Question 1

If the price index in the first year was 90, in the second year was 100, and in the third year was 95, what did the economy experience?

Accepted Answer

A)  10 percent inflation between the first and second years and 5 percent inflation between the second and third years 
B)  10 percent inflation between the first and second years and 5 percent deflation between the second and third years 
C)  11 percent inflation between the first and second years and 5 percent inflation between the second and third years 
D)  11 percent inflation between the first and second years and 5 percent deflation between the second and third years 
A)  10 percent inflation between the first and second years and 5 percent inflation between the second and third years 
B)  10 percent inflation between the first and second years and 5 percent deflation between the second and third years 
C)  11 percent inflation between the first and second years and 5 percent inflation between the second and third years 
D)  11 percent inflation between the first and second years and 5 percent deflation between the second and third years

Question 2

Suppose that the CPI today is 120 and that it was 80 five years ago. Then, in today's prices something that cost $1 five years ago now costs $1.50.

Accepted Answer

A) True 
 B)False

Question 3

Compute how much each of the following is worth in terms of today's dollars using 197 as the price index for today.
a. In 1936, the CPI was 17.7 and the price of a movie ticket was $0.25
b. In 1942, the CPI was 13.1 and a cook earned $15.00 a week
c. In 1953, the CPI was 17.4 and a litre of gas cost $0.06

Accepted Answer

a.The movie ticket is worth $0.25 × 197/

Question 4

Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best baseball players can earn 200 times as much as Babe Ruth in 1931. Are the best baseball players better off than Babe Ruth?

Accepted Answer

A)  Yes, the best baseball players today are better off than Babe Ruth was in 1931 because they earn much more. 
B)  No, because prices have also risen. 
C)  It cannot be determined because one cannot make judgments about changes in the standard of living based on changes in prices and changes in incomes. 
D)  It cannot be determined without additional information regarding increases in prices since 1931. 
A)  Yes, the best baseball players today are better off than Babe Ruth was in 1931 because they earn much more. 
B)  No, because prices have also risen. 
C)  It cannot be determined because one cannot make judgments about changes in the standard of living based on changes in prices and changes in incomes. 
D)  It cannot be determined without additional information regarding increases in prices since 1931.

Question 5

Which statement best describes the relationship between inflation and interest rates?

Accepted Answer

A)  There is no relationship between inflation and interest rates. 
B)  The interest rate is determined by the rate of inflation. 
C)  In order to fully understand inflation, we need to know how to correct for the effects of interest rates. 
D)  In order to fully understand interest rates, we need to know how to correct for the effects of inflation. 
A)  There is no relationship between inflation and interest rates. 
B)  The interest rate is determined by the rate of inflation. 
C)  In order to fully understand inflation, we need to know how to correct for the effects of interest rates. 
D)  In order to fully understand interest rates, we need to know how to correct for the effects of inflation.

Question 6

In 1954, Canadian Prime Minister Louis Stephen St. Laurent was paid a salary of $15,000. Stephen Harper, the Prime Minister in 2014, was paid $157,731. The price index for 1954 is 14.1 and the price index for 2014 is 121.7. What is, approximately, Prime Minister St. Laurent's salary equivalent in 2014 dollars?

Accepted Answer

A)  $110,500 
B)  $114,500 
C)  $129,500 
D)  $211,500 
A)  $110,500 
B)  $114,500 
C)  $129,500 
D)  $211,500

Question 7

A Brazilian company produces soccer balls in Canada and exports all of them. If the price of the soccer balls increases, what happens to the GDP deflator and the CPI?

Accepted Answer

A)  The GDP deflator and the CPI both increase. 
B)  The GDP deflator is unchanged, but the CPI increases. 
C)  The GDP deflator increases, but the CPI is unchanged. 
D)  The GDP deflator and the CPI are both unchanged. 
A)  The GDP deflator and the CPI both increase. 
B)  The GDP deflator is unchanged, but the CPI increases. 
C)  The GDP deflator increases, but the CPI is unchanged. 
D)  The GDP deflator and the CPI are both unchanged.

Question 8

Suppose that dairy products have risen in price less than prices in general over the past several years. Which problem in the construction of the CPI is this price increase 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 9

What does the GDP deflator reflect?

Accepted Answer

A)  the level of prices in the base year relative to the current level of prices 
B)  the current level of prices relative to the level of prices in the base year 
C)  the level of real output in the base year relative to the current level of real output 
D)  the current level of real output relative to the level of real output in the base year 
A)  the level of prices in the base year relative to the current level of prices 
B)  the current level of prices relative to the level of prices in the base year 
C)  the level of real output in the base year relative to the current level of real output 
D)  the current level of real output relative to the level of real output in the base year

Question 10

When the quality of a good deteriorates, what happens to the purchasing power of the dollar?

Accepted Answer

A)  It increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for. 
B)  It increases, so the CPI understates the change in the cost of living if the quality change is not accounted for. 
C)  It decreases, so the CPI overstates the change in the cost of living if the quality change is not accounted for. 
D)  It decreases, so the CPI understates the change in the cost of living if the quality change is not accounted for. 
A)  It increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for. 
B)  It increases, so the CPI understates the change in the cost of living if the quality change is not accounted for. 
C)  It decreases, so the CPI overstates the change in the cost of living if the quality change is not accounted for. 
D)  It decreases, so the CPI understates the change in the cost of living if the quality change is not accounted for.

Question 11

If the current-year CPI is 140, then, since the base year, the price level has increased 40 percent.

Accepted Answer

A) True 
 B)False

Question 12

What kind of payment does interest represent?

Accepted Answer

A)  a payment now for money to be transferred in the future 
B)  a payment in the future for a transfer of money in the past 
C)  a payment in the past for money transferred now 
D)  a payment at the time of the transfer of money 
A)  a payment now for money to be transferred in the future 
B)  a payment in the future for a transfer of money in the past 
C)  a payment in the past for money transferred now 
D)  a payment at the time of the transfer of money

Question 13

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

Accepted Answer

A)  clothing and footwear 
B)  alcoholic beverages and tobacco products 
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)  clothing and footwear 
B)  alcoholic beverages and tobacco products 
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 14

Table 6-4
This table shows the CPI for various categories of goods and services.
 
-Refer to the Table 6-4. Among these categories, what was the highest rate of inflation?

Accepted Answer

A)  3.1 percent 
B)  3.9 percent 
C)  5.2 percent 
D)  6.6 percent 
A)  3.1 percent 
B)  3.9 percent 
C)  5.2 percent 
D)  6.6 percent

Question 15

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

Question 16

Which statement best defines "indexation"?

Accepted Answer

A)  It is a process of adjusting the nominal interest rate so that it is equal to the real interest rate. 
B)  It is the use of a law or contract to automatically correct a dollar amount for the effects of inflation. 
C)  It is the use of a price index to deflate dollar values. 
D)  It is an adjustment made by Statistics Canada to the CPI so that the index is in line with the GDP deflator. 
A)  It is a process of adjusting the nominal interest rate so that it is equal to the real interest rate. 
B)  It is the use of a law or contract to automatically correct a dollar amount for the effects of inflation. 
C)  It is the use of a price index to deflate dollar values. 
D)  It is an adjustment made by Statistics Canada to the CPI so that the index is in line with the GDP deflator.

Question 17

By not taking into account the possibility of consumer substitution, how is the CPI biased?

Accepted Answer

A)  It understates the cost of living because people buy more of the newer goods. 
B)  It overstates the cost of living because people buy more of the cheaper goods. 
C)  It understates the cost of living because people have higher incomes and perceive some goods as inferior. 
D)  It overstates the cost of living because people have higher incomes and perceive formerly luxury goods as necessities. 
A)  It understates the cost of living because people buy more of the newer goods. 
B)  It overstates the cost of living because people buy more of the cheaper goods. 
C)  It understates the cost of living because people have higher incomes and perceive some goods as inferior. 
D)  It overstates the cost of living because people have higher incomes and perceive formerly luxury goods as necessities.

Question 18

If this year the CPI is 125 and last year it was 120, what do we know?

Accepted Answer

A)  Most goods have become more expensive. 
B)  The price level has increased. 
C)  The inflation rate has increased. 
D)  Some goods have become cheaper. 
A)  Most goods have become more expensive. 
B)  The price level has increased. 
C)  The inflation rate has increased. 
D)  Some goods have become cheaper.

Question 19

Table 6-5
This table pertains to an economy with only two goods: books and calculators. The fixed basket consists of 5 books and 10 calculators.
 
-Refer to the Table 6-5. Using 2015 as the base year, what is the inflation rate?

Accepted Answer

A)  13.3 percent for 2014 and 14.8 percent for 2015 
B)  13.3 percent for 2014 and 55.0 percent for 2015 
C)  35.0 percent for 2014 and 14.8 percent for 2015 
D)  35.0 percent for 2014 and 55.0 percent for 2015 
A)  13.3 percent for 2014 and 14.8 percent for 2015 
B)  13.3 percent for 2014 and 55.0 percent for 2015 
C)  35.0 percent for 2014 and 14.8 percent for 2015 
D)  35.0 percent for 2014 and 55.0 percent for 2015

Question 20

For any given year, what is the CPI?

Accepted Answer

A)  the price of the basket of goods and services in the given year divided by the price of the basket in the base year, then multiplied by 100 
B)  the price of the basket of goods and services in the given year divided by the price of the basket in the previous year, then multiplied by 100 
C)  the price of the basket of goods and services in the base year divided by the price of the basket in the given year, then multiplied by 100 
D)  the price of the basket of goods and services in the previous year divided by the price of the basket in the given year, then multiplied by 100 
A)  the price of the basket of goods and services in the given year divided by the price of the basket in the base year, then multiplied by 100 
B)  the price of the basket of goods and services in the given year divided by the price of the basket in the previous year, then multiplied by 100 
C)  the price of the basket of goods and services in the base year divided by the price of the basket in the given year, then multiplied by 100 
D)  the price of the basket of goods and services in the previous year divided by the price of the basket in the given year, then multiplied by 100

If the price index in the first year was 90, in the second year was 100, and in the third year was 95, what did the economy experience?

Suppose that the CPI today is 120 and that it was 80 five years ago. Then, in today's prices something that cost $1 five years ago now costs $1.50.

Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best baseball players can earn 200 times as much as Babe Ruth in 1931. Are the best baseball players better off than Babe Ruth?

Which statement best describes the relationship between inflation and interest rates?

A Brazilian company produces soccer balls in Canada and exports all of them. If the price of the soccer balls increases, what happens to the GDP deflator and the CPI?

Suppose that dairy products have risen in price less than prices in general over the past several years. Which problem in the construction of the CPI is this price increase most relevant to?

What does the GDP deflator reflect?

When the quality of a good deteriorates, what happens to the purchasing power of the dollar?

If the current-year CPI is 140, then, since the base year, the price level has increased 40 percent.

What kind of payment does interest represent?

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

Table 6-4 This table shows the CPI for various categories of goods and services. -Refer to the Table 6-4. Among these categories, what was the highest rate of inflation?

How is the inflation rate calculated?

Which statement best defines "indexation"?

By not taking into account the possibility of consumer substitution, how is the CPI biased?

If this year the CPI is 125 and last year it was 120, what do we know?

Table 6-5 This table pertains to an economy with only two goods: books and calculators. The fixed basket consists of 5 books and 10 calculators. -Refer to the Table 6-5. Using 2015 as the base year, what is the inflation rate?

For any given year, what is the CPI?

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 and 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

If the price index in the first year was 90, in the second year was 100, and in the third year was 95, what did the economy experience?

Suppose that the CPI today is 120 and that it was 80 five years ago. Then, in today's prices something that cost $1 five years ago now costs $1.50.

Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best baseball players can earn 200 times as much as Babe Ruth in 1931. Are the best baseball players better off than Babe Ruth?

Which statement best describes the relationship between inflation and interest rates?

A Brazilian company produces soccer balls in Canada and exports all of them. If the price of the soccer balls increases, what happens to the GDP deflator and the CPI?

Suppose that dairy products have risen in price less than prices in general over the past several years. Which problem in the construction of the CPI is this price increase most relevant to?

What does the GDP deflator reflect?

When the quality of a good deteriorates, what happens to the purchasing power of the dollar?

If the current-year CPI is 140, then, since the base year, the price level has increased 40 percent.

What kind of payment does interest represent?

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

Table 6-4 This table shows the CPI for various categories of goods and services. -Refer to the Table 6-4. Among these categories, what was the highest rate of inflation?

How is the inflation rate calculated?

Which statement best defines "indexation"?

By not taking into account the possibility of consumer substitution, how is the CPI biased?

If this year the CPI is 125 and last year it was 120, what do we know?

Table 6-5 This table pertains to an economy with only two goods: books and calculators. The fixed basket consists of 5 books and 10 calculators. -Refer to the Table 6-5. Using 2015 as the base year, what is the inflation rate?

For any given year, what is the CPI?

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 and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters