Question 1

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  False

Question 2

In the country of Hyrkania,the CPI in 2000 was 120 and the CPI in 2001 was 132.Jake,a resident of Hyrkania,borrowed money in 2000 and repaid the loan in 2001.If the nominal interest rate on the loan was 12 percent,then the real interest rate was

Accepted Answer

A) 12 percent. 
B) 10 percent. 
C) 2 percent. 
D) impossible to determine without knowing the base year for the CPI. 
A) 12 percent. 
B) 10 percent. 
C) 2 percent. 
D) impossible to determine without knowing the base year for the CPI. C

Question 3

The real interest rate tells you

Accepted Answer

A) how fast the number of dollars in your bank account rises over time. 
B) how fast the purchasing power of your bank account rises over time. 
C) the number of dollars in your bank account today. 
D) the purchasing power of your bank account today. 
A) how fast the number of dollars in your bank account rises over time. 
B) how fast the purchasing power of your bank account rises over time. 
C) the number of dollars in your bank account today. 
D) the purchasing power of your bank account today. B

Question 4

Table 24-4
The table below pertains to an economy with only two goods -- books and calculators. The fixed basket consists of 5 books and 10 calculators.
  
-Refer to Table 24-4.Using 2007 as the base year,the consumer price index is

Accepted Answer

A) 78.22 in 2006, 100 in 2007, and 121.10 in 2008. 
B) 74.07 in 2006, 100 in 2007, and 114.81 in 2008. 
C) 100 in 2006, 135 in 2007, and 155 in 2008. 
D) 200 in 2006, 270 in 2007, and 310 in 2008. 
A) 78.22 in 2006, 100 in 2007, and 121.10 in 2008. 
B) 74.07 in 2006, 100 in 2007, and 114.81 in 2008. 
C) 100 in 2006, 135 in 2007, and 155 in 2008. 
D) 200 in 2006, 270 in 2007, and 310 in 2008.

Question 5

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 6

Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?

Accepted Answer

A) The real interest rate is the nominal interest rate times the rate of inflation. 
B) The real interest rate is the nominal interest rate minus the rate of inflation. 
C) The real interest rate is the nominal interest rate plus the rate of inflation. 
D) The real interest rate is the nominal interest rate divided by the rate of inflation. 
A) The real interest rate is the nominal interest rate times the rate of inflation. 
B) The real interest rate is the nominal interest rate minus the rate of inflation. 
C) The real interest rate is the nominal interest rate plus the rate of inflation. 
D) The real interest rate is the nominal interest rate divided by the rate of inflation.

Question 7

Which of the following statements about real and nominal interest rates is correct?

Accepted Answer

A) When the nominal interest rate is rising, the real interest rate is necessarily rising; when the nominal interest rate is falling, the real interest rate is necessarily falling. 
B) If the nominal interest rate is 4 percent and the inflation rate is 3 percent, then the real interest rate is 7 percent. 
C) An increase in the real interest rate is necessarily accompanied by either an increase in the nominal interest rate, an increase in the inflation rate, or both. 
D) When the inflation rate is positive, the nominal interest rate is necessarily greater than the real interest rate. 
A) When the nominal interest rate is rising, the real interest rate is necessarily rising; when the nominal interest rate is falling, the real interest rate is necessarily falling. 
B) If the nominal interest rate is 4 percent and the inflation rate is 3 percent, then the real interest rate is 7 percent. 
C) An increase in the real interest rate is necessarily accompanied by either an increase in the nominal interest rate, an increase in the inflation rate, or both. 
D) When the inflation rate is positive, the nominal interest rate is necessarily greater than the real interest rate.

Question 8

The consumer price index is used to

Accepted Answer

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

Question 9

The consumer price index is used to

Accepted Answer

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

Question 10

The CPI is calculated

Accepted Answer

A) weekly. 
B) monthly. 
C) quarterly. 
D) yearly. 
A) weekly. 
B) monthly. 
C) quarterly. 
D) yearly.

Question 11

Most studies in the 1990s concluded that the consumer price index overstated inflation by about

Accepted Answer

A) 3 percentage points, and that number of percentage points likely still applies now. 
B) 3 percentage points, but improvements in recent years to the CPI probably have reduced the overstatement of inflation to something less than 3 percentage points. 
C) 1 percentage point, and that number of percentage points likely still applies now. 
D) 1 percentage point, but improvements in recent years to the CPI probably have reduced the overstatement of inflation to something less than 1 percentage point. 
A) 3 percentage points, and that number of percentage points likely still applies now. 
B) 3 percentage points, but improvements in recent years to the CPI probably have reduced the overstatement of inflation to something less than 3 percentage points. 
C) 1 percentage point, and that number of percentage points likely still applies now. 
D) 1 percentage point, but improvements in recent years to the CPI probably have reduced the overstatement of inflation to something less than 1 percentage point.

Question 12

Andrew is offered a job in Little Rock,where the CPI is 80,and a job in New York,where the CPI is 125.Andrew's job offer in Little Rock is for $42,000.How much does the New York job have to pay in order for the two salaries to represent about the same purchasing power?

Accepted Answer

A) $74,667 
B) $65,625 
C) $60,900 
D) $52,500 
A) $74,667 
B) $65,625 
C) $60,900 
D) $52,500

Question 13

Suppose that U.S.mining companies purchase German-made ore trucks at a reduced price.By itself,what effect will this purchase have on the GDP deflator and on the consumer price index?

Accepted Answer

A) The consumer price index will fall, and the GDP deflator will fall. 
B) The consumer price index and the GDP deflator will be unaffected. 
C) The consumer price index will fall, and the GDP deflator will be unaffected. 
D) The consumer price index will be unaffected, and the GDP deflator will fall. 
A) The consumer price index will fall, and the GDP deflator will fall. 
B) The consumer price index and the GDP deflator will be unaffected. 
C) The consumer price index will fall, and the GDP deflator will be unaffected. 
D) The consumer price index will be unaffected, and the GDP deflator will fall.

Question 14

In the United States,real interest rates were

Accepted Answer

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

Question 15

The CPI for 2000 is computed as 100 times the ratio of the price of the market basket in 2000 divided by the price of the market basket in the base year.

Accepted Answer

A) True 
 B)False

Question 16

Assume an economy experienced a higher inflation rate,as measured by the CPI,between 2004 and 2005 than it experienced between 2003 and 2004.Which of the following scenarios is consistent with this assumption?

Accepted Answer

A) The CPI was 100 in 2003, 110 in 2004, and 120 in 2005. 
B) The CPI was 100 in 2003, 110 in 2004, and 124 in 2005. 
C) The CPI was 110 in 2003, 150 in 2004, and 200 in 2005. 
D) All of the above are correct. 
A) The CPI was 100 in 2003, 110 in 2004, and 120 in 2005. 
B) The CPI was 100 in 2003, 110 in 2004, and 124 in 2005. 
C) The CPI was 110 in 2003, 150 in 2004, and 200 in 2005. 
D) All of the above are correct.

Question 17

One of the widely-acknowledged problems with the consumer price index (CPI)as a measure of the cost of living is that the CPI

Accepted Answer

A) fails to account for consumer spending on housing. 
B) accounts only for consumer spending on food, clothing, and energy. 
C) fails to account for the fact that consumers spend larger percentages of their incomes on some goods and smaller percentages of their incomes on other goods. 
D) fails to account for the introduction of new goods. 
A) fails to account for consumer spending on housing. 
B) accounts only for consumer spending on food, clothing, and energy. 
C) fails to account for the fact that consumers spend larger percentages of their incomes on some goods and smaller percentages of their incomes on other goods. 
D) fails to account for the introduction of new goods.

Question 18

Ralph puts money in the bank and earns a 5 percent nominal interest rate.Then,if the inflation rate is 3 percent,

Accepted Answer

A) Ralph will have 3 percent more money, which will purchase 2 percent more goods. 
B) Ralph will have 3 percent more money, which will purchase 8 percent more goods. 
C) Ralph will have 5 percent more money, which will purchase 2 percent more goods. 
D) Ralph will have 5 percent more money, which will purchase 8 percent more goods. 
A) Ralph will have 3 percent more money, which will purchase 2 percent more goods. 
B) Ralph will have 3 percent more money, which will purchase 8 percent more goods. 
C) Ralph will have 5 percent more money, which will purchase 2 percent more goods. 
D) Ralph will have 5 percent more money, which will purchase 8 percent more goods.

Question 19

Why does the GDP deflator give a different rate of inflation than does the CPI?

Accepted Answer

The GDP deflator and the CPI differ in t

Question 20

In the country of Shem, the CPI is calculated using a market basket consisting of 5 apples, 4 loaves of bread, 3 robes and 2 gallons of gasoline. The per-unit prices of these goods have been as follows:
Table 24-3
  
-Refer to Table 24-3.Using 2002 as the base year,what was the inflation rate between 2002 and 2003?

Accepted Answer

A) -8.89 percent 
B) -7.14 percent 
C) 3.75 percent 
D) 11.25 percent 
A) -8.89 percent 
B) -7.14 percent 
C) 3.75 percent 
D) 11.25 percent

Exam 24: Measuring the Cost of Living

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

In the country of Hyrkania,the CPI in 2000 was 120 and the CPI in 2001 was 132.Jake,a resident of Hyrkania,borrowed money in 2000 and repaid the loan in 2001.If the nominal interest rate on the loan was 12 percent,then the real interest rate was

The real interest rate tells you

Table 24-4 The table below pertains to an economy with only two goods -- books and calculators. The fixed basket consists of 5 books and 10 calculators. -Refer to Table 24-4.Using 2007 as the base year,the consumer price index is

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.

Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?

Which of the following statements about real and nominal interest rates is correct?

The consumer price index is used to

The consumer price index is used to

The CPI is calculated

Most studies in the 1990s concluded that the consumer price index overstated inflation by about

Andrew is offered a job in Little Rock,where the CPI is 80,and a job in New York,where the CPI is 125.Andrew's job offer in Little Rock is for $42,000.How much does the New York job have to pay in order for the two salaries to represent about the same purchasing power?

Suppose that U.S.mining companies purchase German-made ore trucks at a reduced price.By itself,what effect will this purchase have on the GDP deflator and on the consumer price index?

In the United States,real interest rates were

The CPI for 2000 is computed as 100 times the ratio of the price of the market basket in 2000 divided by the price of the market basket in the base year.

Assume an economy experienced a higher inflation rate,as measured by the CPI,between 2004 and 2005 than it experienced between 2003 and 2004.Which of the following scenarios is consistent with this assumption?

One of the widely-acknowledged problems with the consumer price index (CPI)as a measure of the cost of living is that the CPI

Ralph puts money in the bank and earns a 5 percent nominal interest rate.Then,if the inflation rate is 3 percent,

Why does the GDP deflator give a different rate of inflation than does the CPI?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Applications

Supply, demand, and Government Policies

Consumers, producers, and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Oligopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Production and Growth

Saving, investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short Run Trade Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters