Question 1

Inflation can be measured using either the GDP deflator or the consumer price index.

Accepted Answer

A) True 
 B)False  True

Question 2

The Bureau of Labor Statistics surveys consumers to determine a fixed basket of goods.

Accepted Answer

A) True 
 B)False  True

Question 3

Scenario 24-2
​
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 24-2. Using 2010 as the base year, what is the CPI in each year?

Accepted Answer

In 2009 the CPI is 96.08, and in 2010 the CPI is 100.00.

Question 4

One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called

Accepted Answer

A) price-change neglect. 
B) unmeasured quality change. 
C) substitution bias. 
D) relative bias. 
A) price-change neglect. 
B) unmeasured quality change. 
C) substitution bias. 
D) relative bias.

Question 5

Table 24-8
The table below lists annual consumer price index and inflation rates for a country over the period 2010-2013. Assume the year 2010 is used as the base year.
 $$\begin{array} { | l | l | l | } 
\hline \text { Year } & \begin{array} { l } 
\text { Consumer } \
\text { Price Index }
\end{array} & \text { Inflation Rate } \
\hline 2010 & 100 & \
\hline 2011 & 120 & \mathrm {~B} \
\hline 2012 & \mathrm {~A} & 15 \% \
\hline 2013 & 134 & \mathrm { C } \
\hline
\end{array}$$
-Refer to Table 24-8. Calculate the missing value that belongs in space A.

Accepted Answer

The answer of Table 24-8
The table below lists annual consumer...

Question 6

The CPI for 2008 is computed by dividing the price of the basket of goods and services in 2008 by the price of the basket of goods and services in the base year, then multiplying by 100.

Accepted Answer

A) True 
 B)False

Question 7

Suppose the CPI in 1950 was 24.1 and the CPI in 1975 was 53.8.​ When Ken's income rose from $10,000 per year in 1950 to $20,000 per year in 1970, Ken's standard of living improved between 1950 and 1970.

Accepted Answer

A) True 
 B)False

Question 8

An increase in the price of bread 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. 
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

If the real interest rate is 6.8% and the inflation rate is 3.9%, what is the nominal interest rate?

Accepted Answer

The nomina

Question 10

Scenario 24-2
​
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 24-2. What are the prices of books, CDs, and DVDs in 2010?

Accepted Answer

In 2009, books are $

Question 11

If the quality of a good deteriorates from one year to the next while its price remains the same, then the value of a dollar falls.

Accepted Answer

A) True 
 B)False

Question 12

When ranking movies by nominal box office receipts, what important fact is overlooked?

Accepted Answer

A) More people go to movies now than in the past. 
B) There are no good substitutes for movies currently. 
C) Prices, including those for movie tickets, have been rising over time. 
D) Movies and DVD are complements. 
A) More people go to movies now than in the past. 
B) There are no good substitutes for movies currently. 
C) Prices, including those for movie tickets, have been rising over time. 
D) Movies and DVD are complements.

Question 13

Which of the following is the correct formula for calculating the consumer price index?

Accepted Answer

A) [(CPI in Year 1 − CPI in Year 2)/CPI in Year 2] × 100 
B) [(price of basket of goods and services in current year/price of basket in base year)]× 100 
C) [(price of basket of goods and services in current year − price of basket in base year)/price of basket in base year] × 100 
D) [(price of basket of goods and services in base year/price of basket in current year)] × 100 
A) [(CPI in Year 1 − CPI in Year 2)/CPI in Year 2] × 100 
B) [(price of basket of goods and services in current year/price of basket in base year)]× 100 
C) [(price of basket of goods and services in current year − price of basket in base year)/price of basket in base year] × 100 
D) [(price of basket of goods and services in base year/price of basket in current year)] × 100

Question 14

Scenario 24-3
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 24-3. Using 2011 as the base year, what is the CPI in each year?

Accepted Answer

The CPI is

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 
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

Consumer price index = (Price of basket of goods and services in current year / Price of basket in base year ) x 100

Accepted Answer

A) True 
 B)False

Question 17

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.
$\begin{array} { | l | l | l | } 
\hline \text { Month } & \text { Price of Chips } & \text { Price of Salsa } \
\hline \text { October } & \$ 2.50 & \$ 2.50 \
\hline \text { November } & \$ 2.40 & \$ 2.55 \
\hline \text { December } & \$ 2.60 & \$ 2.75 \
\hline
\end{array}$
-Calculate the inflation rate for December.

Accepted Answer

The answer of The table below lists the prices of...

Question 18

Table 24-4
Lee's expenditures on food for three consecutive years, along with other values, are presented in the following table.
​
​
  
-Refer to Table 24-4. Suppose the consumer price index is 8.5 percent higher in Year 3 than in Year 1. Then Lee's food expenditures for Year 2 in Year 3 dollars amount to

Accepted Answer

A) $8,441. 
B) $7,866. 
C) $166.5. 
D) $8,327. 
A) $8,441. 
B) $7,866. 
C) $166.5. 
D) $8,327.

Question 19

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. 
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 20

As long as prices are rising over time, then

Accepted Answer

A) the nominal interest rate exceeds the real interest rate. 
B) the real interest rate exceeds the nominal interest rate. 
C) the real interest rate is positive. 
D) the nominal interest rate is a better indicator than the real interest rate of how fast the purchasing power of your bank account is changing over time. 
A) the nominal interest rate exceeds the real interest rate. 
B) the real interest rate exceeds the nominal interest rate. 
C) the real interest rate is positive. 
D) the nominal interest rate is a better indicator than the real interest rate of how fast the purchasing power of your bank account is changing over time.

Exam 24: Measuring the Cost of Living

Inflation can be measured using either the GDP deflator or the consumer price index.

The Bureau of Labor Statistics surveys consumers to determine a fixed basket of goods.

One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called

The CPI for 2008 is computed by dividing the price of the basket of goods and services in 2008 by the price of the basket of goods and services in the base year, then multiplying by 100.

Suppose the CPI in 1950 was 24.1 and the CPI in 1975 was 53.8.​ When Ken's income rose from $10,000 per year in 1950 to $20,000 per year in 1970, Ken's standard of living improved between 1950 and 1970.

An increase in the price of bread produced domestically will be reflected in

If the real interest rate is 6.8% and the inflation rate is 3.9%, what is the nominal interest rate?

If the quality of a good deteriorates from one year to the next while its price remains the same, then the value of a dollar falls.

When ranking movies by nominal box office receipts, what important fact is overlooked?

Which of the following is the correct formula for calculating the consumer price index?

Scenario 24-3 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 24-3. Using 2011 as the base year, what is the CPI in each year?

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

Consumer price index = (Price of basket of goods and services in current year / Price of basket in base year ) x 100

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

As long as prices are rising over time, then

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Applications: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Measuring a Nations Income

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

Suppose the CPI in 1950 was 24.1 and the CPI in 1975 was 53.8. When Ken's income rose from $10,000 per year in 1950 to $20,000 per year in 1970, Ken's standard of living improved between 1950 and 1970.