Question 1

Approximately how often is the Consumer Price Index (CPI)market basket updated?

Accepted Answer

A)  Every 10 years 
B)  Every 25 years 
C)  Every year 
D)  Every 2 years 
E)  Every 5 years 
A)  Every 10 years 
B)  Every 25 years 
C)  Every year 
D)  Every 2 years 
E)  Every 5 years

Question 2

Which of the following goods and services would be excluded from the CPI?

Accepted Answer

A)  Legal services 
B)  Used cars 
C)  French wines sold in the U.S. 
D)  Restaurant meals 
E)  Shares of stock in U.S.corporations 
A)  Legal services 
B)  Used cars 
C)  French wines sold in the U.S. 
D)  Restaurant meals 
E)  Shares of stock in U.S.corporations

Question 3

If the CPI overstates the true rate of inflation,then

Accepted Answer

A)  the economy will grow more slowly than if inflation was measured accurately 
B)  the economy will grow more rapidly than if inflation was measured accurately 
C)  social security payments will increase in real terms 
D)  social security payments will decrease in real terms 
E)  so will other means of measuring the inflation rate 
A)  the economy will grow more slowly than if inflation was measured accurately 
B)  the economy will grow more rapidly than if inflation was measured accurately 
C)  social security payments will increase in real terms 
D)  social security payments will decrease in real terms 
E)  so will other means of measuring the inflation rate

Question 4

One proposal is to index social security payments

Accepted Answer

A)  to the CPI minus half a percentage point to correct for the CPI's overstatement of inflation. 
B)  to the CPI plus half a percentage point to correct for the CPI's overstatement of inflation. 
C)  to the CPI minus half a percentage point to correct for the CPI's understatement of inflation. 
D)  to the average tax rate that social security recipients face. 
E)  to the average increase in the CPI over the last five years. 
A)  to the CPI minus half a percentage point to correct for the CPI's overstatement of inflation. 
B)  to the CPI plus half a percentage point to correct for the CPI's overstatement of inflation. 
C)  to the CPI minus half a percentage point to correct for the CPI's understatement of inflation. 
D)  to the average tax rate that social security recipients face. 
E)  to the average increase in the CPI over the last five years.

Question 5

Most economists believe that the CPI

Accepted Answer

A)  accurately measures the inflation rate 
B)  accurately measures the inflation rate except during years when there are major economic shocks like the Arab oil embargo 
C)  slightly underestimates the inflation rate 
D)  seriously underestimates the inflation rate 
E)  overstates the inflation rate 
A)  accurately measures the inflation rate 
B)  accurately measures the inflation rate except during years when there are major economic shocks like the Arab oil embargo 
C)  slightly underestimates the inflation rate 
D)  seriously underestimates the inflation rate 
E)  overstates the inflation rate

Question 6

To approximate the percentage change in real income over any period of time,

Accepted Answer

A)  we need to subtract the percentage change in nominal income from the inflation rate 
B)  we need to subtract the rate of inflation from the percentage change in nominal income 
C)  we need to divide the percentage change in nominal income by the inflation rate 
D)  we need to multiply the change in income by the inflation rate 
E)  we need to multiply the nominal percentage change in income by the percentage change in inflation rate 
A)  we need to subtract the percentage change in nominal income from the inflation rate 
B)  we need to subtract the rate of inflation from the percentage change in nominal income 
C)  we need to divide the percentage change in nominal income by the inflation rate 
D)  we need to multiply the change in income by the inflation rate 
E)  we need to multiply the nominal percentage change in income by the percentage change in inflation rate

Question 7

As of December 2008,housing accounted for about ________ of the typical consumer's spending.

Accepted Answer

A)  32 percent. 
B)  30 percent. 
C)  43 percent. 
D)  65 percent. 
E)  70 percent. 
A)  32 percent. 
B)  30 percent. 
C)  43 percent. 
D)  65 percent. 
E)  70 percent.

Question 8

The Bureau of Labor Statistics complies two different types of market baskets,to reflect the spending habits of two different types of people:

Accepted Answer

A)  All Urban Workers (CPI-U)and All Farm Workers (CPI-F) 
B)  All Urban Workers (CPI-U)and Urban Low Wage Workers (CPI-LW) 
C)  All Urban Workers (CPI-U)and Urban Wage Earners and Clerical Workers (CPI-W) 
D)  All Urban Workers (CPI-U)and All Rural Workers (CPI-R) 
E)  All Urban Workers (CPI-U)and Urban Service Workers (CPI-S). 
A)  All Urban Workers (CPI-U)and All Farm Workers (CPI-F) 
B)  All Urban Workers (CPI-U)and Urban Low Wage Workers (CPI-LW) 
C)  All Urban Workers (CPI-U)and Urban Wage Earners and Clerical Workers (CPI-W) 
D)  All Urban Workers (CPI-U)and All Rural Workers (CPI-R) 
E)  All Urban Workers (CPI-U)and Urban Service Workers (CPI-S).

Question 9

Assume that Ernesto earned a nominal wage rate of $15 per hour in 2001,the base year for the CPI.If the CPI in 2002 was 102.6 and his nominal wage rate was $16 per hour,what was his real wage rate in 2001?

Accepted Answer

A)  $14.62 
B)  $15.00 
C)  $15.59 
D)  $16.00 
E)  His real wage for 2001 cannot be determined with the information given. 
A)  $14.62 
B)  $15.00 
C)  $15.59 
D)  $16.00 
E)  His real wage for 2001 cannot be determined with the information given.

Question 10

Which of the following best describes the history of the U.S.price level from 1970 to 2008?

Accepted Answer

A)  The price level increased during the 1970s and 1980s,but decreased during the 1990s. 
B)  The price level increased during the 1970s but decreased during the 1980s and 1990s. 
C)  The price level decreased over the whole period. 
D)  The price level increased over the whole period. 
E)  The price level increased during the 1970s but decreased during the 1980s,and 1990s. 
A)  The price level increased during the 1970s and 1980s,but decreased during the 1990s. 
B)  The price level increased during the 1970s but decreased during the 1980s and 1990s. 
C)  The price level decreased over the whole period. 
D)  The price level increased over the whole period. 
E)  The price level increased during the 1970s but decreased during the 1980s,and 1990s.

Question 11

Inflation imposes a cost on society by directly decreasing average real income in the economy.

Accepted Answer

A) True 
 B)False

Question 12

How is the typical market basket determined for the Consumer Price Index (CPI)?

Accepted Answer

A)  By the President 
B)  By the U.S.Congress 
C)  By a survey of the spending patterns of thousands of businesses 
D)  By a survey of the spending patterns of thousands of government agencies 
E)  By a survey of the spending patterns of thousands of households 
A)  By the President 
B)  By the U.S.Congress 
C)  By a survey of the spending patterns of thousands of businesses 
D)  By a survey of the spending patterns of thousands of government agencies 
E)  By a survey of the spending patterns of thousands of households

Question 13

Suppose the CPI has been overstating the increase in the cost of living by 1% for 25 years,the total impact of that 25 years later is

Accepted Answer

A)  less than 25% 
B)  exactly 25% 
C)  negligible since it is only 1% per year 
D)  more than 25% 
E)  24% 
A)  less than 25% 
B)  exactly 25% 
C)  negligible since it is only 1% per year 
D)  more than 25% 
E)  24%

Question 14

During the Great Depression the price level increased.

Accepted Answer

A) True 
 B)False

Question 15

The real interest rate is calculated as the

Accepted Answer

A)  expected rate of inflation divided by the nominal interest rate 
B)  real GDP plus the expected rate of inflation 
C)  nominal interest rate minus real GDP 
D)  nominal interest rate minus the expected rate of inflation 
E)  real GDP multiplied by the expected rate of inflation 
A)  expected rate of inflation divided by the nominal interest rate 
B)  real GDP plus the expected rate of inflation 
C)  nominal interest rate minus real GDP 
D)  nominal interest rate minus the expected rate of inflation 
E)  real GDP multiplied by the expected rate of inflation

Question 16

Inflation

Accepted Answer

A)  hurts society by imposing additional opportunity costs 
B)  is generally harmful,but has the benefit of reducing opportunity costs 
C)  makes it easier for us to comparison shop 
D)  benefits society by causing people to make use of resources that would have otherwise gone to waste 
E)  benefits society because by making people better consumers,they start to buy only those consumer goods they really need 
A)  hurts society by imposing additional opportunity costs 
B)  is generally harmful,but has the benefit of reducing opportunity costs 
C)  makes it easier for us to comparison shop 
D)  benefits society by causing people to make use of resources that would have otherwise gone to waste 
E)  benefits society because by making people better consumers,they start to buy only those consumer goods they really need

Question 17

Suppose the economy includes two distinct groups of people: wage earners and goods sellers.If the price level increases by 50 percent and nominal wages remain unchanged,

Accepted Answer

A)  there will be no redistribution of purchasing power because all private wage earners in the U.S.economy receive indexed wages 
B)  real wages will remain the same because nominal wages do not change 
C)  there will be no redistribution of purchasing power because only changes in real income can change the distribution of income 
D)  income will be redistributed from wage earners to goods sellers 
E)  income will be redistributed from goods sellers to wage earners 
A)  there will be no redistribution of purchasing power because all private wage earners in the U.S.economy receive indexed wages 
B)  real wages will remain the same because nominal wages do not change 
C)  there will be no redistribution of purchasing power because only changes in real income can change the distribution of income 
D)  income will be redistributed from wage earners to goods sellers 
E)  income will be redistributed from goods sellers to wage earners

Question 18

If the CPI was 101.7 in 2006 and 101.5 in 2007,it can be concluded that

Accepted Answer

A)  2001 was the base year 
B)  all goods were more expensive in 2007 than in 2006 
C)  all goods were less expensive in 2007 than in 2006 
D)  all goods were less expensive in 2006 than in 2007 
E)  the price level fell from 2006 to 2007 
A)  2001 was the base year 
B)  all goods were more expensive in 2007 than in 2006 
C)  all goods were less expensive in 2007 than in 2006 
D)  all goods were less expensive in 2006 than in 2007 
E)  the price level fell from 2006 to 2007

Question 19

Which of the following statements is true?

Accepted Answer

A)  Nominal GDP = (price index ÷real GDP)×100 
B)  Nominal GDP = (real GDP÷price index)× 100 
C)  Real GDP = (price index ÷ nominal GDP)× 100 
D)  Real GDP = (nominal GDP ÷price index)× 100 
E)  Price index = (real GDP÷ nominal GDP)×100 
A)  Nominal GDP = (price index ÷real GDP)×100 
B)  Nominal GDP = (real GDP÷price index)× 100 
C)  Real GDP = (price index ÷ nominal GDP)× 100 
D)  Real GDP = (nominal GDP ÷price index)× 100 
E)  Price index = (real GDP÷ nominal GDP)×100

Question 20

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 
E)  no one benefits because everyone made financial calculations based on the projected interest rate 
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 
E)  no one benefits because everyone made financial calculations based on the projected interest rate

Approximately how often is the Consumer Price Index (CPI)market basket updated?

Which of the following goods and services would be excluded from the CPI?

If the CPI overstates the true rate of inflation,then

One proposal is to index social security payments

Most economists believe that the CPI

To approximate the percentage change in real income over any period of time,

As of December 2008,housing accounted for about ________ of the typical consumer's spending.

The Bureau of Labor Statistics complies two different types of market baskets,to reflect the spending habits of two different types of people:

Assume that Ernesto earned a nominal wage rate of $15 per hour in 2001,the base year for the CPI.If the CPI in 2002 was 102.6 and his nominal wage rate was $16 per hour,what was his real wage rate in 2001?

Which of the following best describes the history of the U.S.price level from 1970 to 2008?

Inflation imposes a cost on society by directly decreasing average real income in the economy.

How is the typical market basket determined for the Consumer Price Index (CPI)?

Suppose the CPI has been overstating the increase in the cost of living by 1% for 25 years,the total impact of that 25 years later is

During the Great Depression the price level increased.

The real interest rate is calculated as the

Inflation

Suppose the economy includes two distinct groups of people: wage earners and goods sellers.If the price level increases by 50 percent and nominal wages remain unchanged,

If the CPI was 101.7 in 2006 and 101.5 in 2007,it can be concluded that

Which of the following statements is true?

When the inflation rate ends up being lower than expected,

What is Economics?

Scarcity, Choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

What Macroeconomics Tries to Explain

Production, Income, and Employment

The Classical Long run Model

Economic Growth and Rising Living Standards

Economic Fluctuations

The Short-run Macro Model

Fiscal Policy

Money, Banks, and the Federal Reserve

The Money Market and Monetary Policy

Aggregate Demand and Aggregate Supply

Inflation and Monetary Policy

Exchange Rates and Macroeconomic Policy

Filters

Exam 7: The Price Level and Inflation

Approximately how often is the Consumer Price Index (CPI)market basket updated?

Which of the following goods and services would be excluded from the CPI?

If the CPI overstates the true rate of inflation,then

One proposal is to index social security payments

Most economists believe that the CPI

To approximate the percentage change in real income over any period of time,

As of December 2008,housing accounted for about ________ of the typical consumer's spending.

The Bureau of Labor Statistics complies two different types of market baskets,to reflect the spending habits of two different types of people:

Assume that Ernesto earned a nominal wage rate of $15 per hour in 2001,the base year for the CPI.If the CPI in 2002 was 102.6 and his nominal wage rate was $16 per hour,what was his real wage rate in 2001?

Which of the following best describes the history of the U.S.price level from 1970 to 2008?

Inflation imposes a cost on society by directly decreasing average real income in the economy.

How is the typical market basket determined for the Consumer Price Index (CPI)?

Suppose the CPI has been overstating the increase in the cost of living by 1% for 25 years,the total impact of that 25 years later is

During the Great Depression the price level increased.

The real interest rate is calculated as the

Inflation

Suppose the economy includes two distinct groups of people: wage earners and goods sellers.If the price level increases by 50 percent and nominal wages remain unchanged,

If the CPI was 101.7 in 2006 and 101.5 in 2007,it can be concluded that

Which of the following statements is true?

When the inflation rate ends up being lower than expected,

What is Economics?

Scarcity, Choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

What Macroeconomics Tries to Explain

Production, Income, and Employment

The Classical Long run Model

Economic Growth and Rising Living Standards

Economic Fluctuations

The Short-run Macro Model

Fiscal Policy

Money, Banks, and the Federal Reserve

The Money Market and Monetary Policy

Aggregate Demand and Aggregate Supply

Inflation and Monetary Policy

Exchange Rates and Macroeconomic Policy

Filters