Question 1

Which statement best describes the evolution of the GDP deflator and the consumer price index over the past decades?

Accepted Answer

A)  In the late 1970s, the late 1980s, and the early 1990s, the GDP deflator showed high rates of inflation while the consumer price index showed low rates of inflation. 
B)  In the late 1970s, both the GDP deflator and the consumer price index showed high rates of inflation, and in the late 1980s and the early 1990s, both measures showed low inflation. 
C)  In the late 1970s, both the GDP deflator and the consumer price index showed low rates of inflation, and in the late 1980s and the early 1990s, both measures showed high rates of inflation. 
D)  In the late 1970s, the late 1980s, and the early 1990s, both the GDP deflator and the consumer price index showed high rates of inflation. 
A)  In the late 1970s, the late 1980s, and the early 1990s, the GDP deflator showed high rates of inflation while the consumer price index showed low rates of inflation. 
B)  In the late 1970s, both the GDP deflator and the consumer price index showed high rates of inflation, and in the late 1980s and the early 1990s, both measures showed low inflation. 
C)  In the late 1970s, both the GDP deflator and the consumer price index showed low rates of inflation, and in the late 1980s and the early 1990s, both measures showed high rates of inflation. 
D)  In the late 1970s, the late 1980s, and the early 1990s, both the GDP deflator and the consumer price index showed high rates of inflation.

Question 2

In the late 1970s, nominal interest rates were high and inflation rates were very high. As a result, what were real interest rates?

Accepted Answer

A)  very high 
B)  moderately high 
C)  low, and in some years they were negative 
D)  low, but never negative 
A)  very high 
B)  moderately high 
C)  low, and in some years they were negative 
D)  low, but never negative

Question 3

What does the CPI measure?

Accepted Answer

A)  the overall price of inputs purchased by a typical producer 
B)  the overall price of goods and services bought by a typical consumer 
C)  the overall price of goods and services produced in the economy 
D)  the overall price of shares on the Toronto Stock Exchange 
A)  the overall price of inputs purchased by a typical producer 
B)  the overall price of goods and services bought by a typical consumer 
C)  the overall price of goods and services produced in the economy 
D)  the overall price of shares on the Toronto Stock Exchange

Question 4

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 was the approximate ratio of Grant's real income to Lisa's real income?

Accepted Answer

A)  1:2 
B)  3:5 
C)  7:10 
D)  7.5:10 
A)  1:2 
B)  3:5 
C)  7:10 
D)  7.5:10

Question 5

Table 6-3
In the country of Shem, the CPI is calculated using a market basket consisting of 5 apples, $ 4 \mathrm{~kg} $ of chicken, 3 shirts, and 2 litres of gasoline. The per-unit prices of these goods have been as follows:
 
-Refer to the Table 6-3. What was the inflation rate, as measured by the CPI, between 2014 and 2015?

Accepted Answer

A)  36.36 percent 
B)  55.4 percent 
C)  77.8 percent 
D)  140.2 percent 
A)  36.36 percent 
B)  55.4 percent 
C)  77.8 percent 
D)  140.2 percent

Question 6

Suppose the price of a litre of milk rises from $1 to $1.25 and the price of a T-shirt rises from $8 to $10. If the CPI rises from 150 to 175, what will people likely buy?

Accepted Answer

A)  more milk and more T-shirts 
B)  more milk and fewer T-shirts 
C)  less milk and more T-shirts 
D)  less milk and fewer T-shirts 
A)  more milk and more T-shirts 
B)  more milk and fewer T-shirts 
C)  less milk and more T-shirts 
D)  less milk and fewer T-shirts

Question 7

Which statement best explains whether interest rates are positive or negative?

Accepted Answer

A)  Real interest rates can be either positive or negative, but nominal interest rates must be positive. 
B)  Real interest rates and nominal interest rates must be positive. 
C)  Real interest rates must be positive, but nominal interest rates can be either positive or negative. 
D)  Real interest rates and nominal interest rates can be either positive or negative. 
A)  Real interest rates can be either positive or negative, but nominal interest rates must be positive. 
B)  Real interest rates and nominal interest rates must be positive. 
C)  Real interest rates must be positive, but nominal interest rates can be either positive or negative. 
D)  Real interest rates and nominal interest rates can be either positive or negative.

Question 8

There is no longer much debate among economists concerning the severity of and the solution to the problems in using the CPI to measure the cost of living.

Accepted Answer

A) True 
 B)False

Question 9

How do the CPI and the GDP deflator relate to each other?

Accepted Answer

A)  They generally move together, but occasionally diverge. 
B)  They generally show opposing patterns of movement. 
C)  They generally diverge, but sometimes move together. 
D)  They generally show unrelated patterns of movement. 
A)  They generally move together, but occasionally diverge. 
B)  They generally show opposing patterns of movement. 
C)  They generally diverge, but sometimes move together. 
D)  They generally show unrelated patterns of movement.

Question 10

Tiffany is offered a job in Winnipeg that pays $90,000. She is offered a similar job in Montreal for $60,000. Which set of CPIs comes closest to giving both salaries the same purchasing power?

Accepted Answer

A)  90 in Winnipeg and 120 in Montreal 
B)  90 in Winnipeg and 40 in Montreal 
C)  60 in Winnipeg and 120 in Montreal 
D)  60 in Winnipeg and 40 in Montreal 
A)  90 in Winnipeg and 120 in Montreal 
B)  90 in Winnipeg and 40 in Montreal 
C)  60 in Winnipeg and 120 in Montreal 
D)  60 in Winnipeg and 40 in Montreal

Question 11

What is an important difference between the GDP deflator and the consumer price index?

Accepted Answer

A)  The GDP deflator reflects the prices of goods and services bought by producers, whereas the consumer price index reflects the prices of goods and services bought by consumers. 
B)  The GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of some goods and services bought by consumers. 
C)  The GDP deflator reflects the prices of all final goods and services produced by a nation's citizens, whereas the consumer price index reflects the prices of final goods and services bought by consumers. 
D)  The GDP deflator reflects the prices of all goods and services bought by producers and consumers, whereas the consumer price index reflects the prices of final goods and services bought by consumers. 
A)  The GDP deflator reflects the prices of goods and services bought by producers, whereas the consumer price index reflects the prices of goods and services bought by consumers. 
B)  The GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of some goods and services bought by consumers. 
C)  The GDP deflator reflects the prices of all final goods and services produced by a nation's citizens, whereas the consumer price index reflects the prices of final goods and services bought by consumers. 
D)  The GDP deflator reflects the prices of all goods and services bought by producers and consumers, whereas the consumer price index reflects the prices of final goods and services bought by consumers.

Question 12

From one year to the next, the CPI for medical care rose from 261.8 to 275.8. What was the inflation rate for medical care?

Accepted Answer

A)  4.9 percent 
B)  5.35 percent 
C)  11.1 percent 
D)  12.0 percent 
A)  4.9 percent 
B)  5.35 percent 
C)  11.1 percent 
D)  12.0 percent

Question 13

Ms. Smith borrowed $1000 from her bank for one year at an interest rate of 10 percent per year. During that year the price level went up by 15 percent. Who loses and who gains because of the unexpected inflation?

Accepted Answer

A)  Ms. Smith loses 5 percent, but the bank gains 5 percent. 
B)  Ms. Smith gains 5 percent, but the bank loses 5 percent. 
C)  Ms. Smith loses 10 percent, but the bank gains 5 percent. 
D)  Ms. Smith gains 10 percent, but the bank loses 5 percent. 
A)  Ms. Smith loses 5 percent, but the bank gains 5 percent. 
B)  Ms. Smith gains 5 percent, but the bank loses 5 percent. 
C)  Ms. Smith loses 10 percent, but the bank gains 5 percent. 
D)  Ms. Smith gains 10 percent, but the bank loses 5 percent.

Question 14

Consumers begin purchasing houses incorporating steel studs instead of wooden studs after the price of lumber increases. Which problem in the construction of the CPI does this situation best represent?

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 15

Chip's Chocolate Factory has an agreement with its workers to completely index the wages of its employees to inflation in the CPI. Chip's currently pays its production line workers $20 an hour and is scheduled to index their wages today. If the CPI is currently about 120 and was 100 a year ago, by how much should Chip's increase the hourly wages of its workers?

Accepted Answer

A)  $0.58 
B)  $0.65 
C)  $1.00 
D)  $4.00 
A)  $0.58 
B)  $0.65 
C)  $1.00 
D)  $4.00

Question 16

From October 2014 to October 2015, the CPI in country A rose from 116.5 to 119.8. In country B, it rose from 97.2 to 102.3. What were the inflation rates in the two countries?

Accepted Answer

A)  3.3 percent in A and 6.7 percent in B 
B)  3.3 percent in A and 5.2 percent in B 
C)  2.8 percent in A and 6.7 percent in B 
D)  2.8 percent in A and 5.2 percent in B 
A)  3.3 percent in A and 6.7 percent in B 
B)  3.3 percent in A and 5.2 percent in B 
C)  2.8 percent in A and 6.7 percent in B 
D)  2.8 percent in A and 5.2 percent in B

Question 17

When the overall level of prices in the economy is increasing, what is the economy experiencing?

Accepted Answer

A)  economic growth 
B)  inflation 
C)  unemployment 
D)  deflation 
A)  economic growth 
B)  inflation 
C)  unemployment 
D)  deflation

Question 18

If nominal interest rates rise, it must be because inflation rose.

Accepted Answer

A) True 
 B)False

Question 19

-Refer to the Table 6-1. Suppose that the typical consumer basket consists of 5 bushels of peaches and 10 bushels of pecans and that the base year is 2014. What is the consumer price index for 2014?

Accepted Answer

A)  100 
B)  125 
C)  160 
D)  200 
A)  100 
B)  125 
C)  160 
D)  200

Question 20

Suppose that the CPI is currently 300 and was 50 in 1950. Then, according to the CPI, $1 in 1950 purchased the same amount of goods and services as what amount today?

Accepted Answer

A)  $0.6 
B)  $3 
C)  $4 
D)  $6 
A)  $0.6 
B)  $3 
C)  $4 
D)  $6

Which statement best describes the evolution of the GDP deflator and the consumer price index over the past decades?

In the late 1970s, nominal interest rates were high and inflation rates were very high. As a result, what were real interest rates?

What does the CPI measure?

Suppose the price of a litre of milk rises from $1 to $1.25 and the price of a T-shirt rises from $8 to $10. If the CPI rises from 150 to 175, what will people likely buy?

Which statement best explains whether interest rates are positive or negative?

There is no longer much debate among economists concerning the severity of and the solution to the problems in using the CPI to measure the cost of living.

How do the CPI and the GDP deflator relate to each other?

Tiffany is offered a job in Winnipeg that pays $90,000. She is offered a similar job in Montreal for $60,000. Which set of CPIs comes closest to giving both salaries the same purchasing power?

What is an important difference between the GDP deflator and the consumer price index?

From one year to the next, the CPI for medical care rose from 261.8 to 275.8. What was the inflation rate for medical care?

Ms. Smith borrowed $1000 from her bank for one year at an interest rate of 10 percent per year. During that year the price level went up by 15 percent. Who loses and who gains because of the unexpected inflation?

Consumers begin purchasing houses incorporating steel studs instead of wooden studs after the price of lumber increases. Which problem in the construction of the CPI does this situation best represent?

From October 2014 to October 2015, the CPI in country A rose from 116.5 to 119.8. In country B, it rose from 97.2 to 102.3. What were the inflation rates in the two countries?

When the overall level of prices in the economy is increasing, what is the economy experiencing?

If nominal interest rates rise, it must be because inflation rose.

-Refer to the Table 6-1. Suppose that the typical consumer basket consists of 5 bushels of peaches and 10 bushels of pecans and that the base year is 2014. What is the consumer price index for 2014?

Suppose that the CPI is currently 300 and was 50 in 1950. Then, according to the CPI, $1 in 1950 purchased the same amount of goods and services as what amount today?

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

Which statement best describes the evolution of the GDP deflator and the consumer price index over the past decades?

In the late 1970s, nominal interest rates were high and inflation rates were very high. As a result, what were real interest rates?

What does the CPI measure?

Suppose the price of a litre of milk rises from $1 to $1.25 and the price of a T-shirt rises from $8 to $10. If the CPI rises from 150 to 175, what will people likely buy?

Which statement best explains whether interest rates are positive or negative?

There is no longer much debate among economists concerning the severity of and the solution to the problems in using the CPI to measure the cost of living.

How do the CPI and the GDP deflator relate to each other?

Tiffany is offered a job in Winnipeg that pays $90,000. She is offered a similar job in Montreal for $60,000. Which set of CPIs comes closest to giving both salaries the same purchasing power?

What is an important difference between the GDP deflator and the consumer price index?

From one year to the next, the CPI for medical care rose from 261.8 to 275.8. What was the inflation rate for medical care?

Ms. Smith borrowed $1000 from her bank for one year at an interest rate of 10 percent per year. During that year the price level went up by 15 percent. Who loses and who gains because of the unexpected inflation?

Consumers begin purchasing houses incorporating steel studs instead of wooden studs after the price of lumber increases. Which problem in the construction of the CPI does this situation best represent?

From October 2014 to October 2015, the CPI in country A rose from 116.5 to 119.8. In country B, it rose from 97.2 to 102.3. What were the inflation rates in the two countries?

When the overall level of prices in the economy is increasing, what is the economy experiencing?

If nominal interest rates rise, it must be because inflation rose.

-Refer to the Table 6-1. Suppose that the typical consumer basket consists of 5 bushels of peaches and 10 bushels of pecans and that the base year is 2014. What is the consumer price index for 2014?

Suppose that the CPI is currently 300 and was 50 in 1950. Then, according to the CPI, $1 in 1950 purchased the same amount of goods and services as what amount today?

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