms, and units of government. 
D) If the prices of all goods and services changed proportionately over time, then the consumer price index would reflect no substitution bias.

Question 5

In 1931, President Herbert Hoover was paid a salary of $75,000. Government statistics show a consumer price index of 15.2 for 1931 and 214.5 for 2009. President Hoover's 1931 salary was equivalent to a 2009 salary of about

Accepted Answer

A) $5,507. 
B) $1,058,388. 
C) $1,140,000. 
D) $15,525,000.

Question 6

Table 11-2
The table below pertains to Iowan, an economy in which the typical consumer's basket consists of 3 pounds of pork and 4 bushels of corn. $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Price of } \
\text { pork }
\end{array} & \begin{array} { c } 
\text { Price of } \
\text { Corn }
\end{array} \
\hline 2008 & \$ 20 \text { per pound } & \$ 12 \text { per bushed } \
\hline 2009 & \$ 25 \text { per pound } & \$ 18 \text { per bushed } \
\hline
\end{array}$$
-Refer to Table 11-2. If 2008 is the base year, then the inflation rate in 2009 was

Accepted Answer

A) 26.5 percent. 
B) 36.1 percent. 
C) 39 percent. 
D) 47 percent.

Question 7

When box office receipts are corrected for inflation, the most popular movie of all time is

Accepted Answer

A) Star Wars. 
B) Titanic. 
C) Gone With the Wind. 
D) The Sound of Music.

Question 8

If the nominal interest rate is 6 percent and the rate of inflation is 4 percent, then the real interest rate is

Accepted Answer

A) -4 percent. 
B) 2 percent. 
C) 4 percent. 
D) 8 percent.

Question 9

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 215 today?

Accepted Answer

A) 40 cents 
B) $5 
C) $63.24 
D) $632.40

Question 10

If you currently make $25,000 a year and the CPI rises from 110 today to 150 in five years, then you need to be making $43,333.33 in five years to have kept pace with consumer price inflation.

Accepted Answer

A) True 
 B)False

Question 11

A 2009 Chevrolet model has more horsepower than the 2008 version and is included in the BLS basket of goods. BLS attempts to account for this change in the market basket by

Accepted Answer

A) dropping the good from the basket. 
B) substituting in a different vehicle with the same horsepower as the 2008 model. 
C) adjusting the share of the market basket allocated to transportation. 
D) adjusting the price of the good to account for the quality change.

Question 12

Which of the following statements is correct?

Accepted Answer

A) The CPI can be used to compare dollar figures from different points in time. 
B) The percentage change in the CPI is a measure of the inflation rate, but the percentage change in the GDP deflator is not a measure of the inflation rate. 
C) Compared to the consumer price index (CPI), the GDP deflator is the more common gauge of inflation. 
D) The GDP deflator better reflects the goods and services bought by consumers than does the CPI.

Question 13

If the price of Spanish olives imported into the United States decreases, then

Accepted Answer

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

Question 14

With respect to the consumer price index, which of the following does not serve as an example of how the substitution bias arises? Between 2010 and 2011, the price of a pound of peanuts

Accepted Answer

A) rises from $0.80 to $1.00 while the price of a loaf of bread rises from $2.00 to $2.50. 
B) rises from $1.00 to $1.30 while the price of a loaf of bread rises from $2.00 to $2.30. 
C) remains constant, while the price of a loaf of bread rises from $2.00 to $2.30. 
D) falls from $1.00 to $0.80 while the price of a loaf of bread falls from $2.00 to $1.80.

Question 15

Which of the following 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 of these changes produce the same rate of inflation.

Question 16

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

Question 17

Table 11-4
The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. $$\begin{array} { | c | c | c } 
\text { Year } & \begin{array} { c } 
\text { Price of } \
\text { Meat }
\end{array} & \begin{array} { c } 
\text { Price of a } \
\text { Tryy }
\end{array} \
\hline 2004 & \$ 3 \text { per pound } & \$ 2 \
\hline 2005 & \$ 1 \text { per pound } & \$ 7 \
\hline 2006 & \$ 4 \text { per pound } & \$ 5 \
\hline
\end{array}$$
-Refer to Table 11-4. The cost of the basket

Accepted Answer

A) increased from 2004 to 2005 and increased from 2005 to 2006. 
B) increased from 2004 to 2005 and decreased from 2005 to 2006. 
C) decreased from 2004 to 2005 and increased from 2005 to 2006. 
D) decreased from 2004 to 2005 and decreased from 2005 to 2006.

Question 18

One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called

Accepted Answer

A) price-change neglect. 
B) unmeasured quality change. 
C) substitution bias. 
D) relative bias.

Question 19

the CPI was 96 in 1982, and the CPI was 208 in 2010. How much money would you have needed in 2010 in order to buy what you could have bought with $500 in 1982?

Accepted Answer

A) $492.35 
B) $1,083.33 
C) $1,124.24 
D) $1,351.92

Question 20

Several studies in the 1990s concluded that the consumer price index overstated inflation by about

Accepted Answer

A) 3 percentage points per year, and that number of percentage points likely still applies now. 
B) 3 percentage points per year, but recent improvements to the CPI probably have reduced the overstatement of inflation to something less than 3 percentage points. 
C) 1 percentage point per year, and that number of percentage points likely still applies now. 
D) 1 percentage point per year, but recent improvements to the CPI probably have reduced the overstatement of inflation to something less than 1 percentage point

Exam 11: Measuring the Cost of Living

The consumer price index tries to gauge how much incomes must rise to maintain

Wilson is offered a job in Kansas City that pays $50,000 and a job in Dallas that pays $60,000. Which pair of CPIs would ensure that the two salaries have the same purchasing power?

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

Which of the following statements is correct?

In 1931, President Herbert Hoover was paid a salary of $75,000. Government statistics show a consumer price index of 15.2 for 1931 and 214.5 for 2009. President Hoover's 1931 salary was equivalent to a 2009 salary of about

When box office receipts are corrected for inflation, the most popular movie of all time is

If the nominal interest rate is 6 percent and the rate of inflation is 4 percent, then the real interest rate is

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 215 today?

If you currently make $25,000 a year and the CPI rises from 110 today to 150 in five years, then you need to be making $43,333.33 in five years to have kept pace with consumer price inflation.

A 2009 Chevrolet model has more horsepower than the 2008 version and is included in the BLS basket of goods. BLS attempts to account for this change in the market basket by

Which of the following statements is correct?

If the price of Spanish olives imported into the United States decreases, then

With respect to the consumer price index, which of the following does not serve as an example of how the substitution bias arises? Between 2010 and 2011, the price of a pound of peanuts

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

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?

One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called

the CPI was 96 in 1982, and the CPI was 208 in 2010. How much money would you have needed in 2010 in order to buy what you could have bought with $500 in 1982?

Several studies in the 1990s concluded that the consumer price index overstated inflation by about