Question 1

What does the CPI measure?

Accepted Answer

The CPI measures changes in prices of a

Question 2

The second step in computing the CPI is to find the prices of each of the goods and services in the ________ for each point in time.

Accepted Answer

A) household 
B) basket 
C) kitchen pantry 
D) supermarket 
A) household 
B) basket 
C) kitchen pantry 
D) supermarket

Question 3

The table shows the prices and the quantities consumed in Carnivore Country.The base year is 2013.This means that 2013 is the year the typical basket was determined so the quantities consumed in 2013 are the only quantities needed to calculate the CPI in each year.
Table
 $$\begin{array} { | c | c | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Price of } \
\text { beef }
\end{array} & \begin{array} { c } 
\text { Quartity of } \
\text { beef }
\end{array} & \begin{array} { c } 
\text { Price of } \
\text { pork }
\end{array} & \begin{array} { c } 
\text { Quartity of } \
\text { pork }
\end{array} \
\hline 2013 & \text { R38 } & 100 & \text { R19 } & 100 \
\hline 2014 & \text { R47.50 } & 90 & \text { R.7.10 } & 120 \
\hline 2015 & \text { R52.25 } & 105 & \text { R19 } & 130 \
\hline
\end{array}$$
-Refer to the table above.What is the value of the basket in the base year?

Accepted Answer

A) R1045 
B) R5700 
C) R6327 
D) R7956.25 
E) R8725.75 
A) R1045 
B) R5700 
C) R6327 
D) R7956.25 
E) R8725.75

Question 4

Why will individual shoppers face different inflation rates?

Accepted Answer

The CPI uses a basket of goods and servi

Question 5

Which of the following answers would accurately describe the bias in the CPI resulting from the fact that oil prices suddenly increase?

Accepted Answer

A) The CPI would underestimate the cost of living. 
B) The CPI would overestimate the cost of living. 
C) The CPI would not be biased as a result of a sudden rise in oil prices. 
D) The CPI could overestimate or underestimate the cost of living, depending upon the quantity of oil purchased in that year. 
A) The CPI would underestimate the cost of living. 
B) The CPI would overestimate the cost of living. 
C) The CPI would not be biased as a result of a sudden rise in oil prices. 
D) The CPI could overestimate or underestimate the cost of living, depending upon the quantity of oil purchased in that year.

Question 6

When the inflation rate ends up being lower than expected,

Accepted Answer

A) everyone benefits because money is cheaper. 
B) everyone benefits because prices do not increase. 
C) lenders of fixed rate mortgages generally benefit because they will make higher profits than they had calculated. 
D) borrowers with fixed rate loans will benefit because their purchasing power will not decline as much. 
A) everyone benefits because money is cheaper. 
B) everyone benefits because prices do not increase. 
C) lenders of fixed rate mortgages generally benefit because they will make higher profits than they had calculated. 
D) borrowers with fixed rate loans will benefit because their purchasing power will not decline as much.

Question 7

It is impossible for real interest rates to be negative.

Accepted Answer

A) True 
 B)False

Question 8

The good that receives the most weight in the CPI is the good that

Accepted Answer

A) consumers buy most frequently. 
B) has experienced the greatest price increase. 
C) has the highest price. 
D) consumers spend the largest fraction of their income on. 
A) consumers buy most frequently. 
B) has experienced the greatest price increase. 
C) has the highest price. 
D) consumers spend the largest fraction of their income on.

Question 9

Which item would receive the most weight in the consumer price index?

Accepted Answer

A) Salt. 
B) Toothpicks. 
C) Pencils. 
D) Food. 
A) Salt. 
B) Toothpicks. 
C) Pencils. 
D) Food.

Question 10

If the Consumer Prices Index (CPI) rises at 5 per cent per year, then every individual in the country needs exactly a 5 per cent increase in their income for their standard of living to remain constant.

Accepted Answer

A) True 
 B)False

Question 11

If borrowers and lenders agree on a nominal interest rate and inflation turns out to be less than they had expected,

Accepted Answer

A) neither borrowers nor lenders will gain because the nominal interest rate has been fixed by contract. 
B) the interest rate will rise. 
C) borrowers will gain at the expense of lenders. 
D) lenders will gain at the expense of borrowers. 
A) neither borrowers nor lenders will gain because the nominal interest rate has been fixed by contract. 
B) the interest rate will rise. 
C) borrowers will gain at the expense of lenders. 
D) lenders will gain at the expense of borrowers.

Question 12

If there is an increase in the price of apples, which causes consumers to purchase fewer kilograms of apples and more kilograms of oranges, the CPI will suffer from

Accepted Answer

A) consumer preference bias. 
B) substitution bias. 
C) base year bias. 
D) bias due to unmeasured quality change. 
E) bias due to the introduction of new goods. 
A) consumer preference bias. 
B) substitution bias. 
C) base year bias. 
D) bias due to unmeasured quality change. 
E) bias due to the introduction of new goods.

Question 13

Which item would receive the least weight in the CPI?

Accepted Answer

A) Brooms. 
B) Cars. 
C) Televisions. 
D) Car tyres. 
A) Brooms. 
B) Cars. 
C) Televisions. 
D) Car tyres.

Question 14

If inflation is 8 per cent and the real interest rate is 3 per cent, then the nominal interest rate must be

Accepted Answer

A) 3/8 per cent. 
B) -5 per cent. 
C) 5 per cent. 
D) 11 per cent. 
E) 24 per cent. 
A) 3/8 per cent. 
B) -5 per cent. 
C) 5 per cent. 
D) 11 per cent. 
E) 24 per cent.

Question 15

The CPI differs from the GDP deflator in that the CPI includes

Accepted Answer

A) raw material prices whereas the GDP deflator does not. 
B) only goods whereas the GDP deflator includes both goods and services. 
C) only services whereas the GDP deflator includes both goods and services. 
D) only items the typical household buys, whereas the GDP deflator includes all goods and services produced in the economy. 
A) raw material prices whereas the GDP deflator does not. 
B) only goods whereas the GDP deflator includes both goods and services. 
C) only services whereas the GDP deflator includes both goods and services. 
D) only items the typical household buys, whereas the GDP deflator includes all goods and services produced in the economy.

Question 16

An increase in the price of diamonds will have a greater impact on the Consumer Prices Index (CPI) than an equal percentage increase in the price of food because diamonds are so much more expensive.

Accepted Answer

A) True 
 B)False

Question 17

In a simple economy, people consume only 2 goods, food and clothing.The market basket of goods used to compute the CPI consists of 50 units of food and 10 units of clothing.
 $$\begin{array} { | l | c | c | } 
\hline & \text { Food } & \text { Clothing } \
\hline \text { 2013 price per urit } & \text { R4 } & \text { R10 } \
\hline \text { 2014 priceper urit } & \text { R6 } & \text { R20 } \
\hline
\end{array}$$ 
a.What is 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 18

If you borrow money at a nominal interest rate of 5 per cent and the inflation rate is 10 per cent, what real interest rate will you pay?

Accepted Answer

A) -5 per cent. 
B) 0.5 per cent. 
C) 2 per cent. 
D) 10 per cent. 
A) -5 per cent. 
B) 0.5 per cent. 
C) 2 per cent. 
D) 10 per cent.

Question 19

The "basket" on which the CPI is based is composed of

Accepted Answer

A) consumer production. 
B) products purchased by the typical consumer. 
C) raw materials purchased by firms. 
D) total current production. 
E) a selection of consumer goods typically purchased over the last 30 years. 
A) consumer production. 
B) products purchased by the typical consumer. 
C) raw materials purchased by firms. 
D) total current production. 
E) a selection of consumer goods typically purchased over the last 30 years.

Question 20

If the nominal interest rate is 12 per cent and the rate of inflation is 7 per cent, then the real rate of interest is 5 per cent.

Accepted Answer

A) True 
 B)False

What does the CPI measure?

The second step in computing the CPI is to find the prices of each of the goods and services in the ________ for each point in time.

Why will individual shoppers face different inflation rates?

Which of the following answers would accurately describe the bias in the CPI resulting from the fact that oil prices suddenly increase?

When the inflation rate ends up being lower than expected,

It is impossible for real interest rates to be negative.

The good that receives the most weight in the CPI is the good that

Which item would receive the most weight in the consumer price index?

If the Consumer Prices Index (CPI) rises at 5 per cent per year, then every individual in the country needs exactly a 5 per cent increase in their income for their standard of living to remain constant.

If borrowers and lenders agree on a nominal interest rate and inflation turns out to be less than they had expected,

If there is an increase in the price of apples, which causes consumers to purchase fewer kilograms of apples and more kilograms of oranges, the CPI will suffer from

Which item would receive the least weight in the CPI?

If inflation is 8 per cent and the real interest rate is 3 per cent, then the nominal interest rate must be

The CPI differs from the GDP deflator in that the CPI includes

An increase in the price of diamonds will have a greater impact on the Consumer Prices Index (CPI) than an equal percentage increase in the price of food because diamonds are so much more expensive.

If you borrow money at a nominal interest rate of 5 per cent and the inflation rate is 10 per cent, what real interest rate will you pay?

The "basket" on which the CPI is based is composed of

If the nominal interest rate is 12 per cent and the rate of inflation is 7 per cent, then the real rate of interest is 5 per cent.

What Is Economics

Thinking Like an Economist

Measuring a Nations Well-Being

Production and Growth

Unemployment

Saving, Investment and the Financial System

The Basic Tools of Finance

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Business Cycles

Keynesian Economics and the Is-Lm Analysis

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short Run Trade-Off Between Inflation and Unemployment

Supply Side Policies

The Financial Crisis and Sovereign Debt

Common Currency Areas and European Monetary Union

Filters

Exam 4: Measuring the Cost of Living

What does the CPI measure?

The second step in computing the CPI is to find the prices of each of the goods and services in the ________ for each point in time.

Why will individual shoppers face different inflation rates?

Which of the following answers would accurately describe the bias in the CPI resulting from the fact that oil prices suddenly increase?

When the inflation rate ends up being lower than expected,

It is impossible for real interest rates to be negative.

The good that receives the most weight in the CPI is the good that

Which item would receive the most weight in the consumer price index?

If the Consumer Prices Index (CPI) rises at 5 per cent per year, then every individual in the country needs exactly a 5 per cent increase in their income for their standard of living to remain constant.

If borrowers and lenders agree on a nominal interest rate and inflation turns out to be less than they had expected,

If there is an increase in the price of apples, which causes consumers to purchase fewer kilograms of apples and more kilograms of oranges, the CPI will suffer from

Which item would receive the least weight in the CPI?

If inflation is 8 per cent and the real interest rate is 3 per cent, then the nominal interest rate must be

The CPI differs from the GDP deflator in that the CPI includes

An increase in the price of diamonds will have a greater impact on the Consumer Prices Index (CPI) than an equal percentage increase in the price of food because diamonds are so much more expensive.

If you borrow money at a nominal interest rate of 5 per cent and the inflation rate is 10 per cent, what real interest rate will you pay?

The "basket" on which the CPI is based is composed of

If the nominal interest rate is 12 per cent and the rate of inflation is 7 per cent, then the real rate of interest is 5 per cent.

What Is Economics

Thinking Like an Economist

Measuring a Nations Well-Being

Production and Growth

Unemployment

Saving, Investment and the Financial System

The Basic Tools of Finance

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Business Cycles

Keynesian Economics and the Is-Lm Analysis

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short Run Trade-Off Between Inflation and Unemployment

Supply Side Policies

The Financial Crisis and Sovereign Debt

Common Currency Areas and European Monetary Union

Filters