Question 1

The CPI is used to

Accepted Answer

A) monitor changes in the level of wholesale prices in the economy. 
B) monitor changes in the cost of living over time. 
C) monitor changes in the level of real GDP over time. 
D) monitor changes in the stock market. 
A) monitor changes in the level of wholesale prices in the economy. 
B) monitor changes in the cost of living over time. 
C) monitor changes in the level of real GDP over time. 
D) monitor changes in the stock market.

Question 2

The first step in computing the CPI is to determine which prices are most important to the

Accepted Answer

A) personal buyer. 
B) professional shopper. 
C) purchasing agent. 
D) typical consumer. 
A) personal buyer. 
B) professional shopper. 
C) purchasing agent. 
D) typical consumer.

Question 3

Which price index measures the average price of things purchased by the typical family?

Accepted Answer

A) GDP deflator. 
B) Producer price index. 
C) Consumer price index. 
D) Minimum wage. 
A) GDP deflator. 
B) Producer price index. 
C) Consumer price index. 
D) Minimum wage.

Question 4

Under which of the following conditions would you prefer to be the lender?

Accepted Answer

A) The nominal rate of interest is 15 per cent and the inflation rate is 14 per cent. 
B) The nominal rate of interest is 20 per cent and the inflation rate is 25 per cent. 
C) The nominal rate of interest is 12 per cent and the inflation rate is 9 per cent. 
D) The nominal rate of interest is 5 per cent and the inflation rate is 1 per cent. 
A) The nominal rate of interest is 15 per cent and the inflation rate is 14 per cent. 
B) The nominal rate of interest is 20 per cent and the inflation rate is 25 per cent. 
C) The nominal rate of interest is 12 per cent and the inflation rate is 9 per cent. 
D) The nominal rate of interest is 5 per cent and the inflation rate is 1 per cent.

Question 5

Substitution bias

Accepted Answer

A) is one factor that causes the CPI to underestimate the inflation rate. 
B) is caused by the poor quality of many imported products. 
C) is one of the primary causes of inflation. 
D) involves consumer behaviour that helps explain why the CPI overestimates the inflation rate. 
A) is one factor that causes the CPI to underestimate the inflation rate. 
B) is caused by the poor quality of many imported products. 
C) is one of the primary causes of inflation. 
D) involves consumer behaviour that helps explain why the CPI overestimates the inflation rate.

Question 6

Jay and Joyce meet George, the banker, to work out the details of a mortgage.They all expect that inflation will be 2 per cent over the term of the loan, and they agree on a nominal interest rate of 6 per cent.As it turns out, the inflation rate is 5 per cent over the term of the loan.
a.What was the expected real interest rate?
b.What was the actual real interest rate?
c.Who benefited and who lost because of the unexpected inflation?

Accepted Answer

a.The expected real interest rate was 4

Question 7

Inflation can be measured by all of the following except the

Accepted Answer

A) All of these answers are used to measure inflation. 
B) Consumer prices index. 
C) Producer prices index. 
D) GDP deflator. 
E) Finished goods price index. 
A) All of these answers are used to measure inflation. 
B) Consumer prices index. 
C) Producer prices index. 
D) GDP deflator. 
E) Finished goods price index.

Question 8

List the three major problems in using the CPI as a measure of the cost of living.

Accepted Answer

(1) Substitution bias.The CPI ignores th

Question 9

The "base year" in a price index is the benchmark year against which other years are compared.

Accepted Answer

A) True 
 B)False

Question 10

A worker received R50 for a daily wage in 2000.What is the value of that wage today if the CPI was 20 in 2000 and is 80 today?

Accepted Answer

A) R50 
B) R200 
C) R300 
D) R400 
A) R50 
B) R200 
C) R300 
D) R400

Question 11

Suppose your income rises from R361 000 to R589 000 while the CPI rises from 122 to 169.Your standard of living has likely

Accepted Answer

A) fallen. 
B) You can't tell without knowing the base year. 
C) risen. 
D) stayed the same. 
A) fallen. 
B) You can't tell without knowing the base year. 
C) risen. 
D) stayed the same.

Question 12

Which is likely to have the larger effect on the CPI, a 2 per cent increase in the price of food or a 3 per cent increase in the price of diamond rings? Explain.

Accepted Answer

The 2 per cent increase in the

Question 13

Which of the following would probably cause the CPI to rise more than the GDP deflator in SA? An increase in the price of

Accepted Answer

A) BMWs produced in Germany and sold in SA. 
B) Peugeots produced in SA. 
C) helicopters purchased by the South African Navy. 
D) domestically produced armoured vehicles sold exclusively to India. 
A) BMWs produced in Germany and sold in SA. 
B) Peugeots produced in SA. 
C) helicopters purchased by the South African Navy. 
D) domestically produced armoured vehicles sold exclusively to India.

Question 14

Compute how much each of the following items is worth in terms of today's euros using 177 as the price index for today.
a.In 1926, the CPI was 17.7 and the price of a cinema ticket was r₀.25.
b.In 1932, the CPI was 13.1 and a cook earned r₁5.00 a week.
c.In 1943, the CPI was 17.4 and a litre of petrol cost r₀.19.

Accepted Answer

a.The cinema ticket is worth r₀.25×177/1

Question 15

Since the global financial crisis in 2007-09, real interest rates have been negative.This means that inflation is eroding people's savings more quickly than ________________ are increasing their savings.

Accepted Answer

A) retail payments 
B) consumer interest payments 
C) nominal interest payments 
D) nominal interest rates 
A) retail payments 
B) consumer interest payments 
C) nominal interest payments 
D) nominal interest rates

Question 16

If the nominal interest rate is 7 per cent and the inflation rate is 3 per cent, then the real interest rate is

Accepted Answer

A) -4 per cent. 
B) 3 per cent. 
C) 4 per cent. 
D) 10 per cent. 
E) 21 per cent. 
A) -4 per cent. 
B) 3 per cent. 
C) 4 per cent. 
D) 10 per cent. 
E) 21 per cent.

Question 17

If your wage rises from R5000 per week to R6250 per week while the Consumer Prices Index (CPI) rises from 112 to 121, you should feel an increase in your standard of living.

Accepted Answer

A) True 
 B)False

Question 18

How does the GDP deflator differ from the CPI?

Accepted Answer

The GDP deflator differs from the CPI in

The CPI is used to

The first step in computing the CPI is to determine which prices are most important to the

Which price index measures the average price of things purchased by the typical family?

Under which of the following conditions would you prefer to be the lender?

Substitution bias

Inflation can be measured by all of the following except the

List the three major problems in using the CPI as a measure of the cost of living.

The "base year" in a price index is the benchmark year against which other years are compared.

A worker received R50 for a daily wage in 2000.What is the value of that wage today if the CPI was 20 in 2000 and is 80 today?

Suppose your income rises from R361 000 to R589 000 while the CPI rises from 122 to 169.Your standard of living has likely

Which is likely to have the larger effect on the CPI, a 2 per cent increase in the price of food or a 3 per cent increase in the price of diamond rings? Explain.

Which of the following would probably cause the CPI to rise more than the GDP deflator in SA? An increase in the price of

Since the global financial crisis in 2007-09, real interest rates have been negative.This means that inflation is eroding people's savings more quickly than ________________ are increasing their savings.

If the nominal interest rate is 7 per cent and the inflation rate is 3 per cent, then the real interest rate is

If your wage rises from R5000 per week to R6250 per week while the Consumer Prices Index (CPI) rises from 112 to 121, you should feel an increase in your standard of living.

How does the GDP deflator differ from the CPI?

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

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Exam 4: Measuring the Cost of Living

The CPI is used to

The first step in computing the CPI is to determine which prices are most important to the

Which price index measures the average price of things purchased by the typical family?

Under which of the following conditions would you prefer to be the lender?

Substitution bias

Inflation can be measured by all of the following except the

List the three major problems in using the CPI as a measure of the cost of living.

The "base year" in a price index is the benchmark year against which other years are compared.

A worker received R50 for a daily wage in 2000.What is the value of that wage today if the CPI was 20 in 2000 and is 80 today?

Suppose your income rises from R361 000 to R589 000 while the CPI rises from 122 to 169.Your standard of living has likely

Which is likely to have the larger effect on the CPI, a 2 per cent increase in the price of food or a 3 per cent increase in the price of diamond rings? Explain.

Which of the following would probably cause the CPI to rise more than the GDP deflator in SA? An increase in the price of

Since the global financial crisis in 2007-09, real interest rates have been negative.This means that inflation is eroding people's savings more quickly than ________________ are increasing their savings.

If the nominal interest rate is 7 per cent and the inflation rate is 3 per cent, then the real interest rate is

If your wage rises from R5000 per week to R6250 per week while the Consumer Prices Index (CPI) rises from 112 to 121, you should feel an increase in your standard of living.

How does the GDP deflator differ from the CPI?

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