Question 1

When the price of nuclear missiles rises, this change is reflected in the CPI but not in the GDP deflator.

Accepted Answer

A) True 
 B)False

Question 2

If the real interest rate is 5 percent and the inflation rate is 2 percent, then the nominal interest rate is 7 percent.

Accepted Answer

A) True 
 B)False

Question 3

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 4

If the consumer price index was 96 in 2012, 100 in 2013, and 102 in 2014, then the base year must be

Accepted Answer

A)  2012. 
B)  2013. 
C)  2014. 
D)  The base year cannot be determined from the given information.

Question 5

Table 24-7. The table below applies to an economy with only two goods - hamburgers and hot dogs. The fixed basket consists of 4 hamburgers and 8 hot dogs.
 
-Refer to Table 24-7. If the base year is 2009, then the economy's inflation rate in 2010 is

Accepted Answer

A)  8 percent. 
B)  10 percent. 
C)  10.91 percent. 
D)  11.11 percent.

Question 6

When a new good is introduced, consumers have more variety from which to choose, and this in turn increases the cost of maintaining the same level of economic well-being.

Accepted Answer

A) True 
 B)False

Question 7

Table 24-2
The table below pertains to Pieway, an economy in which the typical consumer's basket consists of 15 bushels of peaches and 10 bushels of pecans.
 
-Refer to Table 24-2. If 2013 is the base year, then the CPI for 2013 was

Accepted Answer

A)  95.7. 
B)  100.0. 
C)  90.0. 
D)  213.6.

Question 8

An increase in the price of dairy products 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 9

The CPI is a measure of the overall cost of the goods and services bought by

Accepted Answer

A)  a typical firm. 
B)  the government. 
C)  a typical consumer. 
D)  All of the above are correct.

Question 10

The inflation rate you are likely to hear on the nightly news is calculated from

Accepted Answer

A)  the GDP deflator. 
B)  the CPI. 
C)  the Dow Jones Industrial Average. 
D)  the unemployment rate.

Question 11

A COLA automatically raises the wage when

Accepted Answer

A)  GDP increases. 
B)  taxes increase. 
C)  the consumer price index increases. 
D)  the producer price index increases.

Question 12

Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best baseball players can earn more than 400 times as much as Babe Ruth earned in 1931. However, prices have also risen since 1931. We can conclude that

Accepted Answer

A)  the best baseball players today are about 400 times better off than Babe Ruth was in 1931. 
B)  because prices have also risen, the standard of living of baseball stars hasn't changed since 1931. 
C)  one cannot make judgments about changes in the standard of living based on changes in prices and changes in incomes. 
D)  one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931.

Question 13

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 14

Which of the following is the most accurate statement?

Accepted Answer

A)  In the 1970s, the late 1980s, 1990s, and 2000s, the GDP deflator and the CPI both showed high rates of inflation. 
B)  In the 1970s, both the GDP deflator and the consumer price index showed high rates of inflation, and in the late 1980s, 1990s, and 2000s, both measures showed low rates of inflation. 
C)  In the 1970s, both the GDP deflator and the consumer price index showed low rates of inflation, and in the late 1980s, 1990s, and 2000s, both measures showed high rates of inflation. 
D)  In the 1970s, the late 1980s, 1990s, and 2000s, the GDP deflator and the CPI both showed low rates of inflation.

Question 15

To calculate the CPI, the Bureau of Labor Statistics uses

Accepted Answer

A)  the 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 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

Table 24-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below.
 
-Refer to Table 24-12. Suppose Will's 2009 food expenditures in 2011 dollars amount to $5,750. Then x, the consumer price index for 2011, has a value of

Accepted Answer

A)  184.0. 
B)  185.8. 
C)  187.5. 
D)  189.4.

Question 18

Of Social Security benefits and federal income tax brackets, which is indexed?

Accepted Answer

A)  Both are indexed. 
B)  Only Social Security benefits are indexed. 
C)  Only federal income tax brackets are indexed. 
D)  Neither is indexed.

Question 19

If the current year CPI is 90, then the price level has decreased 10 percent since the base year.

Accepted Answer

A) True 
 B)False

Question 20

Explain how the prices of goods and services used in the CPI differ from the prices used in the PPI.

Accepted Answer

The answer of Explain how the prices of goods and...

Exam 6: Measuring the Cost of Living

When the price of nuclear missiles rises, this change is reflected in the CPI but not in the GDP deflator.

If the real interest rate is 5 percent and the inflation rate is 2 percent, then the nominal interest rate is 7 percent.

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?

If the consumer price index was 96 in 2012, 100 in 2013, and 102 in 2014, then the base year must be

Table 24-7. The table below applies to an economy with only two goods - hamburgers and hot dogs. The fixed basket consists of 4 hamburgers and 8 hot dogs. -Refer to Table 24-7. If the base year is 2009, then the economy's inflation rate in 2010 is

When a new good is introduced, consumers have more variety from which to choose, and this in turn increases the cost of maintaining the same level of economic well-being.

Table 24-2 The table below pertains to Pieway, an economy in which the typical consumer's basket consists of 15 bushels of peaches and 10 bushels of pecans. -Refer to Table 24-2. If 2013 is the base year, then the CPI for 2013 was

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

The CPI is a measure of the overall cost of the goods and services bought by

The inflation rate you are likely to hear on the nightly news is calculated from

A COLA automatically raises the wage when

Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best baseball players can earn more than 400 times as much as Babe Ruth earned in 1931. However, prices have also risen since 1931. We can conclude that

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

Which of the following is the most accurate statement?

To calculate the CPI, the Bureau of Labor Statistics uses

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

Table 24-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. -Refer to Table 24-12. Suppose Will's 2009 food expenditures in 2011 dollars amount to $5,750. Then x, the consumer price index for 2011, has a value of

Of Social Security benefits and federal income tax brackets, which is indexed?

If the current year CPI is 90, then the price level has decreased 10 percent since the base year.

Explain how the prices of goods and services used in the CPI differ from the prices used in the PPI.