Question 1

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 2006 salary in 2001 dollars is

Accepted Answer

A)  $47,768.36. 
B)  $63,214.29. 
C)  $84,550.00. 
D)  $142,768.36.

Question 2

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 3

For a country like the United States, explain why the CPI would increase at a faster rate than the GDP deflator during periods of oil and gasoline price increases.

Accepted Answer

The answer of For a country like the United States,...

Question 4

The inflation rate is defined as the

Accepted Answer

A)  price level in an economy. 
B)  change in the price level from one period to the next. 
C)  percentage change in the price level from the previous period. 
D)  price level minus the price level from the previous period.

Question 5

Marion collected Social Security payments of $250 a month in 1985. If the price index rose from 90 to 108 between 1985 and 1986, then her Social Security payments for 1986 should have been

Accepted Answer

A)  $268. 
B)  $292. 
C)  $300. 
D)  $358.

Question 6

Arlo is offered a job in Des Moines, where the CPI is 60, and a job in New York, where the CPI is 125. Arlo's job offer in Des Moines is for $48,000. How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?

Accepted Answer

A)  $23,040 
B)  $52,000 
C)  $79,200 
D)  $100,000

Question 7

The consumer price index was 225 in 2008 and 232.2 in 2009. The nominal interest rate during this period was 6.5 percent. What was the real interest rate during this period?

Accepted Answer

A)  1.6 percent 
B)  3.3 percent 
C)  5.1 percent 
D)  7.4 percent

Question 8

Scenario 24-6
A small economy produced and consumed goods X and Y in 2010 and 2011 in the amounts shown in the table below. Assume that the market basket for the CPI is defined in the base year.
 
-Refer to Scenario 24-6. Using 2011 as the base year, what is the inflation rate in 2011?

Accepted Answer

The answer of Scenario 24-6
A small economy produced and consumed...

Question 9

Data from the Bureau of Labor Statistics show that the largest category of consumer spending is housing.

Accepted Answer

A) True 
 B)False

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

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 12

Substitution bias causes the CPI to understate the increase in the cost of living from one year to the next.

Accepted Answer

A) True 
 B)False

Question 13

If the consumer price index is 120 in 2009 and 139.2 in 2010, then the rate of inflation for 2010 is 39.2 percent.

Accepted Answer

A) True 
 B)False

Question 14

Scenario 24-5
Suppose the residents of Mediaville spend all of their income on books, CDs, and DVDs. In 2009, they buy 400 books for $3,200, 200 CDs for $1,400, and 100 DVDs for $900. In 2010, they buy 360 books for $3,240, 250 CDs for $1,500, and 125 DVDs for $1,250. Assume that the market basket for the CPI is defined in the base year.
-Refer to Scenario 24-5. Using 2010 as the base year, what is the inflation rate in 2010?

Accepted Answer

The answer of Scenario 24-5
Suppose the residents of Mediaville spend...

Question 15

What basket of goods and services is used to construct the CPI?

Accepted Answer

A)  a random sample of all goods and services produced in the economy 
B)  the goods and services that are typically bought by consumers as determined by government surveys 
C)  only food, clothing, transportation, entertainment, and education 
D)  the least expensive and the most expensive goods and services in each major category of consumer expenditures

Question 16

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 17

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 229.6 for 2012. President Hoover's 1931 salary was equivalent to a 2012 salary of about

Accepted Answer

A)  $4,965. 
B)  $1,132,895. 
C)  $1,057,894. 
D)  $16,080,001.

Question 18

In the CPI, goods and services are weighted according to

Accepted Answer

A)  how long a market has existed for each good or service. 
B)  the extent to which each good or service is regarded by the government as a necessity. 
C)  how much consumers buy of each good or service. 
D)  the number of firms that produce and sell each good or service.

Question 19

In which of the following cases would there be an effect on the value of the U.S. consumer price index, but not on the value of the U.S. GDP deflator?

Accepted Answer

A)  All of the truck tires that are produced by a certain company in South Korea are sold to the U.S. military, and the price of these tires decreases. 
B)  All of the truck tires that are produced by a certain company in California are sold to the U.S. military, and the price of these tires decreases. 
C)  Most of the bananas that are produced by a certain company in Honduras end up in U.S. grocery stores, and the price of these bananas increases. 
D)  Most of the earth-moving machines that are produced by a certain company in Illinois are exported to other countries, and the price of these machines increases.

Question 20

The consumer price index and the GDP deflator are two alternative measures of the overall price level. Which of the following statements about the two measures is correct?

Accepted Answer

A)  The two measures are constructed differently, but they always indicate the same inflation rate. 
B)  The substitution bias applies equally to both measures. 
C)  A change in the price of Korean televisions is reflected in the U.S. consumer price index but not in the U.S. GDP deflator. 
D)  All of the above are correct.

Exam 16: Measuring the Cost of Living

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 2006 salary in 2001 dollars is

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

For a country like the United States, explain why the CPI would increase at a faster rate than the GDP deflator during periods of oil and gasoline price increases.

The inflation rate is defined as the

Marion collected Social Security payments of $250 a month in 1985. If the price index rose from 90 to 108 between 1985 and 1986, then her Social Security payments for 1986 should have been

Arlo is offered a job in Des Moines, where the CPI is 60, and a job in New York, where the CPI is 125. Arlo's job offer in Des Moines is for $48,000. How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?

The consumer price index was 225 in 2008 and 232.2 in 2009. The nominal interest rate during this period was 6.5 percent. What was the real interest rate during this period?

Scenario 24-6 A small economy produced and consumed goods X and Y in 2010 and 2011 in the amounts shown in the table below. Assume that the market basket for the CPI is defined in the base year. -Refer to Scenario 24-6. Using 2011 as the base year, what is the inflation rate in 2011?

Data from the Bureau of Labor Statistics show that the largest category of consumer spending is housing.

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

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?

Substitution bias causes the CPI to understate the increase in the cost of living from one year to the next.

If the consumer price index is 120 in 2009 and 139.2 in 2010, then the rate of inflation for 2010 is 39.2 percent.

What basket of goods and services is used to construct the CPI?

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

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 229.6 for 2012. President Hoover's 1931 salary was equivalent to a 2012 salary of about

In the CPI, goods and services are weighted according to

In which of the following cases would there be an effect on the value of the U.S. consumer price index, but not on the value of the U.S. GDP deflator?

The consumer price index and the GDP deflator are two alternative measures of the overall price level. Which of the following statements about the two measures is correct?