Deck 8: Thecost of Living

Question 1

Economists create a market basket to:

A) understand changes in the purchasing patterns of firms.
B) see how the cost of buying the goods and services on the list changes over time.
C) understand how each individual consumer is being affected by changing prices.
D) get a sense of which items people buy on a weekly basis.

Answer 1

see how the cost of buying the goods and services on the list changes over time.

Question 2

Assume a market basket includes ten boxes of mac and cheese, ten packages of ramen, 5 bottles of soda, and 1 gallon of milk. According to the table shown, what is the change in the price level between the base year and the current year?

A) 11 percent
B) 12 percent
C) 13 percent
D) 14 percent

Answer 2

12 percent

Question 3

Which of the following statements characterizes the dollar?

A) It changes in value over time.
B) Its value is supported by a gold reserve held by the U.S. government.
C) It is not traded on the black market.
D) It has a fixed value that does not change over time.

Answer 3

It changes in value over time.

Question 4

A dollar's value changes:

A) over time and across different locations.
B) at the same rate as GDP.
C) if the government maintains a fixed exchange rate.
D) the most during the holiday shopping season.

Question 5

Assume a market basket includes three avocados, two loaves of bread, two dozen eggs, and a seasoning packet. According to the table shown, what is the change in the price level between the base year and the current year?

A) 2.0 percent
B) 2.2 percent
C) 2.4 percent
D) 2.6 percent

Question 6

Which of the following goods is least likely to be included in a market basket?

A) A missile
B) A gallon of milk
C) A pair of khaki pants
D) A tank of heating oil

Question 7

The most commonly used index to track changes in prices for the typical U.S. household is the:

A) consumer price index.
B) average price index.
C) retail price index.
D) producer price index.

Question 8

Assume a market basket includes ten boxes of mac and cheese, ten packages of ramen, 5 bottles of soda, and 1 gallon of milk. According to the table shown, what is the change in the price level between the base year and the current year?

A) 4.9 percent
B) 5.3 percent
C) 5.7 percent
D) 6.1 percent

Question 9

Goods in the market basket:

A) are held relatively constant over time.
B) change rapidly to suit the tastes of consumers.
C) never change.
D) are determined by a group of manufacturers.

Question 10

A price index:

A) measures how much the cost of a market basket has risen or fallen relative to the cost of the same market basket in a base time period.
B) summarizes the changes in the cost of living for only rural consumers.
C) allows us to see clearly the daily changes in the cost of a market basket.
D) is generally only used for consumer goods and services.

Question 11

Assume a market basket includes three avocados, two loaves of bread, two dozen eggs, and a seasoning packet. According to the table shown, what is the change in the price level between the base year and the current year?

A) 4.1 percent
B) 4.3 percent
C) 4.5 percent
D) 4.7 percent

Question 12

Why don't economists simply average the price changes of all goods in the market basket to calculate changes in the price level?

A) Consumers typically don't buy the same amount of each good in the basket.
B) The median would be a more accurate measure.
C) More expensive items should carry greater weight.
D) The market basket isn't representative of all goods in the economy.

Question 13

Assume a market basket includes three avocados, two loaves of bread, a dozen eggs, and a seasoning packet. According to the table shown, what is the change in the price level between the base year and the current year?

A) 7.4 percent
B) 4.9 percent
C) 7.7 percent
D) 6.4 percent

Question 14

When we say the cost of living has gone up, we mean that, looking broadly over a range of goods and services, a dollar buys _______ it used to buy.

A) less today than
B) more today than
C) the same today as
D) more abroad than

Question 15

A market basket:

A) tracks how changing prices affect consumers.
B) tracks all the goods and services produced in an economy.
C) tracks the changes in price of items at the grocery store.
D) only tracks the changing prices of imports in an economy.

Question 16

A market basket:

A) is related to how firms make purchasing decisions.
B) includes specific goods and services in fixed quantities that roughly correspond to a typical consumer's spending.
C) includes housing, food, and clothing, but does not include transportation.
D) is what an economist creates in order to understand the purchasing trends of households and firms.

Question 17

Using the market basket approach:

A) allows us to see how cost of living is affected by the changing prices of different goods relative to how much of each good people buy.
B) is the least reliable way of tracking changes in the cost of living.
C) we are able to measure changes in production in the economy.
D) All of these are true.

Question 18

When we say the cost of living has gone down, we mean that, looking broadly over a range of goods and services, a dollar buys _______ it used to buy.

A) less today than
B) more today than
C) the same today
D) less abroad than

Question 19

Which of the following goods is least likely to be included in a market basket?

A) Bottled water
B) Airfare
C) Street lamps
D) Coffee beans

Question 20

When the market basket is tracked over time, the goods within the basket:

A) remain the same, and only changing prices are captured.
B) change to reflect the purchasing habits of a typical consumer each year.
C) change to reflect the purchasing habits of a typical consumer each year, but prices are held constant, so it measures changes in consumption.
D) remain the same, and prices are held constant on items that are important to consumers.

Question 21

The table shown displays CPI data for 2015 to 2019. What can be said about the cost of living in 2017?

A) The typical consumer had to spend 5 percent more in 2017 than in 2016 in order to buy the same goods.
B) The price of intermediate goods increased by 5 percent.
C) The typical consumer could spend 5 percent less to maintain the same standard of living.
D) None of these are true.

Question 22

The table shown displays CPI data for 2015 to 2019. If the base year is 2016, what can be said about the cost of living in 2015?

A) The cost of living in 2015 was lower than in 2016.
B) The cost of living decreased because the CPI was less than 100.
C) The cost of living increased because the CPI was less than 100.
D) There must have been a recession because the CPI is less than 100.

Question 23

When consumers substitute one good for another, this substitution:

A) is captured by the CPI only if it occurs because of price changes.
B) is captured by the CPI only if it occurs because of changes in consumers' tastes and preferences.
C) is always captured by the CPI.
D) is never captured by the CPI.

Question 24

The table shown displays CPI data for 2015 to 2019. Between 2015 and 2019, the cost of living:

A) increased 11.6 percent.
B) increased 6 percent.
C) decreased 11.6 percent.
D) increased 10.4 percent.

Question 25

Which of the following is not a reason for changes in consumption patterns over time?

A) Substitution
B) Hedonic price adjustment
C) Innovation
D) Consumer preferences

Question 26

The CPI-U does not include goods consumed by:

A) the unemployed.
B) the retired.
C) persons in prison.
D) All of these are excluded from the CPI-U.

Question 27

The CPI measures changes in the price level for urban consumers because this allows the BLS to:

A) measure changes in the prices of the most expensive goods.
B) track price changes in larger markets.
C) measure price changes more frequently.
D) capture the consumption habits of the largest group of people.

Question 28

The CPI attempts to:

A) balance out the consumption of different types of people in different life stages.
B) balance out the consumption of different types of people in different life situations.
C) capture an average across a very large group of U.S. consumers.
D) All of these are true.

Question 29

The CPI is based on an:

A) average of the goods and services purchased by urban consumers.
B) average of the goods and services purchased by rural consumers.
C) average of the two baskets of goods and services purchased by both urban and rural consumers.
D) aggregated average meant to reflect the statistical average consumption.

Question 30

Suppose the base year of the CPI is 2017, and the CPI calculated for 2019 was 102. What is the correct interpretation of this number?

A) The cost of living for a typical consumer decreased by 2 percent since 2017.
B) The cost of living for a typical consumer increased by 1.9 percent since 2017.
C) The cost of living for a typical consumer is 2 percent higher than it was in 2017.
D) The cost of living is unchanged; the CPI does not measure changes in the price level.

Question 31

Product innovation:

A) presents a problem when calculating the CPI because the market basket is fixed.
B) causes the basket of goods used to calculate CPI to be updated immediately.
C) causes the CPI to be overestimated, because it makes goods more expensive.
D) isn't factored into the CPI at all.

Question 32

Which of the following situations is an example of substitution?

A) At the same price, consumers spend more money on watermelons in the summer and substitute apples in the fall.
B) Consumers buy more T-bone steaks when the price of filet mignon increases.
C) A grocery store chain decides to take a weak-selling good off the shelves.
D) Consumers unsubscribe from HBO's streaming service after "Game of Thrones" ends.

Question 33

When the CPI is less than 100:

A) the cost of living has increased.
B) the cost of living is lower than the base year.
C) the cost of living is unchanged.
D) we cannot make assumptions about the cost of living without more information.

Question 34

The consumer price index (CPI):

A) measures the increase in the cost of the market basket relative to the cost in a given base year.
B) is always 100 in the final year of measurement.
C) helps us understand why current production compares with the cost of living at some time in the past.
D) is a perfect measure of how prices change for all goods and services in the economy.

Question 35

One of the biggest challenges in calculating the CPI is:

A) determining which goods to include in the market basket so that it accurately reflects the purchasing decisions of the largest group of people.
B) comparing changes in the U.S. CPI against changes in the price levels of other countries.
C) gathering prices for the goods traded on the black market.
D) adjusting for seasonal variations in prices.

Question 36

The table shown displays CPI data for 2015 to 2019. What can be said about the cost of living in 2016?

A) The cost of living increased 5.3 percent from the previous year.
B) The cost of living increased 5.0 percent from the previous year.
C) No cost of living comparisons can be made, as 2016 is the base year.
D) The cost of living did not change, because 2016 is the base year.

Question 37

One problem with keeping the CPI basket fixed is it:

A) doesn't accurately isolate price changes from behavior changes.
B) doesn't allow for changes in people's preferences over time.
C) can't properly predict when prices will change.
D) doesn't really capture what a typical household may purchase in a base year.

Question 38

The table shown displays CPI data for 2015 to 2019. Which year is most likely being used for the base year?

A) 2015
B) 2016
C) 2017
D) 2018

Question 39

As new goods and services become available, the basket of goods used to calculate the CPI:

A) immediately changes to reflect the new goods and services.
B) will change once 75 percent of urban consumers use the new goods and services.
C) does not change to reflect the new goods and services, in order to remain stable.
D) is periodically updated in order to reflect the new goods and services.

Question 40

The consumer price index is calculated by the:

A) Bureau of Labor Statistics.
B) Congressional Budget Office.
C) National Bureau of Economic Research.
D) Social Security Office.

Question 41

When the CPI increases from one year to the next:

A) inflation has occurred.
B) deflation has occurred.
C) there has been no change in the overall price level.
D) it is hard to measure the impact this has on the general standard of living.

Question 42

The PPI is considered a good predictor of future consumer prices because increases in input prices:

A) eventually make it to consumers when they buy the final product.
B) are accounted for in the PPI, which then automatically adjusts the CPI.
C) tend to immediately translate into changes in the wage rate.
D) are used by consumers to make purchasing decisions.

Question 43

The inflation rate:

A) calculates the percentage change in the overall price level.
B) describes the amount an economy can grow if the factors of production are used efficiently.
C) measures the rate of increase in the cost of imported goods.
D) cannot be accurately measured with the CPI.

Question 44

Regardless of the index used:

A) inflation is measured as a percent increase in the index from one year to the next.
B) the same results for inflation are reached, so each index is equally useful.
C) the measurement of inflation is the same, so the index that is easiest to calculate is often used.
D) an accurate picture is portrayed regarding how prices for all consumer goods and services change from year to year.

Question 45

The table shown displays CPI data for 2015 to 2019. What can be said about the rate of inflation over these dates?

A) Deflation occurred until 2017, then inflation occurred.
B) Deflation occurred until 2019, then inflation occurred.
C) Inflation occurred every year from 2015 to 2019.
D) Inflation was highest from 2015 to 2016.

Question 46

Which statement about the PPI is true?

A) The PPI is a good predictor of future consumer prices because increases in input prices eventually make it back to consumers.
B) The PPI is more stable than the CPI over time.
C) The PPI only measures the changes of input prices for firms that manufacture goods abroad.
D) The PPI is the main indicator used by the Federal Reserve to track changes in the price level.

Question 47

When the CPI increases from one year to the next:

A) the cost of living has decreased.
B) deflation has occurred.
C) more money must be spent to buy the same amount of goods as the previous year.
D) All of these are true.

Question 48

Which of the following goods would be included in the producer price index?

A) Gasoline
B) Apples
C) Books
D) None of these would be included in the PPI.

Question 49

Which of the following goods would be included in the producer price index?

A) Industrial machinery
B) Sriracha hot sauce
C) Spaghetti
D) All of these would be included in the PPI.

Question 50

While the CPI focuses on changes to prices for consumers, the PPI:

A) measures the prices of goods and services purchased by domestic firms.
B) measures the prices of goods and services purchased by firms abroad.
C) looks specifically at the price changes that affect the government.
D) looks specifically at the price changes that affect farmers.

Question 51

The table shown displays CPI data for 2015 to 2019. What was the rate of inflation from 2015 to 2016?

A) 5.32 percent
B) 5.05 percent
C) 5.00 percent
D) 6.00 percent

Question 52

Hedonic price adjustment:

A) measures changes in the quality of a product to get a more accurate picture of price changes.
B) measures how much enjoyment a consumer receives from a particular product.
C) only measures the price changes of "bad" goods, such as alcohol or cigarettes.
D) estimates price changes of similar goods to control for quality differences between them.

Question 53

Headline inflation can be _______ volatile than core inflation, and it represents a _______ complete picture of inflation.

A) more; less
B) more; more
C) less; less
D) less; more

Question 54

Economists calculate many price indexes:

A) to capture a complete picture of how price changes are affecting the economy.
B) to see how the prices of different groups of goods are changing.
C) to measure how different groups of people in the economy are being affected by changing prices.
D) All of these are true.

Question 55

Headline inflation measures price changes:

A) for the entire market basket of the average urban consumer.
B) using the producer price index.
C) for the entire market basket, but with food and energy costs taken out of the basket.
D) using the retail price index.

Question 56

The index that measures the prices of goods and services purchased by firms is called the:

A) producer price index.
B) purchasing power index.
C) consumer price index.
D) retail sales index.

Question 57

Core inflation is an important statistic because:

A) food and energy costs fluctuate frequently and can distort actual changes in the cost of living.
B) the prices of retail consumption items fluctuate frequently and can distort actual changes in the cost of living.
C) it is measured more regularly than headline inflation.
D) the prices of durable goods fluctuate more frequently than the prices of nondurable goods and can distort actual changes in the cost of living.

Question 58

Core inflation measures price changes:

A) for the entire market basket of the average urban consumer.
B) using the producer price index.
C) for the entire market basket, but with food and energy costs taken out of the basket.
D) using the retail price index.

Question 59

Inflation is measured by examining the percent increase in _______ from one year to the next.

A) the CPI
B) the price of gas
C) GDP growth
D) nominal GDP

Question 60

The table shown displays CPI data for 2015 to 2019. What was the rate of inflation from 2018 to 2019?

A) 12.5 percent
B) 11.1 percent
C) 13 percent
D) 17 percent

Question 61

The table shown displays yearly salaries and the CPI across five decades. What is the 2009 value of the 1979 salary?

A) $127,828
B) $14,643
C) $57,824
D) $504,766

Question 62

The GDP deflator:

A) measures price changes for everything produced in the country.
B) may include goods produced abroad.
C) uses a market basket to track price changes.
D) is measured in the same way as the PPI.

Question 63

Which of the following statements is true about inflation?

A) If all wages rise at the same rate as the price level, then purchasing power is not affected.
B) Increases in the price level are always offset by changes in production.
C) Keeping prices constant is the only way to ensure increasing purchasing power over time.
D) If all prices decline, the purchasing power of everyone declines.

Question 64

Social Security payments were _______ adjusted for inflation, causing the real value to retirees to _______ over time.

A) not originally; increase
B) not originally; decrease
C) initially; increase
D) initially; decrease

Question 65

We translate nominal income in any past year into constant, real dollars to:

A) compare changes in purchasing power over time.
B) see what an income earned in the past would be equivalent to today.
C) understand how the purchasing power of a given amount of money changes over time.
D) All of these are true.

Question 66

According to a central theory in macroeconomics:

A) GDP will always increase over time.
B) the change in prices as measured by the CPI always matches the change in the price level as measured by the PPI.
C) wages naturally change to offset changes in the price level.
D) changes in the economy can always be predicted with models.

Question 67

In 1976, the cost of a ticket to see a movie in the theater was $4. In 2019, a movie ticket cost $9. If the CPI is 56 for 1979 and 228 for 2019, to find the real 2019 value of a 1976 movie ticket we would multiply its nominal value in 1976 by which ratio?

A) 56/228
B) 228/56
C) 9/5
D) 5/9

Question 68

In practice, the three measurements of inflation, the CPI, PPI, and GDP deflator:

A) are used to track price changes at different points in the year.
B) often show drastically different pictures of inflation in the economy.
C) focus on different parts of the economy.
D) only differ when price changes are higher than average.

Question 69

When Social Security checks were first issued, the nominal amount:

A) stayed the same for the life of the payments.
B) increased by 5 percent every 3 months.
C) increased by 10 percent every 3 years.
D) stayed 3 percent above the poverty level for all recipients.

Question 70

Real figures represent _______ value, while nominal figures show _______ value.

A) past; constant
B) constant; past
C) constant; current
D) current; constant

Question 71

The first recipients of unindexed Social Security checks:

A) were employed by the government.
B) received less than what was legislated by Congress.
C) grew poorer over time, because the payments were nominal amounts.
D) All of these are true.

Question 72

The real value of any variable is its nominal value:

A) adjusted for inflation.
B) holding the base constant.
C) adjusted for income.
D) holding the basket constant.

Question 73

The table shown displays yearly salaries and the CPI across five decades. If the 1989 salary in 2009 dollars is $147,951, how do we interpret this finding?

A) A person with a salary of $85,539 in 1989 could have purchased the same amount of goods as someone earning $147,951 in 2009 could have bought.
B) It would take $147,951 in 2009 to buy the same amount of goods that someone purchased in 1989 with $85,529.
C) A person earning $85,529 in 1989 would have been as well off as a person earning $147,951 in 2009.
D) All of these interpretations are correct.

Question 74

While the CPI _______, the GDP deflator _______.

A) tracks changes in prices using a market basket; measures price changes for everything produced in the economy
B) tracks changes in prices using a market basket; measures price changes for all goods sold in the economy, including goods produced abroad
C) measures price changes for everything produced in the economy; tracks changes in prices using a market basket
D) measures price changes for everything produced in the economy; tracks changes in prices using a market basket, including goods produced abroad but purchased domestically

Question 75

In 1976, the cost of a ticket to see a movie in the theater was $4. In 2019, a movie ticket cost $9. If the CPI is 56 for 1976 and 228 for 2019, then we could say the cost of a 1976 movie ticket in 2019 is _______, which indicates that the price of movie tickets _______.

A) $16.29; has not increased as much as general inflation
B) $16.29; is relatively higher in 2019 than it was in 1976
C) $2.21; has not increased as much as general inflation
D) $2.21; is relatively higher in 2019 than it was in 1976

Question 76

To determine the income your grandparents would have to earn today in order to have purchasing power equivalent to their income in 1969, you would:

A) translate their nominal income in 1969 into constant, real dollars of today.
B) translate their nominal income today into 1969 dollars.
C) take a ratio of their income today with their income from 1969.
D) look at how the market basket changed between 1969 and today.

Question 77

The table shown displays yearly salaries and the CPI across five decades. Calculate the value of the 1999 salary in 2009 dollars. How does that salary compare to the 2009 salary shown in the table?

A) Although the nominal salary has increased, the amount of purchasing power has remained the same from 1999 to 2009.
B) The increase in salary from 1999 to 2009 was larger than inflation during that period.
C) The 1999 salary had a higher real value in 2009.
D) All of these are true.

Question 78

The table shown displays yearly salaries and the CPI across five decades. What is the 1999 salary in 2009 dollars?

A) $174,136
B) $132,692
C) $105,292
D) $170,844

Question 79

The table shown displays yearly salaries and the CPI across five decades. Suppose your father tells you he earned a yearly salary of $45,000 in 1980. This salary figure is the:

A) nominal value of his salary in 1980.
B) real value of his salary in 1980.
C) value of his 1980 salary adjusted to 2009 dollars.
D) value of his 1980 salary adjusted for inflation.

Question 80

The table shown displays yearly salaries and the CPI across five decades. How can we compare the real value of the 1979 salary to the salary earned in 2019?

A) The 1979 salary must be subtracted from the 2019 salary as shown in the table.
B) The 2019 salary must be put into real 2019 terms to compare it to the 1979 salary.
C) Both salaries must be put into real dollars in the same year for comparison.
D) There is no real way to compare the two salaries without more information.