Question 1

How is the inflation rate calculated?

Accepted Answer

A)  by surveying consumer spending 
B)  by adding up the price increases of all goods and services 
C)  by computing a simple average of the price increase in all goods and services 
D)  by determining the percentage increase in the price index from the preceding period 
A)  by surveying consumer spending 
B)  by adding up the price increases of all goods and services 
C)  by computing a simple average of the price increase in all goods and services 
D)  by determining the percentage increase in the price index from the preceding period D

Question 2

Geoff goes to the grocery store to make his monthly purchase of coffee. As he enters the beverage section, he notices that the price of coffee has been raised by 15 percent, so he decides to buy some tea instead. Which problem in the construction of the CPI is this situation most relevant to?

Accepted Answer

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

Question 3

Which statement best describes nominal interest rates and real interest rates in the 1970s and 1990s?

Accepted Answer

A)  Nominal interest rates were high in the 1970s, and real interest rates were high in the 1990s. 
B)  Nominal interest rates were high in the 1970s, and real interest rates were low in the 1990s. 
C)  Nominal interest rates were high in the 1990s, and real interest rates were high in the 1970s. 
D)  Nominal interest rates were high in the 1990s, and real interest rates were low in the 1970s. 
A)  Nominal interest rates were high in the 1970s, and real interest rates were high in the 1990s. 
B)  Nominal interest rates were high in the 1970s, and real interest rates were low in the 1990s. 
C)  Nominal interest rates were high in the 1990s, and real interest rates were high in the 1970s. 
D)  Nominal interest rates were high in the 1990s, and real interest rates were low in the 1970s. A

Question 4

Although they sometimes diverge, generally the CPI and GDP deflator move in the same direction.

Accepted Answer

A) True 
 B)False

Question 5

You know that a chocolate bar cost five cents in 1962. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in today's prices?

Accepted Answer

A)  5 cents × (1962 CPI/ today's CPI) 
B)  5 cents × (1962 CPI/(today's CPI - 1962 CPI)) 
C)  5 cents × (today's CPI/1962 CPI) 
D)  5 cents × today's CPI - five cents × 1962 CPI 
A)  5 cents × (1962 CPI/ today's CPI) 
B)  5 cents × (1962 CPI/(today's CPI - 1962 CPI)) 
C)  5 cents × (today's CPI/1962 CPI) 
D)  5 cents × today's CPI - five cents × 1962 CPI

Question 6

From one year to the next, the CPI for medical care rose from 261.8 to 275.8. What was the inflation rate for medical care?

Accepted Answer

A)  4.9 percent 
B)  5.35 percent 
C)  11.1 percent 
D)  12.0 percent 
A)  4.9 percent 
B)  5.35 percent 
C)  11.1 percent 
D)  12.0 percent

Question 7

Steve and Amanda meet with Reed, the banker, to work out the details of a mortgage. They all expect that inflation will be 2 percent over the term of the loan, and they agree on a nominal interest rate of 7 percent. As it turns out, the inflation rate is 3 percent over the term of the loan.
a. What was the expected real interest rate?
b. What was the actual real interest rate?
c. Who benefitted and who lost because of the unexpected inflation?

Accepted Answer

a. The expected real interest rate was 5

Question 8

If the real interest rate is 7 percent and the expected inflation rate is 2 percent, what would a person expect to have after a year?

Accepted Answer

A)  5 percent more dollars, which will purchase 5 percent more goods 
B)  5 percent more dollars, which will purchase 7 percent more goods 
C)  9 percent more dollars, which will purchase 5 percent more goods 
D)  9 percent more dollars, which will purchase 7 percent more goods 
A)  5 percent more dollars, which will purchase 5 percent more goods 
B)  5 percent more dollars, which will purchase 7 percent more goods 
C)  9 percent more dollars, which will purchase 5 percent more goods 
D)  9 percent more dollars, which will purchase 7 percent more goods

Question 9

-Refer to Table 6-5. Using 2019 as the base year, what is the consumer price index?

Accepted Answer

A)  52.66 in 2017, 84.25 in 2018, and 106.50 in 2019 
B)  64.52 in 2017, 87.10 in 2018, and 100.00 in 2019 
C)  52.66 in 2017, 90.89 in 2018, and 100.00 in 2019 
D)  100.00 in 2017, 135.00 in 2018, and 155.00 in 2019 
A)  52.66 in 2017, 84.25 in 2018, and 106.50 in 2019 
B)  64.52 in 2017, 87.10 in 2018, and 100.00 in 2019 
C)  52.66 in 2017, 90.89 in 2018, and 100.00 in 2019 
D)  100.00 in 2017, 135.00 in 2018, and 155.00 in 2019

Question 10

In a simple economy, people consume only two goods: food and clothing. The market basket of goods used to compute the CPI has 50 units of food and 10 units of clothing.
Food Clothing
Last year's price $4 $8
This year's price $6 $16
a. What are the percentage increases in the price of food and in the price of clothing?
b. What is the percentage increase in the CPI?
c. Do these price changes affect all consumers to the same extent? Explain.

Accepted Answer

a. The price of food increased by 50 per

Question 11

When the overall level of prices in the economy is increasing, what is the economy experiencing?

Accepted Answer

A)  economic growth 
B)  inflation 
C)  unemployment 
D)  deflation 
A)  economic growth 
B)  inflation 
C)  unemployment 
D)  deflation

Question 12

In recent years, there have been increases in the size of golf club drivers and the methods and materials used for making them have improved. Which problem in the construction of the CPI is this change in drivers most relevant to?

Accepted Answer

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

Question 13

If the nominal interest rate is 8 percent and the rate of inflation is 2 percent, what is the real interest rate?

Accepted Answer

A)  4 percent 
B)  6 percent 
C)  10 percent 
D)  16 percent 
A)  4 percent 
B)  6 percent 
C)  10 percent 
D)  16 percent

Question 14

Which of the following is NOT included in the rate of core inflation?

Accepted Answer

A)  all foreign-produced goods 
B)  any good that makes up less than 10 percent of the CPI basket of goods 
C)  the most volatile components from the CPI basket of goods and services 
D)  the least volatile components from the CPI basket of goods and services 
A)  all foreign-produced goods 
B)  any good that makes up less than 10 percent of the CPI basket of goods 
C)  the most volatile components from the CPI basket of goods and services 
D)  the least volatile components from the CPI basket of goods and services

Question 15

Statistics Canada has recently adjusted the CPI basket of goods and services by increasing the share of shelter in total expenditure from 25.7 to 27.5 percent, and decreasing the share of recreation, education, and reading from 13 to 11.8 percent. What could the reasons for these changes be? What do you think the reasons for these changes are?

Accepted Answer

The share of a certain expenditure categ

Question 16

Which statement best describes the relationship between the nominal interest rate and the real interest rate?

Accepted Answer

A)  The real interest rate is the nominal interest rate times the rate of inflation. 
B)  The real interest rate is the nominal interest rate minus the rate of inflation. 
C)  The real interest rate is the nominal interest rate plus the rate of inflation. 
D)  The real interest rate is the nominal interest rate divided by the rate of inflation. 
A)  The real interest rate is the nominal interest rate times the rate of inflation. 
B)  The real interest rate is the nominal interest rate minus the rate of inflation. 
C)  The real interest rate is the nominal interest rate plus the rate of inflation. 
D)  The real interest rate is the nominal interest rate divided by the rate of inflation.

Question 17

How do the GDP deflator and the consumer price index compare to each other?

Accepted Answer

A)  The GDP deflator compares the price of a fixed basket of goods and services to the price of the basket in the base year, but the consumer price index compares the price of currently produced goods and services to the price of the same goods and services in the base year. 
B)  The consumer price index compares the price of a fixed basket of goods and services to the price of the basket in the base year, but the GDP deflator compares the price of currently produced goods and services to the price of the same goods and services in the base year. 
C)  Both the GDP deflator and the consumer price index compare the price of a fixed basket of goods and services to the price of the basket in the base year. 
D)  Both the GDP deflator and the consumer price index compare the price of currently produced goods and services to the price of the same goods and services in the base year. 
A)  The GDP deflator compares the price of a fixed basket of goods and services to the price of the basket in the base year, but the consumer price index compares the price of currently produced goods and services to the price of the same goods and services in the base year. 
B)  The consumer price index compares the price of a fixed basket of goods and services to the price of the basket in the base year, but the GDP deflator compares the price of currently produced goods and services to the price of the same goods and services in the base year. 
C)  Both the GDP deflator and the consumer price index compare the price of a fixed basket of goods and services to the price of the basket in the base year. 
D)  Both the GDP deflator and the consumer price index compare the price of currently produced goods and services to the price of the same goods and services in the base year.

Question 18

-Refer to Table 6-2. Suppose that the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn. What is the inflation rate for 2019?

Accepted Answer

A)  4.76 percent 
B)  25.00 percent 
C)  40.00 percent 
D)  41.18 percent 
A)  4.76 percent 
B)  25.00 percent 
C)  40.00 percent 
D)  41.18 percent

Question 19

Which goods are supposed to be included in the CPI?

Accepted Answer

A)  all goods and services produced in the economy 
B)  all goods and services that typical consumers buy 
C)  all goods and services in the consumption component of the GDP accounts 
D)  all the goods, but not the services, in the consumption component of the GDP accounts 
A)  all goods and services produced in the economy 
B)  all goods and services that typical consumers buy 
C)  all goods and services in the consumption component of the GDP accounts 
D)  all the goods, but not the services, in the consumption component of the GDP accounts

Question 20

Which of the following best describes nominal interest rates in the 1970s and 1990s?

Accepted Answer

A)  high in the 1970s and 1990s 
B)  low in the 1970s and 1990s 
C)  high in the 1970s; low in the 1990s 
D)  low in the 1970s; high in the 1990s 
A)  high in the 1970s and 1990s 
B)  low in the 1970s and 1990s 
C)  high in the 1970s; low in the 1990s 
D)  low in the 1970s; high in the 1990s

How is the inflation rate calculated?

Geoff goes to the grocery store to make his monthly purchase of coffee. As he enters the beverage section, he notices that the price of coffee has been raised by 15 percent, so he decides to buy some tea instead. Which problem in the construction of the CPI is this situation most relevant to?

Which statement best describes nominal interest rates and real interest rates in the 1970s and 1990s?

Although they sometimes diverge, generally the CPI and GDP deflator move in the same direction.

You know that a chocolate bar cost five cents in 1962. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in today's prices?

From one year to the next, the CPI for medical care rose from 261.8 to 275.8. What was the inflation rate for medical care?

If the real interest rate is 7 percent and the expected inflation rate is 2 percent, what would a person expect to have after a year?

-Refer to Table 6-5. Using 2019 as the base year, what is the consumer price index?

When the overall level of prices in the economy is increasing, what is the economy experiencing?

In recent years, there have been increases in the size of golf club drivers and the methods and materials used for making them have improved. Which problem in the construction of the CPI is this change in drivers most relevant to?

If the nominal interest rate is 8 percent and the rate of inflation is 2 percent, what is the real interest rate?

Which of the following is NOT included in the rate of core inflation?

Which statement best describes the relationship between the nominal interest rate and the real interest rate?

How do the GDP deflator and the consumer price index compare to each other?

-Refer to Table 6-2. Suppose that the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn. What is the inflation rate for 2019?

Which goods are supposed to be included in the CPI?

Which of the following best describes nominal interest rates in the 1970s and 1990s?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Exam 6: Measuring the Cost of Living

How is the inflation rate calculated?

Geoff goes to the grocery store to make his monthly purchase of coffee. As he enters the beverage section, he notices that the price of coffee has been raised by 15 percent, so he decides to buy some tea instead. Which problem in the construction of the CPI is this situation most relevant to?

Which statement best describes nominal interest rates and real interest rates in the 1970s and 1990s?

Although they sometimes diverge, generally the CPI and GDP deflator move in the same direction.

You know that a chocolate bar cost five cents in 1962. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in today's prices?

From one year to the next, the CPI for medical care rose from 261.8 to 275.8. What was the inflation rate for medical care?

If the real interest rate is 7 percent and the expected inflation rate is 2 percent, what would a person expect to have after a year?

-Refer to Table 6-5. Using 2019 as the base year, what is the consumer price index?

When the overall level of prices in the economy is increasing, what is the economy experiencing?

In recent years, there have been increases in the size of golf club drivers and the methods and materials used for making them have improved. Which problem in the construction of the CPI is this change in drivers most relevant to?

If the nominal interest rate is 8 percent and the rate of inflation is 2 percent, what is the real interest rate?

Which of the following is NOT included in the rate of core inflation?

Which statement best describes the relationship between the nominal interest rate and the real interest rate?

How do the GDP deflator and the consumer price index compare to each other?

-Refer to Table 6-2. Suppose that the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn. What is the inflation rate for 2019?

Which goods are supposed to be included in the CPI?

Which of the following best describes nominal interest rates in the 1970s and 1990s?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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