Deck 11: Measuring the Cost of Living

Question 1

When the consumer price index falls, the typical family

A) has to spend more dollars to maintain the same standard of living.
B) can spend fewer dollars to maintain the same standard of living.
C) finds that its standard of living is not affected.
D) can save less because they do not need to offset the effects of rising prices.

Answer 1

B

Question 2

The inflation rate you are likely to hear on the nightly news is calculated from

A) the GDP deflator.
B) the CPI.
C) the Dow Jones Industrial Average.
D) the unemployment rate.

Answer 2

B

Question 3

Which of the following agencies calculates the CPI?

A) the National Price Board
B) the Department Of Weight and Measurements
C) the Bureau of Labor Statistics
D) the Congressional Budget Office

Answer 3

C

Question 4

The consumer price index is used to

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

Question 5

Which of the following statements is correct?

A) The CPI can be used to compare dollar figures from different points in time.
B) The percentage change in the CPI is a measure of the inflation rate, but the percentage change in the GDP deflator is not a measure of the inflation rate.
C) Compared to the consumer price index CPI), the GDP deflator is the more common gauge of inflation.
D) The GDP deflator better reflects the goods and services bought by consumers than does the CPI.

Question 6

The economy's inflation rate is the

A) price level in the current period.
B) change in the price level from the previous period.
C) change in the gross domestic product from the previous period.
D) percentage change in the price level from the previous period.

Question 7

When the overall level of prices in the economy is increasing, economists say that the economy is experiencing

A) economic growth.
B) stagflation.
C) inflation.
D) deflation.

Question 8

The CPI is a measure of the overall cost of

A) the inputs purchased by a typical producer.
B) the goods and services purchased by a typical consumer.
C) the goods and services produced in the economy.
D) the stocks on the New York Stock Exchange.

Question 9

Which entity within the U.S. government is responsible for computing and reporting the CPI?

A) the Department of Commerce
B) the Department of Labor
C) the General Accounting Office
D) the Council of Economic Advisers

Question 10

The CPI is a measure of the overall cost of the goods and services bought by

A) a typical consumer, and the CPI is computed and reported by the Department of the Treasury.
B) typical consumers and typical business firms, and the CPI is computed and reported by the Department of the Treasury.
C) a typical consumer, and the CPI is computed and reported by the Bureau of Labor Statistics.
D) typical consumers and typical business firms, and the CPI is computed and reported by the Bureau of Labor Statistics.

Question 11

The CPI is a measure of the overall cost of the goods and services bought by

A) a typical firm.
B) the government.
C) a typical consumer.
D) All of the above are correct.

Question 12

Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best baseball players can earn more than 400 times as much as Babe Ruth earned in 1931. However, prices have also risen since 1931. We can conclude that

A) the best baseball players today are about 400 times better off than Babe Ruth was in 1931.
B) because prices have also risen, the standard of living of baseball stars hasn't changed since 1931.
C) one cannot make judgments about changes in the standard of living based on changes in prices and changes in incomes.
D) one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931.

Question 13

When the consumer price index rises, the typical family

A) has to spend more dollars to maintain the same standard of living.
B) can spend fewer dollars to maintain the same standard of living.
C) finds that its standard of living is not affected.
D) can offset the effects of rising prices by saving more.

Question 14

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because

A) the CPI is easier to measure.
B) the CPI is calculated more often than the GDP deflator is.
C) the CPI better reflects the goods and services bought by consumers.
D) the GDP deflator cannot be used to gauge inflation.

Question 15

Which of the following is correct?

A) The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers.
B) The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers.
C) The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers.
D) The GDP deflator is more commonly used as a gauge of inflation than the CPI is.

Question 16

The term inflation is used to describe a situation in which

A) the overall level of prices in the economy is increasing.
B) incomes in the economy are increasing.
C) stock-market prices are rising.
D) the economy is growing rapidly.

Question 17

Which of the following is not correct?

A) The consumer price index gives economists a way of turning dollar figures into meaningful measures of purchasing power.
B) The consumer price index is used to monitor changes in the cost of living over time.
C) The consumer price index is used by economists to measure the inflation rate.
D) The consumer price index is used to measure the quantity of goods and services that the economy is producing.

Question 18

The consumer price index is used to

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 19

Economists use the term inflation to describe a situation in which

A) some prices are rising faster than others.
B) the economy's overall price level is rising.
C) the economy's overall price level is high, but not necessarily rising.
D) the economy's overall output of goods and services is rising faster than the economy's overall price level.

Question 20

The inflation rate is defined as the

A) price level in an economy.
B) change in the price level from one period to the next.
C) percentage change in the price level from the previous period.
D) price level minus the price level from the previous period.

Question 21

In the CPI, goods and services are weighted according to

A) how long a market has existed for each good or service.
B) the extent to which each good or service is regarded by the government as a necessity.
C) how much consumers buy of each good or service.
D) the number of firms that produce and sell each good or service.

Question 22

The inflation rate is calculated

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 23

In the calculation of the CPI, tea is given greater weight than beer if

A) the price of tea is higher than the price of beer.
B) it costs more to produce tea than it costs to produce beer.
C) tea is more readily available than beer to the typical consumer.
D) consumers buy more tea than beer.

Question 24

If 2010 is the base year, then the inflation rate in 2015 equals

A)
B)
C)
D)

Question 25

Reports on the current consumer price index are released every

A) quarter.
B) two weeks.
C) month.
D) week.

Question 26

Consider a small economy in which consumers buy only two goods: apples and pears. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that

A) the number of apples bought by the typical consumer is equal to the number of pears bought by the typical consumer in each year.
B) neither the number of apples nor the number of pears bought by the typical consumer changes from year to year.
C) the percentage change in the price of apples is equal to the percentage change in the price of pears from year to year.
D) neither the price of apples nor the price of pears changes from year to year.

Question 27

To calculate the CPI, the Bureau of Labor Statistics uses

A) the prices of all goods and services produced domestically.
B) the prices of all final goods and services.
C) the prices of all consumer goods.
D) the prices of some consumer goods.

Question 28

The CPI is calculated

A) monthly by the Department of Commerce.
B) monthly by the Bureau of Labor Statistics.
C) quarterly by the Department of Commerce.
D) quarterly by the Bureau of Labor Statistics.

Question 29

When computing the cost of the basket of goods and services purchased by a typical consumer, which of the following changes from year to year?

A) the quantities of the goods and services purchased
B) the prices of the goods and services
C) the goods and services making up the basket
D) All of the above are correct.

Question 30

For any given year, the CPI is the price of the basket of goods and services in the

A) given year divided by the price of the basket in the base year, then multiplied by 100.
B) given year divided by the price of the basket in the previous year, then multiplied by 100.
C) base year divided by the price of the basket in the given year, then multiplied by 100.
D) previous year divided by the price of the basket in the given year, then multiplied by 100.

Question 31

In computing the consumer price index, a base year is chosen. Which of the following statements about the base year is correct?

A) The base year is always the first year among the years for which computations are being made.
B) It is necessary to designate a base year only in the simplest case of two goods; in more realistic cases, it is not necessary to designate a base year.
C) The value of the consumer price index is always 100 in the base year.
D) The base year is always the year in which the cost of the basket was highest among the years for which computations are being made.

Question 32

The inflation rate is calculated

A) by determining the change in the price index from the preceding period.
B) by determining the change in the price index from the base year.
C) by determining the percentage change in the price index from the preceding period.
D) by determining the percentage change in the price index from the base year.

Question 33

In calculating the CPI, a fixed basket of goods and services is used. The quantities of the goods and services in the fixed basket are determined by

A) surveying consumers.
B) surveying sellers of the goods and services.
C) working backward from the rate of inflation to arrive at imputed values for those quantities.
D) arbitrary choices made by federal government employees.

Question 34

The steps involved in calculating the consumer price index and the inflation rate, in order, are as follows:

A) Choose a base year, update the basket, find the prices, estimate the basket's cost, compute the index, and compute the inflation rate.
B) Choose a base year, fix the basket, find the prices, compute the inflation rate, compute the basket's cost, and compute the index.
C) Fix the basket, find the prices, compute the basket's cost, choose a base year and compute the index, and compute the inflation rate.
D) Fix the basket, find the prices, compute the inflation rate, compute the basket's cost, and choose a base year and compute the index.

Question 35

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

A) a random sample of all goods and services produced in the economy
B) the goods and services that are typically bought by consumers as determined by government surveys
C) only food, clothing, transportation, entertainment, and education
D) the least expensive and the most expensive goods and services in each major category of consumer expenditures

Question 36

If 2012 is the base year, then the inflation rate for 2012 equals

A)
B)
C)
D)

Question 37

Consider a small economy in which consumers buy only two goods: pretzels and cookies. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that

A) the percentage change in the price of pretzels is equal to the percentage change in the price of cookies from year to year.
B) the number of pretzels bought by the typical consumer is equal to the number of cookies bought by the typical consumer in each year.
C) neither the number of pretzels nor the number of cookies bought by the typical consumer changes from year to year.
D) neither the price of pretzels nor the price of cookies changes from year to year.

Question 38

In the calculation of the CPI, books are given greater weight than magazines if

A) consumers buy more books than magazines.
B) the price of books is higher than the price of magazines.
C) it costs more to produce books than it costs to produce magazines.
D) books are more readily available than magazines to the typical consumer.

Question 39

Which of the following agencies calculates the CPI?

A) Bureau of Labor Statistics
B) Congressional Budget Office
C) Federal Reserve
D) Bureau of National Price Standards and Records

Question 40

The CPI is calculated

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

Question 41

Suppose a basket of goods and services has been selected to calculate the CPI. In 2002, the basket's cost was $80; in 2008, the basket's cost was $92; and in 2010, the basket's cost was $108. The base year must be

A) 2002.
B) 2008.
C) one of the years between 2008 and 2010.
D) The base year cannot be determined from the given information.

Question 42

The price index was 136 in one year and 142 in the next year. What was the inflation rate between the two years?

A) 1.04 percent
B) 4.41 percent
C) 6.00 percent
D) 42.00 percent

Question 43

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $50; in 2014, the basket's cost was $51; and in 2016, the basket's cost was $52. The value of the CPI in 2014 was

A) 98.0.
B) 102.0.
C) 104.0.
D) 151.0.

Question 44

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $77; in 2013, the basket's cost was $82; and in 2014, the basket's cost was $90. The value of the CPI in 2014 was

A) 109.8 and the inflation rate was 9.8%.
B) 109.8 and the inflation rate was 16.9%.
C) 116.9 and the inflation rate was 9.8%.
D) 116.9 and the inflation rate was 16.9%.

Question 45

If the consumer price index was 96 in 2012, 100 in 2013, and 102 in 2014, then the base year must be

A) 2012.
B) 2013.
C) 2014.
D) The base year cannot be determined from the given information.

Question 46

Suppose a basket of goods and services has been selected to calculate the CPI and 2014 has been selected as the base year. In 2012, the basket's cost was $50; in 2014, the basket's cost was $52; and in 2016, the basket's cost was $58. The value of the CPI in 2016 was

A) 106.0.
B) 104.0.
C) 111.5.
D) 116.0.

Question 47

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been chosen as the base year. In 2012, the basket's cost was $80.00; in 2013, the basket's cost was $84; and in 2014, the basket's cost was $87.60. The value of the CPI was

A) 100 in 2012.
B) 105 in 2013.
C) 109.5 in 2014.
D) All of the above are correct.

Question 48

From 2009 to 2010, the CPI for education increased from 279.3 to 281.8. What was the inflation rate for education between 2009 and 2010?

A) 0.9%
B) 9.0%
C) 2.5%
D) 90%

Question 49

The price index was 120 in 2012 and 126 in 2013. What was the inflation rate?

A) 5.0 percent
B) 6.0 percent
C) 7.2 percent
D) 105 percent

Question 50

The price index was 220 in one year and 238.2 in the next year. What was the inflation rate?

A) 8.3 percent
B) 108.3 percent
C) 4.8 percent
D) 38.2 percent

Question 51

Table 24-1
The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year.

Refer to Table 24-1. What belongs in space C?

A) 120
B) 25%
C) 8.7%
D) 12%

Question 52

Which of the following is the correct formula for calculating the consumer price index?

A)
B)
C)
D)

Question 53

For an imaginary economy, the value of the consumer price index was 140 in 2013 and 146.5 in 2014. The economy's inflation rate for 2014 was

A) 4.6 percent.
B) 6.5 percent.
C) 4.4 percent.
D) 46.5 percent.

Question 54

Which of the following is the correct formula for calculating the inflation rate?

A)
B)
C)
D)

Question 55

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $50; in 2014, the basket's cost was $52; and in 2016, the basket's cost was $55. The value of the CPI in 2016 was

A) 90.9.
B) 104.0.
C) 105.0.
D) 110.0.

Question 56

If the consumer price index was 100 in the base year and 106 in the following year, then the inflation rate was

A) 1.06 percent.
B) 6 percent.
C) 10.6 percent.
D) 106 percent.

Question 57

If the consumer price index changes from 125 in September to 150 in October, what is the rate of inflation?

A) 45.5%
B) 20.0%
C) 16.7%
D) 9.1%

Question 58

From 2013 to 2014, the CPI for medical care increased from 150 to 159. What was the inflation rate for medical care?

A) 5.7 percent
B) 6.0 percent
C) 9.0 percent
D) 59.0 percent

Question 59

Suppose a basket of goods and services has been selected to calculate the CPI and 2009 has been selected as the base year. In 2007, the basket's cost was $64; in 2009, the basket's cost was $68; and in 2011, the basket's cost was $70. The value of the CPI in 2011 was

A) 97.14.
B) 100.10.
C) 102.94.
D) 109.38.

Question 60

Suppose a basket of goods and services has been selected to calculate the CPI and 2014 has been selected as the base year. In 2013, the basket's cost was $80; in 2014, the basket's cost was $86; and in 2015, the basket's cost was $90. The value of the CPI in 2015 was

A) 112.5 and the inflation rate was 12.5%.
B) 112.5 and the inflation rate was 4.6%.
C) 104.6 and the inflation rate was 4.6%.
D) 104.6 and the inflation rate was 12.5%.

Question 61

Table 24-1
The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year.

Refer to Table 24-1. What belongs in space E?

A) 60%
B) 6%
C) 3.9%
D) 6.7%

Question 62

Between October 2014 and October 2015, the CPI in Canada rose from 120 to 124 and the CPI in Mexico rose from 210 to 229.1. What were the inflation rates for Canada and Mexico over this one-year period?

A) 3.3 percent for Canada and 9.1 percent for Mexico
B) 3.3 percent for Canada and 8.3 percent for Mexico
C) 3.2 percent for Canada and 9.1 percent for Mexico
D) 3.2 percent for Canada and 8.3 percent for Mexico

Question 63

The market basket used to calculate the CPI in Aquilonia is 4 loaves of bread, 6 gallons of milk, 2 shirts, and 2 pairs of pants. In 2005, bread cost $1.00 per loaf, milk cost $1.50 per gallon, shirts cost $6.00 each, and pants cost $10.00 per pair. In 2006, bread cost $1.50 per loaf, milk cost $2.00 per gallon, shirts cost $7.00 each, and pants cost $12.00 per pair. Using 2005 as the base year, what was Aquilonia's inflation rate in 2006?

A) 4 percent
B) 11 percent
C) 19.6 percent
D) 24.4 percent

Question 64

If the price index was 90 in year 1, 100 in year 2, and 95 in year 3, then the economy experienced

A) 10 percent inflation between years 1 and 2, and 5 percent inflation between years 2 and 3.
B) 10 percent inflation between years 1 and 2, and 5 percent deflation between years 2 and 3.
C) 11.1 percent inflation between years 1 and 2, and 5 percent inflation between years 2 and 3.
D) 11.1 percent inflation between years 1 and 2, and 5 percent deflation between years 2 and 3.

Question 65

Table 24-1
The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year.

Refer to Table 24-1. What belongs in space A?

A) 14
B) 150
C) 144
D) 154

Question 66

Suppose the price index was 110 in 2004, 120 in 2005, and 125 in 2006. Which of the following statements is correct?

A) The economy experienced inflation between 2004 and 2005 and between 2005 and 2006.
B) The inflation rate was positive between 2004 and 2005, and it was negative between 2005 and 2006.
C) The inflation rate was higher between 2005 and 2006 than it was between 2004 and 2005.
D) All of the above are correct.

Question 67

Table 24-1
The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year.

Refer to Table 24-1. What belongs in space D?

A) 12%
B) 154
C) 40%
D) 15%

Question 68

In a particular economy, the price index was 120 in 2012 and 130 in 2013. Which of the following statements is correct?

A) The economy experienced a rising price level between 2012 and 2013.
B) The economy experienced a higher inflation rate between 2012 and 2013 than it had experienced between 2011 and 2012.
C) The inflation rate between 2012 and 2013 was 10 percent.
D) The base year is 2011.

Question 69

The price index was 170 in the first year, 180 in the second year, and 195 in the third year. The inflation rate was about

A) 5.6 percent between the first and second years, and 7.7 percent between the second and third years.
B) 5.9 percent between the first and second years, and 8.3 percent between the second and third years.
C) 10 percent between the first and second years, and 15 percent between the second and third years.
D) 80 percent between the first and second years, and 95 percent between the second and third years.

Question 70

If the CPI was 125 this year and 120 last year, then

A) the cost of the CPI basket of goods and services increased by 4.2 percent this year.
B) the price level increased by 4.2 percent this year.
C) the inflation rate for this year was 4.2 percent.
D) All of the above are correct.

Question 71

In an imaginary economy, consumers buy only sandwiches and magazines. The fixed basket consists of 20 sandwiches and 30 magazines. In 2006, a sandwich cost $4 and a magazine cost $2. In 2007, a sandwich cost $5. The base year is 2006. If the consumer price index in 2007 was 125, then how much did a magazine cost in 2007?

A) $0.83
B) $2.25
C) $2.50
D) $3.00

Question 72

In an imaginary economy, consumers buy only sandwiches and magazines. The fixed basket consists of 20 sandwiches and 30 magazines. In 2006, a sandwich cost $4 and a magazine cost $2. In 2007, a sandwich cost $5. The base year is 2006. If the inflation rate in 2007 was 16 percent, then how much did a magazine cost in 2007?

A) $1.87
B) $2.08
C) $2.32
D) $3.00

Question 73

In an imaginary economy, consumers buy only hot dogs and hamburgers. The fixed basket consists of 10 hot dogs and 6 hamburgers. A hot dog cost $3 in 2006 and $5.40 in 2007. A hamburger cost $5 in 2006 and $6 in 2007. Which of the following statements is correct?

A) When 2006 is chosen as the base year, the consumer price index is 90 in 2007.
B) When 2006 is chosen as the base year, the inflation rate is 150 percent in 2007.
C) When 2007 is chosen as the base year, the consumer price index is 100 in 2006.
D) When 2007 is chosen as the base year, the inflation rate is 50 percent in 2007.

Question 74

The price index was 150 in the first year, 142.5 in the second year, and 138.2 in the third year. The economy experienced

A) 5.0 percent deflation between the first and second years, and 3.0 percent deflation between the second and third years.
B) 7.5 percent deflation between the first and second years, and 4.3 percent deflation between the second and third years.
C) 5.3 percent inflation between the first and second years, and 4.1 percent inflation between the second and third years.
D) 7.5 percent inflation between the first and second years, and 4.3 percent inflation between the second and third years.

Question 75

Which of the following changes in the price index produces the greatest rate of inflation: 80 to 100, 100 to 120, or 150 to 170?

A) 80 to 100
B) 100 to 120
C) 150 to 170
D) All of these changes produce the same rate of inflation.

Question 76

Which of the following changes in the price index produces the greatest rate of inflation: 106 to 112, 112 to 118, or 118 to 124?

A) 106 to 112
B) 112 to 120
C) 118 to 126
D) All of these changes produce the same rate of inflation.

Question 77

If the CPI was 110 this year and 100 last year, then

A) the cost of the CPI basket of goods and services increased by 10 percent this year.
B) the price level increased by 110 percent this year.
C) the inflation rate for this year was 10 percent higher than the inflation rate for last year.
D) All of the above are correct.

Question 78

Which of the following changes in the price index produces the greatest rate of inflation: 12 to 15, 20 to 24, or 30 to 35?

A) 12 to 15
B) 20 to 24
C) 30 to 35
D) All of these changes produce the same rate of inflation.

Question 79

The price index was 150 in the first year, 160 in the second year, and 165 in the third year. Which of the following statements is correct?

A) The price level was higher in the second year than in the first year, and it was higher in the third year than in the second year.
B) The inflation rate was positive between the first and second years, and it was positive between the second and third years.
C) The inflation rate was lower between the second and third years than it was between the first and second years.
D) All of the above are correct.

Question 80

Which of the following changes in the price index produces the greatest rate of inflation: 100 to 110, 150 to 165, or 180 to 198?

A) 100 to 110
B) 150 to 165
C) 180 to 198
D) All of these changes produce the same rate of inflation.