Question 1

In the basket of goods that is used to compute the consumer price index,which of the following categories of consumer spending is the largest?

Accepted Answer

A)  education & communication 
B)  recreation 
C)  medical care 
D)  All of the above categories are about equal in magnitude.

Question 2

In computing the consumer price index,a base year is chosen.Which of the following statements about the base year is correct?

Accepted Answer

A)  The base year is always the first year among the years for which computations are being made. 
B)  It is necessary to designate a base year only in the simplest case of two goods;in more realistic cases,it is not necessary to designate a base year. 
C)  The value of the consumer price index is always 100 in the base year. 
D)  The base year is always the year in which the cost of the basket was highest among the years for which computations are being made.

Question 3

Economists use the term inflation to describe a situation in which the economy's overall price level is rising.

Accepted Answer

A) True 
 B)False

Question 4

By keeping the basket of goods and services the same when computing the CPI,the Bureau of Labor Statistics isolates the effects of price changes from the effect of any quantity changes that might be occurring at the same time.

Accepted Answer

A) True 
 B)False

Question 5

The CPI was 196 in 2005,and the CPI was 96.5 in 1982.If your parents put aside $1,000 for you in 1982,then how much would you have needed in 2005 in order to buy what you could have bought with the $1,000 in 1982?

Accepted Answer

A)  $492.35 
B)  $1,960.00 
C)  $2,031.09 
D)  $9950.00

Question 6

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 2001 salary in 2006 dollars is

Accepted Answer

A)  $37,711.86. 
B)  $49,906.02. 
C)  $66,750.00. 
D)  $112,711.86.

Question 7

In an imaginary economy,consumers buy only shirts and pants.The fixed basket consists of 6 shirts and 4 pairs of pants.A shirt cost $20 in 2006 and $25 in 2007.A pair of pants cost $30 in 2006 and $40 in 2007.Using 2006 as the base year,which of the following statements is correct?

Accepted Answer

A)  For the typical consumer,the number of dollars spent on shirts is equal to the number of dollars spent on pants in each of the two years. 
B)  The consumer price index is 310 in 2007. 
C)  The rate of inflation is 29.17% in 2007. 
D)  None of the above is correct.

Question 8

If the nominal interest rate is 7 percent and the real interest rate is -2.5 percent,then the inflation rate is

Accepted Answer

A)  -9.5 percent. 
B)  -4.5 percent. 
C)  4.5 percent. 
D)  9.5 percent.

Question 9

Most,but not all,athletic apparel sold in the United States is imported from other nations.If the price of athletic apparel increases,the GDP deflator will

Accepted Answer

A)  increase less than will the consumer price index. 
B)  increase more than will the consumer price index. 
C)  not increase,but the consumer price index will increase. 
D)  increase,but the consumer price index will not increase.

Question 10

When the relative price of a good increases,consumers respond by buying

Accepted Answer

A)  a larger quantity of that good and a larger quantity of substitutes for that good. 
B)  a larger quantity of that good and a smaller quantity of substitutes for that good. 
C)  a smaller quantity of that good and a larger quantity of substitutes for that good. 
D)  a smaller quantity of that good and a smaller quantity of substitutes for that good.

Question 11

The market basket used to calculate the CPI in Aquilonia is 4 loaves of bread,6 gallons of milk,2 shirts,and 2 pairs of pants.In 2005,bread cost $1.00 per loaf,milk cost $1.50 per gallon,shirts cost $6.00 each,and pants cost $10.00 per pair.In 2006,bread cost $1.50 per loaf,milk cost $2.00 per gallon,shirts cost $7.00 each,and pants cost $12.00 per pair.Using 2005 as the base year,what was Aquilonia's inflation rate in 2006?

Accepted Answer

A)  4 percent 
B)  11 percent 
C)  19.6 percent 
D)  24.4 percent

Question 12

Consternation Corporation has an agreement with its workers to index completely the wage of its employees using the CPI.Consternation Corporation currently pays its production line workers $8.00 an hour and is scheduled to index their wages today.If the CPI is currently 160 and was 128 a year ago,the firm should increase the hourly wages of its workers by

Accepted Answer

A)  $0.25. 
B)  $1.60. 
C)  $2.00. 
D)  $2.56.

Question 13

A Japanese automobile company produces cars in the United States,with some of those cars being exported to other nations and some of them being sold within the United States.If the prices of these cars increase,then

Accepted Answer

A)  the GDP deflator and the CPI will both increase. 
B)  the GDP deflator will increase and the CPI will be unchanged. 
C)  the GDP deflator will be unchanged and the CPI will increase. 
D)  the GDP deflator and the CPI will both be unchanged.

Question 14

The price index was 150 in the first year,160 in the second year,and 175 in the third year.The inflation rate was about

Accepted Answer

A)  6.25 percent between the first and second years,and 8.6 percent between the second and third years. 
B)  6.7 percent between the first and second years,and 9.4 percent between the second and third years. 
C)  10 percent between the first and second years,and 15 percent between the second and third years. 
D)  60 percent between the first and second years,and 75 percent between the second and third years.

Question 15

The CPI is a measure of the overall cost of

Accepted Answer

A)  the inputs purchased by a typical producer. 
B)  the goods and services purchased by a typical consumer. 
C)  the goods and services produced in the economy. 
D)  the stocks on the New York Stock Exchange.

Question 16

An increase in the price of bread produced domestically will be reflected in

Accepted Answer

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

Question 17

A COLA automatically raises the wage when the CPI rises.

Accepted Answer

A) True 
 B)False

Question 18

The inflation rate is calculated

Accepted Answer

A)  by determining the change in the price index from the preceding period. 
B)  by determining the change in the price index from the base year. 
C)  by determining the percentage change in the price index from the preceding period. 
D)  by determining the percentage change in the price index from the base year.

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)  -4 percent. 
B)  4 percent. 
C)  6 percent. 
D)  14 percent.

Question 20

A decrease in the price of large tractors imported into the United States from Russia

Accepted Answer

A)  leaves the GDP deflator unchanged but decreases the consumer price index. 
B)  decreases the GDP deflator but leaves the consumer price index unchanged. 
C)  decreases both the GDP deflator and the consumer price index. 
D)  leaves both the GDP deflator and the consumer price index unchanged.

Exam 24: Measuring the Cost of Living

In the basket of goods that is used to compute the consumer price index,which of the following categories of consumer spending is the largest?

In computing the consumer price index,a base year is chosen.Which of the following statements about the base year is correct?

Economists use the term inflation to describe a situation in which the economy's overall price level is rising.

By keeping the basket of goods and services the same when computing the CPI,the Bureau of Labor Statistics isolates the effects of price changes from the effect of any quantity changes that might be occurring at the same time.

The CPI was 196 in 2005,and the CPI was 96.5 in 1982.If your parents put aside $1,000 for you in 1982,then how much would you have needed in 2005 in order to buy what you could have bought with the $1,000 in 1982?

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 2001 salary in 2006 dollars is

In an imaginary economy,consumers buy only shirts and pants.The fixed basket consists of 6 shirts and 4 pairs of pants.A shirt cost $20 in 2006 and $25 in 2007.A pair of pants cost $30 in 2006 and $40 in 2007.Using 2006 as the base year,which of the following statements is correct?

If the nominal interest rate is 7 percent and the real interest rate is -2.5 percent,then the inflation rate is

Most,but not all,athletic apparel sold in the United States is imported from other nations.If the price of athletic apparel increases,the GDP deflator will

When the relative price of a good increases,consumers respond by buying

A Japanese automobile company produces cars in the United States,with some of those cars being exported to other nations and some of them being sold within the United States.If the prices of these cars increase,then

The price index was 150 in the first year,160 in the second year,and 175 in the third year.The inflation rate was about

The CPI is a measure of the overall cost of

An increase in the price of bread produced domestically will be reflected in

A COLA automatically raises the wage when the CPI rises.

The inflation rate is calculated

A decrease in the price of large tractors imported into the United States from Russia