Question 1

The steps involved in calculating the consumer price index and the inflation rate, in order, are as follows:

Accepted Answer

A)  Choose a base year, update the basket, find the prices, estimate the basket's cost, compute the index, and compute the inflation rate. 
B)  Choose a base year, fix the basket, find the prices, compute the inflation rate, compute the basket's cost, and compute the index. 
C)  Fix the basket, find the prices, compute the basket's cost, choose a base year and compute the index, and compute the inflation rate. 
D)  Fix the basket, find the prices, compute the inflation rate, compute the basket's cost, and choose a base year and compute the index.

Question 2

Table 24-11. Megan's salary for three consecutive years, along with other values, are presented in the table below.
 
-Refer to Table 24-11. The nominal interest rate for 2012 is

Accepted Answer

A)  0.93 percent. 
B)  6.70 percent. 
C)  4.44 percent. 
D)  4.47 percent.

Question 3

When box office receipts are not corrected for inflation, the most popular movie of all time is

Accepted Answer

A)  Star Wars. 
B)  Avatar. 
C)  Gone With the Wind. 
D)  The Dark Knight.

Question 4

Which of the following is correct?

Accepted Answer

A)  The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers. 
B)  The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers. 
C)  The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers. 
D)  The GDP deflator is more commonly used as a gauge of inflation than the CPI is.

Question 5

When the consumer price index is computed, the base year is always the first year among the years being considered.

Accepted Answer

A) True 
 B)False

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

The price index was 136 in one year and 142 in the next year. What was the inflation rate between the two years?

Accepted Answer

A)  1.04 percent 
B)  4.41 percent 
C)  6.00 percent 
D)  42.00 percent

Question 8

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. Between 2010 and 2011, the cost of living increased by

Accepted Answer

A)  5.30 percent. 
B)  6.36 percent. 
C)  7.78 percent. 
D)  We need to know the base year in order to answer this question.

Question 9

Which of the following statements regarding the consumer price index and the GDP deflator is correct?

Accepted Answer

A)  The two price measures are always equal. 
B)  Divergence between the two price measures is the rule, not the exception. 
C)  Divergence between the two price measures is the exception, not the rule. 
D)  None of the above is correct.

Question 10

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 11

The CPI is always 1 in the base year.

Accepted Answer

A) True 
 B)False

Question 12

Data from the Bureau of Labor Statistics show that consumer spending on transportation is only slightly higher than consumer spending on food and beverages.

Accepted Answer

A) True 
 B)False

Question 13

If the price of domestically produced power tools increases, then

Accepted Answer

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

Question 14

If the consumer price index was 100 in the base year and 106 in the following year, then the inflation rate was

Accepted Answer

A)  1.06 percent. 
B)  6 percent. 
C)  10.6 percent. 
D)  106 percent.

Question 15

The nominal interest rate tells you how fast the number of dollars in your bank account rises over time.

Accepted Answer

A) True 
 B)False

Question 16

Suppose that the prices of dairy products have risen relatively less than prices in general over the last several years. To which problem in the construction of the CPI is this situation most relevant?

Accepted Answer

A)  substitution bias 
B)  introduction of new goods 
C)  unmeasured quality change 
D)  income bias

Question 17

Which of the following is the most accurate statement about the effects of quality change on the CPI?

Accepted Answer

A)  Even though the BLS adjusts the prices of products in the CPI basket when the quality of the products changes, changes in quality are still a problem because quality is so hard to measure. 
B)  Because the BLS adjusts the prices of products in the CPI basket when the quality of the products changes, changes in quality are no longer a problem for the CPI. 
C)  The BLS does not adjust the CPI for quality changes. 
D)  Most economists believe that changes in the quality of goods included in the CPI basket do not bias the CPI as a measure of the cost of living.

Question 18

Table 24-11. Megan's salary for three consecutive years, along with other values, are presented in the table below.
 
-Refer to Table 24-11. Suppose the consumer price index for 2013 is not necessarily 235. Then Megan's 2013 salary represents more purchasing power than her 2011 salary as long as the consumer price index for 2013 is

Accepted Answer

A)  greater than 264.25. 
B)  less than 264.25. 
C)  greater than 258.71. 
D)  less than 258.71.

Question 19

The price index was 220 in one year and 238.2 in the next year. What was the inflation rate?

Accepted Answer

A)  8.3 percent 
B)  108.3 percent 
C)  4.8 percent 
D)  38.2 percent

Question 20

Table 24-15
The table below lists the prices of chips and salsa for the months of October, November, and December. Assume that the typical consumer buys 8 bags of chips and 4 jars of salsa each month, and that October is the base period.
 
-Refer to Table 24-15. Calculate the inflation rate for December.

Accepted Answer

The answer of Table 24-15
The table below lists the prices...

Exam 11: Measuring the Cost of Living

The steps involved in calculating the consumer price index and the inflation rate, in order, are as follows:

Table 24-11. Megan's salary for three consecutive years, along with other values, are presented in the table below. -Refer to Table 24-11. The nominal interest rate for 2012 is

When box office receipts are not corrected for inflation, the most popular movie of all time is

Which of the following is correct?

When the consumer price index is computed, the base year is always the first year among the years being considered.

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

The price index was 136 in one year and 142 in the next year. What was the inflation rate between the two years?

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. Between 2010 and 2011, the cost of living increased by

Which of the following statements regarding the consumer price index and the GDP deflator 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 229.6 for 2012. President Hoover's 1931 salary was equivalent to a 2012 salary of about

The CPI is always 1 in the base year.

Data from the Bureau of Labor Statistics show that consumer spending on transportation is only slightly higher than consumer spending on food and beverages.

If the price of domestically produced power tools increases, then

If the consumer price index was 100 in the base year and 106 in the following year, then the inflation rate was

The nominal interest rate tells you how fast the number of dollars in your bank account rises over time.

Suppose that the prices of dairy products have risen relatively less than prices in general over the last several years. To which problem in the construction of the CPI is this situation most relevant?

Which of the following is the most accurate statement about the effects of quality change on the CPI?

The price index was 220 in one year and 238.2 in the next year. What was the inflation rate?