Question 1

If the current year CPI is 90, then the price level has decreased 10 percent since the base year.

Accepted Answer

A) True 
 B)False  True

Question 2

Which of the following is the most accurate statement about the effects of quality change on the CPI?

Accepted Answer

A)  Even though the BLS adjusts the prices of products in the CPI basket when the quality of the products change, changes in quality are still a problem because quality is so hard to measure. 
B)  Because the BLS adjusts the prices of products in the CPI basket when the quality of the products change, changes in quality are no longer a problem for the CPI. 
C)  The BLS does not adjust the CPI for quality changes. 
D)  Most economists believe that changes in the quality of goods included in the CPI basket do not bias the CPI as a measure of the cost of living. 
A)  Even though the BLS adjusts the prices of products in the CPI basket when the quality of the products change, changes in quality are still a problem because quality is so hard to measure. 
B)  Because the BLS adjusts the prices of products in the CPI basket when the quality of the products change, changes in quality are no longer a problem for the CPI. 
C)  The BLS does not adjust the CPI for quality changes. 
D)  Most economists believe that changes in the quality of goods included in the CPI basket do not bias the CPI as a measure of the cost of living. A

Question 3

Scenario 6-4
Quinn has job offers in Wrexington and across the country in Charlieville. The Wrexington job would pay a salary of $50,000 per year, and the Charlieville job would pay a salary of $40,000 per year. The CPI in Wrexington is 150, and the CPI in Charlieville is 90.
-Refer to Scenario 6-4. The Wrexington salary in Charlieville dollars is

Accepted Answer

A)  $30,000.00. 
B)  $33,333.33. 
C)  $45,000.00 
D)  $83,333.33. 
A)  $30,000.00. 
B)  $33,333.33. 
C)  $45,000.00 
D)  $83,333.33. A

Question 4

Suppose a basket of goods and services has been selected to calculate the consumer price index. In 2005, the basket of goods cost $108.00; in 2006, it cost $135.00; and in 2007, it cost $168.75. Which of the following statements is correct?

Accepted Answer

A)  Using 2005 as the base year, the economy's inflation rate was higher in 2007 than it was in 2006. 
B)  If 2007 is the base year, then the CPI is 33.75 in 2006. 
C)  If the CPI is 156.25 in 2007, then 2005 is the base year. 
D)  Using 2005 as the base year, the economy's inflation rate for 2006 was 27 percent. 
A)  Using 2005 as the base year, the economy's inflation rate was higher in 2007 than it was in 2006. 
B)  If 2007 is the base year, then the CPI is 33.75 in 2006. 
C)  If the CPI is 156.25 in 2007, then 2005 is the base year. 
D)  Using 2005 as the base year, the economy's inflation rate for 2006 was 27 percent.

Question 5

An increase in the price of imported coffee shows up

Accepted Answer

A)  in the consumer price index and in the GDP deflator. 
B)  in the consumer price index, but not in the GDP deflator. 
C)  in the GDP deflator, but not in the consumer price index. 
D)  in neither the consumer price index nor in the GDP deflator. 
A)  in the consumer price index and in the GDP deflator. 
B)  in the consumer price index, but not in the GDP deflator. 
C)  in the GDP deflator, but not in the consumer price index. 
D)  in neither the consumer price index nor in the GDP deflator.

Question 6

The inflation rate is calculated

Accepted Answer

A)  by determining the change in the price index from the preceding period. 
B)  by adding up the price increases of all goods and services. 
C)  by computing a simple average of the price increases for all goods and services. 
D)  by determining the percentage increase in the price index from the preceding period. 
A)  by determining the change in the price index from the preceding period. 
B)  by adding up the price increases of all goods and services. 
C)  by computing a simple average of the price increases for all goods and services. 
D)  by determining the percentage increase in the price index from the preceding period.

Question 7

One of the differences between the GDP deflator and the consumer price index is

Accepted Answer

A)  the GDP deflator includes income earned by American citizens working in foreign countries and the consumer price index is based solely on purchases made in the U.S. 
B)  the consumer price index basket of goods is updated constantly by the Bureau of Labor Statistics whereas the GDP deflator is updated only occasionally. 
C)  the consumer price index includes items not included in the GDP deflator such as airplanes purchased by the Air Force. 
D)  the GDP deflator reflects prices for all goods and services produced domestically and the consumer price index reflects prices for some goods and services bought by consumers. 
A)  the GDP deflator includes income earned by American citizens working in foreign countries and the consumer price index is based solely on purchases made in the U.S. 
B)  the consumer price index basket of goods is updated constantly by the Bureau of Labor Statistics whereas the GDP deflator is updated only occasionally. 
C)  the consumer price index includes items not included in the GDP deflator such as airplanes purchased by the Air Force. 
D)  the GDP deflator reflects prices for all goods and services produced domestically and the consumer price index reflects prices for some goods and services bought by consumers.

Question 8

Suppose the price index was 105 in 2007, 115.5 in 2008, and the inflation rate was lower between 2008 and 2009 than it was between 2007 and 2008. This means that

Accepted Answer

A)  the price index in 2009 was lower than 115.5. 
B)  the price index in 2009 was lower than 126. 
C)  the price index in 2009 was lower than 127.05. 
D)  the inflation rate between 2008 and 2009 was lower than 1.1 percent. 
A)  the price index in 2009 was lower than 115.5. 
B)  the price index in 2009 was lower than 126. 
C)  the price index in 2009 was lower than 127.05. 
D)  the inflation rate between 2008 and 2009 was lower than 1.1 percent.

Question 9

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 t

Question 10

Which of the following is not correct?

Accepted Answer

A)  If the inflation rate exceeds the nominal interest rate, then the purchasing power of an interest-earning deposit falls over time. 
B)  If there is deflation, then the purchasing power of an interest-earning deposit rises by more than the nominal interest rate over time. 
C)  The higher the rate of inflation, the smaller the increase in the purchasing power of an interest-earning deposit. 
D)  The purchasing power of an interest-earning deposit can increase or decrease over time, but it cannot stay the same. 
A)  If the inflation rate exceeds the nominal interest rate, then the purchasing power of an interest-earning deposit falls over time. 
B)  If there is deflation, then the purchasing power of an interest-earning deposit rises by more than the nominal interest rate over time. 
C)  The higher the rate of inflation, the smaller the increase in the purchasing power of an interest-earning deposit. 
D)  The purchasing power of an interest-earning deposit can increase or decrease over time, but it cannot stay the same.

Question 11

If the consumer price index was 100 in the base year and 107 in the following year, then the inflation rate was

Accepted Answer

A)  1.07 percent. 
B)  7 percent. 
C)  10.7 percent. 
D)  107 percent. 
A)  1.07 percent. 
B)  7 percent. 
C)  10.7 percent. 
D)  107 percent.

Question 12

When box office receipts are not corrected for inflation, the most popular movie of all time is

Accepted Answer

A)  Star Wars. 
B)  Avatar. 
C)  Gone With the Wind. 
D)  The Dark Knight. 
A)  Star Wars. 
B)  Avatar. 
C)  Gone With the Wind. 
D)  The Dark Knight.

Question 13

The consumer price index is used to

Accepted Answer

A)  convert nominal GDP into real GDP. 
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)  convert nominal GDP into real GDP. 
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 14

If the quality of a good improves while its price remains the same, then the value of a dollar

Accepted Answer

A)  rises and the cost of living increases. 
B)  rises and the cost of living decreases. 
C)  falls and the cost of living increases. 
D)  falls and the cost of living decreases. 
A)  rises and the cost of living increases. 
B)  rises and the cost of living decreases. 
C)  falls and the cost of living increases. 
D)  falls and the cost of living decreases.

Question 15

The real interest rate tells you how fast the purchasing power of your bank account rises over time.

Accepted Answer

A) True 
 B)False

Question 16

Marion collected Social Security payments of $250 a month in 1985. If the price index rose from 90 to 108 between 1985 and 1986, then her Social Security payments for 1986 should have been

Accepted Answer

A)  $268. 
B)  $292. 
C)  $300. 
D)  $358. 
A)  $268. 
B)  $292. 
C)  $300. 
D)  $358.

Question 17

One of the widely acknowledged problems with using the consumer price index 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

The producer price index measures the cost of a basket of goods and services bought by firms rather than consumers.

Accepted Answer

A) True 
 B)False

Question 19

Data from the Bureau of Labor Statistics show that the largest category of consumer spending is housing.

Accepted Answer

A) True 
 B)False

Question 20

Table 6-3
The table below pertains to Studious, an economy in which the typical consumer's basket consists of 5 books and 10 calculators.
  
-Refer to Table 6-3. The cost of the basket

Accepted Answer

A)  increased from 2006 to 2007 and increased from 2007 to 2008. 
B)  increased from 2006 to 2007 and decreased from 2007 to 2008. 
C)  decreased from 2006 to 2007 and increased from 2007 to 2008. 
D)  decreased from 2006 to 2007 and decreased from 2007 to 2008. 
A)  increased from 2006 to 2007 and increased from 2007 to 2008. 
B)  increased from 2006 to 2007 and decreased from 2007 to 2008. 
C)  decreased from 2006 to 2007 and increased from 2007 to 2008. 
D)  decreased from 2006 to 2007 and decreased from 2007 to 2008.

If the current year CPI is 90, then the price level has decreased 10 percent since the base year.

Which of the following is the most accurate statement about the effects of quality change on the CPI?

Suppose a basket of goods and services has been selected to calculate the consumer price index. In 2005, the basket of goods cost $108.00; in 2006, it cost $135.00; and in 2007, it cost $168.75. Which of the following statements is correct?

An increase in the price of imported coffee shows up

The inflation rate is calculated

One of the differences between the GDP deflator and the consumer price index is

Suppose the price index was 105 in 2007, 115.5 in 2008, and the inflation rate was lower between 2008 and 2009 than it was between 2007 and 2008. This means that

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

Which of the following is not correct?

If the consumer price index was 100 in the base year and 107 in the following year, then the inflation rate was

When box office receipts are not corrected for inflation, the most popular movie of all time is

The consumer price index is used to

If the quality of a good improves while its price remains the same, then the value of a dollar

The real interest rate tells you how fast the purchasing power of your bank account rises over time.

Marion collected Social Security payments of $250 a month in 1985. If the price index rose from 90 to 108 between 1985 and 1986, then her Social Security payments for 1986 should have been

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

The producer price index measures the cost of a basket of goods and services bought by firms rather than consumers.

Data from the Bureau of Labor Statistics show that the largest category of consumer spending is housing.

Table 6-3 The table below pertains to Studious, an economy in which the typical consumer's basket consists of 5 books and 10 calculators. -Refer to Table 6-3. The cost of the basket

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

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomic Models

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

Six Debates Over Macroeconomic Policy

Filters

Exam 6: Measuring the Cost of Living

If the current year CPI is 90, then the price level has decreased 10 percent since the base year.

Which of the following is the most accurate statement about the effects of quality change on the CPI?

Suppose a basket of goods and services has been selected to calculate the consumer price index. In 2005, the basket of goods cost $108.00; in 2006, it cost $135.00; and in 2007, it cost $168.75. Which of the following statements is correct?

An increase in the price of imported coffee shows up

The inflation rate is calculated

One of the differences between the GDP deflator and the consumer price index is

Suppose the price index was 105 in 2007, 115.5 in 2008, and the inflation rate was lower between 2008 and 2009 than it was between 2007 and 2008. This means that

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

Which of the following is not correct?

If the consumer price index was 100 in the base year and 107 in the following year, then the inflation rate was

When box office receipts are not corrected for inflation, the most popular movie of all time is

The consumer price index is used to

If the quality of a good improves while its price remains the same, then the value of a dollar

The real interest rate tells you how fast the purchasing power of your bank account rises over time.

Marion collected Social Security payments of $250 a month in 1985. If the price index rose from 90 to 108 between 1985 and 1986, then her Social Security payments for 1986 should have been

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

The producer price index measures the cost of a basket of goods and services bought by firms rather than consumers.

Data from the Bureau of Labor Statistics show that the largest category of consumer spending is housing.

Table 6-3 The table below pertains to Studious, an economy in which the typical consumer's basket consists of 5 books and 10 calculators. -Refer to Table 6-3. The cost of the basket

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

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomic Models

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

Six Debates Over Macroeconomic Policy

Filters