Question 1

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 2

Assume an economy experienced a positive rate of inflation between 2003 and 2004 and again between 2004 and 2005.However,the inflation rate was higher between 2004 and 2005 than it was between 2003 and 2004.Which of the following scenarios is consistent with this assumption?

Accepted Answer

A) The CPI was 100 in 2003,110 in 2004,and 105 in 2005. 
B) The CPI was 100 in 2003,120 in 2004,and 135 in 2005. 
C) The CPI was 100 in 2003,105 in 2004,and 130 in 2005. 
D) The CPI was 100 in 2003,90 in 2004,and 88 in 2005.

Question 3

Every unit of good x that is produced in the United States is exported to other countries.An increase in the price of good x shows up

Accepted Answer

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

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.

Question 5

With respect to the consumer price index,which of the following serves 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) falls from $0.90 to $0.72 while the price of a loaf of bread falls from $2.00 to $1.60. 
C) remains constant,as does the price of a loaf of bread. 
D) None of the above serves as an example of how the substitution bias arises.

Question 6

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 7

Which of the following statements best represents economists' beliefs about the bias in the CPI as a measure of the cost of living?

Accepted Answer

A) Economists agree that the bias in the CPI is a very serious problem. 
B) Economists agree that the bias in the CPI is not a serious problem. 
C) Economists agree on the severity of the CPI bias,but there is still debate on what to do about it. 
D) There is still debate among economists on the severity of the CPI bias and what to do about it.

Question 8

The price index was 150 in the first year,160 in the second year,and 165 in the third year.Which of the following statements is correct?

Accepted Answer

A) The price level was higher in the second year than in the first year,and it was higher in the third year than in the second year. 
B) The inflation rate was positive between the first and second years,and it was positive between the second and third years. 
C) The inflation rate was lower between the second and third years than it was between the first and second years. 
D) All of the above are correct.

Question 9

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.

Question 10

Suppose the price index was 100 in 2014,109 in 2015,and the inflation rate was lower between 2015 and 2016 than it was between 2014 and 2015.This means that

Accepted Answer

A) the price index in 2016 was lower than 109.0. 
B) the price index in 2016 was lower than 118.9. 
C) the price index in 2016 was lower than 118.0. 
D) the inflation rate between 2015 and 2016 was lower than 1.09 percent.

Question 11

Assume most athletic apparel bought by U.S.consumers is imported from other nations.If all else is constant,an increase in the price of foreign-made athletic apparel will cause the U.S.

Accepted Answer

A) consumer price index and GDP deflator to increase by exactly the same amount. 
B) GDP deflator to increase more than the consumer price index. 
C) consumer price index to increase more than the GDP deflator. 
D) GDP deflator to decrease less than the consumer price index.

Question 12

In an imaginary economy,consumers buy only razors and cologne.The fixed basket consists of 6 razors and 4 bottles of cologne.A razor cost $20 in 2009 and $25 in 2010.A bottle of cologne cost $30 in 2009 and $40 in 2010.Using 2009 as the base year,which of the following statements is correct?

Accepted Answer

A) For the typical consumer,the number of dollars spent on razors is equal to the number of dollars spent on cologne in each of the two years. 
B) The consumer price index is 310 in 2010. 
C) The rate of inflation is 29.17% in 2010. 
D) None of the above is correct.

Question 13

Recent changes in methods used to compute the CPI have made the

Accepted Answer

A) upward bias in the CPI inflation rate more severe than it used to be. 
B) upward bias in the CPI inflation rate less severe than it used to be. 
C) downward bias in the CPI inflation rate more severe than it used to be. 
D) downward bias in the CPI inflation rate less severe than it used to be.

Question 14

The GDP deflator reflects the

Accepted Answer

A) level of prices in the base year relative to the current level of prices. 
B) current level of prices relative to the level of prices in the base year. 
C) level of real output in the base year relative to the current level of real output. 
D) current level of real output relative to the level of real output in the base year.

Question 15

A decrease in the price of domestically produced industrial robots 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 16

Consider a small economy in which consumers buy only two goods: pretzels and cookies.In order to compute the consumer price index for this economy for two or more consecutive years,we assume that

Accepted Answer

A) the percentage change in the price of pretzels is equal to the percentage change in the price of cookies from year to year. 
B) the number of pretzels bought by the typical consumer is equal to the number of cookies bought by the typical consumer in each year. 
C) neither the number of pretzels nor the number of cookies bought by the typical consumer changes from year to year. 
D) neither the price of pretzels nor the price of cookies changes from year to year.

Question 17

If the price of Italian shoes imported into the United States increases,then

Accepted Answer

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

Question 18

Which of the following changes in the price index produces the greatest rate of inflation: 106 to 112,112 to 118,or 118 to 124?

Accepted Answer

A) 106 to 112 
B) 112 to 120 
C) 118 to 126 
D) All of these changes produce the same rate of inflation.

Question 19

Suppose that U.S.mining companies purchase German-made ore trucks at a reduced price.By itself,what effect will this purchase have on the GDP deflator and on the consumer price index?

Accepted Answer

A) The consumer price index and the GDP deflator will both fall. 
B) The consumer price index and the GDP deflator will both be unaffected. 
C) The consumer price index will fall,and the GDP deflator will be unaffected. 
D) The consumer price index will be unaffected,and the GDP deflator will fall.

Question 20

An increase in the price of dairy products produced domestically will be reflected in

Accepted Answer