Question 1

What is the goal of the consumer price index?

Accepted Answer

A)  to measure changes in the costs of production 
B)  to measure changes in the cost of living 
C)  to measure changes in the relative prices of consumer goods 
D)  to measure changes in the production of consumer goods 
A)  to measure changes in the costs of production 
B)  to measure changes in the cost of living 
C)  to measure changes in the relative prices of consumer goods 
D)  to measure changes in the production of consumer goods

Question 2

The CPI for 2015 is computed as 100 times the ratio of the price of the market basket in 2015 divided by the price of the market basket in the base year.

Accepted Answer

A) True 
 B)False

Question 3

Suppose the quality of lawn mowers, which are part of the CPI basket, has improved, while their price has remained the same. If Statistics Canada wants to adjust the CPI so that the effect of better quality on the cost of living is accounted for, what should Statistics Canada do?

Accepted Answer

A)  It should keep the CPI unchanged, because the price has not changed. 
B)  It should decrease the CPI, because better quality means lower maintenance costs. 
C)  It should increase the CPI, because higher quality means higher value. 
D)  It should keep the CPI unchanged, because lower maintenance costs are offset by higher value. 
A)  It should keep the CPI unchanged, because the price has not changed. 
B)  It should decrease the CPI, because better quality means lower maintenance costs. 
C)  It should increase the CPI, because higher quality means higher value. 
D)  It should keep the CPI unchanged, because lower maintenance costs are offset by higher value.

Question 4

You know that a chocolate bar costs 60 cents today. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in 1962 prices?

Accepted Answer

A)  60 cents × (today's CPI - 1962 CPI) 
B)  60 cents × (1962 CPI - today's CPI) 
C)  60 cents × (today's CPI/1962 CPI) 
D)  60 cents × (1962 CPI/today's CPI) 
A)  60 cents × (today's CPI - 1962 CPI) 
B)  60 cents × (1962 CPI - today's CPI) 
C)  60 cents × (today's CPI/1962 CPI) 
D)  60 cents × (1962 CPI/today's CPI)

Question 5

Since it accounts for changes in the prices of imports and the GDP deflator does not, the CPI is based on more goods and services than the GDP deflator.

Accepted Answer

A) True 
 B)False

Question 6

The price index is 320 in one year and 380 in the next. What was the inflation rate?

Accepted Answer

A)  6.7 percent 
B)  8.8 percent 
C)  12.5 percent 
D)  18.8 percent 
A)  6.7 percent 
B)  8.8 percent 
C)  12.5 percent 
D)  18.8 percent

Question 7

Which of the following is the consumer price index used for?

Accepted Answer

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

Question 8

The price index in the first year is 120, in the second year is 150, and in the third year is 180. What is the inflation rate between the first and second year and between the second and third year?

Accepted Answer

A)  20 percent between the first and second year, 33 percent between the second and third year 
B)  25 percent between the first and second year, 20 percent between the second and third year 
C)  25 percent between the first and second year, 50 percent between the second and third year 
D)  30 percent between the first and second year, 30 percent between the second and third year 
A)  20 percent between the first and second year, 33 percent between the second and third year 
B)  25 percent between the first and second year, 20 percent between the second and third year 
C)  25 percent between the first and second year, 50 percent between the second and third year 
D)  30 percent between the first and second year, 30 percent between the second and third year

Question 9

Suppose OPEC succeeds in raising world oil prices by 300 percent. This price increase causes inventors to look at alternative sources of fuel for internal-combustion engines. A hydrogen-powered engine is developed, and it is cheaper to operate than gasoline engines. Which problem in the construction of the CPI would this situation represent, respectively?

Accepted Answer

A)  substitution bias and introduction of new goods 
B)  introduction of new goods and unmeasured quality change 
C)  unmeasured quality change and introduction of new goods 
D)  income bias and substitution bias 
A)  substitution bias and introduction of new goods 
B)  introduction of new goods and unmeasured quality change 
C)  unmeasured quality change and introduction of new goods 
D)  income bias and substitution bias

Question 10

Which statement best describes the correlation between nominal and real interest rates?

Accepted Answer

A)  Nominal and real interest rates usually move together. 
B)  Nominal and real interest rates seldom move together. 
C)  Nominal and real interest rates often do not move together. 
D)  Nominal and real interest rates are identical. 
A)  Nominal and real interest rates usually move together. 
B)  Nominal and real interest rates seldom move together. 
C)  Nominal and real interest rates often do not move together. 
D)  Nominal and real interest rates are identical.

Question 11

Which of the following is the consumer price index used for?

Accepted Answer

A)  to differentiate between gross national product and gross domestic product 
B)  to turn dollar figures into meaningful measures of purchasing power 
C)  to characterize the types of goods and services that consumers purchase 
D)  to measure the quantity of goods and services that the economy produces 
A)  to differentiate between gross national product and gross domestic product 
B)  to turn dollar figures into meaningful measures of purchasing power 
C)  to characterize the types of goods and services that consumers purchase 
D)  to measure the quantity of goods and services that the economy produces

Question 12

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 13

How are the weights on the various goods and services in the CPI basket determined?

Accepted Answer

A)  Each good and service is weighted according to its quantity. 
B)  A survey is conducted to determine how much of each good and service typical consumers purchase. 
C)  The weights equal the ratio of expenditures on each good or service divided by the total consumption expenditures in the GDP accounts. 
D)  Each good and service is weighted according to its price. 
A)  Each good and service is weighted according to its quantity. 
B)  A survey is conducted to determine how much of each good and service typical consumers purchase. 
C)  The weights equal the ratio of expenditures on each good or service divided by the total consumption expenditures in the GDP accounts. 
D)  Each good and service is weighted according to its price.

Question 14

Scenario 6-1
Grant Smith was a doctor. In 1944, he made $12,000. His daughter, Lisa Smith, is also a doctor. Last year she made $275,000. The price index in 1944 was 17.6 and the price index last year was 200.
-Refer to the Scenario 6-1. What is Lisa's income in 1944 dollars?

Accepted Answer

A)  $15,667 
B)  $17,401 
C)  $19,322 
D)  $24,200 
A)  $15,667 
B)  $17,401 
C)  $19,322 
D)  $24,200

Question 15

Which of the following best describes nominal interest rates in the 1970s and 1990s?

Accepted Answer

A)  high in the 1970s and 1990s 
B)  low in the 1970s and 1990s 
C)  high in the 1970s; low in the 1990s 
D)  low in the 1970s; high in the 1990s 
A)  high in the 1970s and 1990s 
B)  low in the 1970s and 1990s 
C)  high in the 1970s; low in the 1990s 
D)  low in the 1970s; high in the 1990s

Question 16

The CPI is computed by finding the price of a market basket of goods whose contents vary each year.

Accepted Answer

A) True 
 B)False

Question 17

What is the basket of goods 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 typically bought by consumers, according to Statistics Canada surveys 
C)  goods and services weighted by the ratio of expenditures on them relative to the consumption component of GDP 
D)  the average price of 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 typically bought by consumers, according to Statistics Canada surveys 
C)  goods and services weighted by the ratio of expenditures on them relative to the consumption component of GDP 
D)  the average price of goods and services in each major category of consumer expenditures

Question 18

-Refer to the Table 6-2. Suppose that the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn. What is the consumer price index for 2015 if the base year is 2014?

Accepted Answer

A)  120.00 
B)  129.17 
C)  136.11 
D)  150.00 
A)  120.00 
B)  129.17 
C)  136.11 
D)  150.00

Question 19

What do economists believe about the bias in the CPI as a measure of the cost of living?

Accepted Answer

A)  Economists agree that the bias in the CPI is a very serious problem. 
B)  There is still debate among economists on whether CPI understates or overstates increases in the cost of living. 
C)  Economists agree on the severity of the CPI bias, but there is still debate on what to do about it. 
D)  There is still debate among economists on the severity of the CPI bias and what to do about it. 
A)  Economists agree that the bias in the CPI is a very serious problem. 
B)  There is still debate among economists on whether CPI understates or overstates increases in the cost of living. 
C)  Economists agree on the severity of the CPI bias, but there is still debate on what to do about it. 
D)  There is still debate among economists on the severity of the CPI bias and what to do about it.

Question 20

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 2014 as the base year, what is the consumer price index in 2015?

Accepted Answer

A)  74.07 
B)  77.78 
C)  78.22 
D)  135.00 
A)  74.07 
B)  77.78 
C)  78.22 
D)  135.00

What is the goal of the consumer price index?

The CPI for 2015 is computed as 100 times the ratio of the price of the market basket in 2015 divided by the price of the market basket in the base year.

Suppose the quality of lawn mowers, which are part of the CPI basket, has improved, while their price has remained the same. If Statistics Canada wants to adjust the CPI so that the effect of better quality on the cost of living is accounted for, what should Statistics Canada do?

You know that a chocolate bar costs 60 cents today. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in 1962 prices?

Since it accounts for changes in the prices of imports and the GDP deflator does not, the CPI is based on more goods and services than the GDP deflator.

The price index is 320 in one year and 380 in the next. What was the inflation rate?

Which of the following is the consumer price index used for?

The price index in the first year is 120, in the second year is 150, and in the third year is 180. What is the inflation rate between the first and second year and between the second and third year?

Which statement best describes the correlation between nominal and real interest rates?

Which of the following is the consumer price index used for?

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

How are the weights on the various goods and services in the CPI basket determined?

Scenario 6-1 Grant Smith was a doctor. In 1944, he made $12,000. His daughter, Lisa Smith, is also a doctor. Last year she made $275,000. The price index in 1944 was 17.6 and the price index last year was 200. -Refer to the Scenario 6-1. What is Lisa's income in 1944 dollars?

Which of the following best describes nominal interest rates in the 1970s and 1990s?

The CPI is computed by finding the price of a market basket of goods whose contents vary each year.

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

-Refer to the Table 6-2. Suppose that the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn. What is the consumer price index for 2015 if the base year is 2014?

What do economists believe about the bias in the CPI as a measure of the cost of living?

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 2014 as the base year, what is the consumer price index in 2015?

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

What is the goal of the consumer price index?

The CPI for 2015 is computed as 100 times the ratio of the price of the market basket in 2015 divided by the price of the market basket in the base year.

Suppose the quality of lawn mowers, which are part of the CPI basket, has improved, while their price has remained the same. If Statistics Canada wants to adjust the CPI so that the effect of better quality on the cost of living is accounted for, what should Statistics Canada do?

You know that a chocolate bar costs 60 cents today. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in 1962 prices?

Since it accounts for changes in the prices of imports and the GDP deflator does not, the CPI is based on more goods and services than the GDP deflator.

The price index is 320 in one year and 380 in the next. What was the inflation rate?

Which of the following is the consumer price index used for?

The price index in the first year is 120, in the second year is 150, and in the third year is 180. What is the inflation rate between the first and second year and between the second and third year?

Which statement best describes the correlation between nominal and real interest rates?

Which of the following is the consumer price index used for?

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

How are the weights on the various goods and services in the CPI basket determined?

Scenario 6-1 Grant Smith was a doctor. In 1944, he made $12,000. His daughter, Lisa Smith, is also a doctor. Last year she made $275,000. The price index in 1944 was 17.6 and the price index last year was 200. -Refer to the Scenario 6-1. What is Lisa's income in 1944 dollars?

Which of the following best describes nominal interest rates in the 1970s and 1990s?

The CPI is computed by finding the price of a market basket of goods whose contents vary each year.

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

-Refer to the Table 6-2. Suppose that the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn. What is the consumer price index for 2015 if the base year is 2014?

What do economists believe about the bias in the CPI as a measure of the cost of living?

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 2014 as the base year, what is the consumer price index in 2015?

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