Question 1

Which problem in the construction of the CPI is the invention of pocket-sized computers 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 2

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 3

In 1964 in London,Ontario,one could buy a fish and chips for $2.00; today the same fish and chips cost $5.55.Which set of CPIs represents the same purchasing power for the cost in 1964 and the cost today?

Accepted Answer

A)  60 in 1964 and 141.6 today 
B)  75 in 1964 and 126.4 today 
C)  80 in 1964 and 112.0 today 
D)  90 in 1964 and 250.0 today 
A)  60 in 1964 and 141.6 today 
B)  75 in 1964 and 126.4 today 
C)  80 in 1964 and 112.0 today 
D)  90 in 1964 and 250.0 today

Question 4

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 5

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 6

Welfare payments are indexed for inflation using the CPI.A recent newspaper editorial claimed that welfare recipients are harmed by inflation as it is measured by the CPI.Is the newspaper editorial correct?

Accepted Answer

A)  The newspaper editorial is correct if the price of the basket consumed by welfare recipients increases faster than the price of the CPI basket. 
B)  The newspaper editorial is correct if the price of the basket consumed by welfare recipients increases slower than the price of the CPI basket. 
C)  The newspaper editorial is correct if the prices of the goods consumed by welfare recipients are cheaper than the goods in the CPI basket. 
D)  The newspaper editorial is correct if the prices of the goods consumed by welfare recipients are more expensive than the goods in the CPI basket. 
A)  The newspaper editorial is correct if the price of the basket consumed by welfare recipients increases faster than the price of the CPI basket. 
B)  The newspaper editorial is correct if the price of the basket consumed by welfare recipients increases slower than the price of the CPI basket. 
C)  The newspaper editorial is correct if the prices of the goods consumed by welfare recipients are cheaper than the goods in the CPI basket. 
D)  The newspaper editorial is correct if the prices of the goods consumed by welfare recipients are more expensive than the goods in the CPI basket.

Question 7

In recent years,there have been increases in the size of golf club drivers and the methods and materials used for making them have improved.Which problem in the construction of the CPI is this change in drivers 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 8

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

Question 9

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 10

The price index in the first year is 100,in the second year is 90,and in the third year is 80.What is the deflation rate between the first and second year,and between the second and third year?

Accepted Answer

A)  11 percent between the first and second year,11 percent between the second and third year 
B)  11 percent between the first and second year,12 percent between the second and third year 
C)  10 percent between the first and second year,11 percent between the second and third year 
D)  10 percent between the first and second year,12 percent between the second and third year 
A)  11 percent between the first and second year,11 percent between the second and third year 
B)  11 percent between the first and second year,12 percent between the second and third year 
C)  10 percent between the first and second year,11 percent between the second and third year 
D)  10 percent between the first and second year,12 percent between the second and third year

Question 11

Suppose that increases in the prices of Canadian medical care cause the CPI to increase by 2 percent,while all other prices remain the same.How much will the GDP deflator most likely increase by?

Accepted Answer

A)  0.0 percent 
B)  0.4 percent 
C)  2.0 percent 
D)  2.4 percent 
A)  0.0 percent 
B)  0.4 percent 
C)  2.0 percent 
D)  2.4 percent

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

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 14

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 15

Imagine a small town with only two unrelated inhabitants,David and Dixie,both living complex and fulfilling lives.Let us simplify their lives,to better understand the implications of using the CPI as a measure of the cost of living.Suppose David and Dixie consume only potatoes and fish: David consumes 4 potatoes and 6 fish a day,while Dixie consumes 6 potatoes and 4 fish a day.(David has a few more cats to feed,but Dixie likes to feed a couple of birds that nest in a nearby tree.)Initially,prices are $1 a potato and $2 a fish.
a)Calculate David and Dixie's costs of living and their total expenditure.
b)Now,suppose the price of potatoes increases to $2.Calculate the new costs of living and total expenditure.Calculate the CPI inflation rate.What would be the increase in David and Dixie's costs of living,in dollars,according to the inflation rate you have just calculated? What are the actual increases in their costs of living? What have we learned from this exercise?
c)To deal with the harsher economic conditions,Dixie takes in a stray cat to scare away the birds from the tree.Now she consumes 4 potatoes and 5 fish.Recalculate Dixie's actual increase in the cost of living and discuss your result.

Accepted Answer

a)David's cost of living is 4×$1+6×$2=$1

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

In Japan in 2000,nominal interest rates were 1.5 percent and the inflation rate was -0.5 percent.What was the real interest rate?

Accepted Answer

A)  -2 percent 
B)  -1 percent 
C)  1 percent 
D)  2 percent 
A)  -2 percent 
B)  -1 percent 
C)  1 percent 
D)  2 percent

Question 18

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 19

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 20

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

Which problem in the construction of the CPI is the invention of pocket-sized computers most relevant to?

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?

In 1964 in London,Ontario,one could buy a fish and chips for $2.00; today the same fish and chips cost $5.55.Which set of CPIs represents the same purchasing power for the cost in 1964 and the cost today?

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

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

Welfare payments are indexed for inflation using the CPI.A recent newspaper editorial claimed that welfare recipients are harmed by inflation as it is measured by the CPI.Is the newspaper editorial correct?

In recent years,there have been increases in the size of golf club drivers and the methods and materials used for making them have improved.Which problem in the construction of the CPI is this change in drivers most relevant to?

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?

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

The price index in the first year is 100,in the second year is 90,and in the third year is 80.What is the deflation rate between the first and second year,and between the second and third year?

Suppose that increases in the prices of Canadian medical care cause the CPI to increase by 2 percent,while all other prices remain the same.How much will the GDP deflator most likely increase by?

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?

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

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

In Japan in 2000,nominal interest rates were 1.5 percent and the inflation rate was -0.5 percent.What was the real interest rate?

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.

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

What kind of payment does interest represent?

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 problem in the construction of the CPI is the invention of pocket-sized computers most relevant to?

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?

In 1964 in London,Ontario,one could buy a fish and chips for $2.00; today the same fish and chips cost $5.55.Which set of CPIs represents the same purchasing power for the cost in 1964 and the cost today?

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

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

Welfare payments are indexed for inflation using the CPI.A recent newspaper editorial claimed that welfare recipients are harmed by inflation as it is measured by the CPI.Is the newspaper editorial correct?

In recent years,there have been increases in the size of golf club drivers and the methods and materials used for making them have improved.Which problem in the construction of the CPI is this change in drivers most relevant to?

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?

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

The price index in the first year is 100,in the second year is 90,and in the third year is 80.What is the deflation rate between the first and second year,and between the second and third year?

Suppose that increases in the prices of Canadian medical care cause the CPI to increase by 2 percent,while all other prices remain the same.How much will the GDP deflator most likely increase by?

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?

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

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

In Japan in 2000,nominal interest rates were 1.5 percent and the inflation rate was -0.5 percent.What was the real interest rate?

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.

What kind of payment does interest represent?

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