Question 1

When the quality of a good improves while its price remains the same, the purchasing power of the dollar

Accepted Answer

A)  increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for.
B)  increases, so the CPI understates the change in the cost of living if the quality change is not accounted for.
C)  decreases, so the CPI overstates the change in the cost of living if the quality change is not accounted for.
D)  decreases, so the CPI understates the change in the cost of living if the quality change is not accounted for.E) B) and C)
F) A) and B)

Question 2

In general, if a consumer good is produced domestically and consumed domestically, an increase in its price will have which of the following effects?

Accepted Answer

A)  The consumer price index will increase relatively more than will the GDP deflator.
B)  The consumer price index and the GDP deflator will increase by the same amount.
C)  The consumer price index will increase relatively less than will the GDP deflator.
D)  One cannot generalize about the increase in the consumer price index relative to the increase in the GDP deflator.E) A) and D)
F) All of the above

Question 3

Recent changes in methods used to compute the CPI have made the

Accepted Answer

A)  upward bias in the CPI inflation rate more severe than it used to be.
B)  upward bias in the CPI inflation rate less severe than it used to be.
C)  downward bias in the CPI inflation rate more severe than it used to be.
D)  downward bias in the CPI inflation rate less severe than it used to be.E) None of the above
F) C) and D)

Question 4

If the nominal interest rate is 8 percent and the rate of inflation is 3 percent, then the real interest rate is

Accepted Answer

A)  -5 percent.
B)  1.67 percent.
C)  5 percent.
D)  11 percent.E) B) and C)
F) A) and D)

Question 5

Table 24-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. 
-Refer to Table 24-12. Suppose Will's 2009 food expenditures in 2011 dollars amounted to $5,670. Suppose also that the real interest rate in 2011 was 3 percent. Then, in 2011,

Accepted Answer

A)  the inflation rate was 8 percent and the nominal interest rate was 5 percent.
B)  the inflation rate was 9 percent and the nominal interest rate was 6 percent.
C)  the inflation rate was 8 percent and the nominal interest rate was 11 percent.
D)  the inflation rate was 9 percent and the nominal interest rate was 12 percent.E) All of the above
F) A) and B)

Question 6

Pauline is offered a Job in Minneapolis that pays $80,000. She is offered a similar job in Louisville that pays $71,200. Which pair of CPIs would ensure that the two salaries have the same purchasing power?

Accepted Answer

A)  90 in Minneapolis and 83 in Louisville
B)  90 in Minneapolis and 72 in Louisville
C)  100 in Minneapolis and 89 in Louisville
D)  105 in Minneapolis and 90 in LouisvilleE) A) and D)
F) All of the above

Question 7

By far the largest category of goods and services in the CPI basket is

Accepted Answer

A)  housing.
B)  transportation.
C)  education & communication.
D)  food & beverages.E) A) and B)
F) B) and C)

Question 8

Table 24-6
The table below pertains to Napandsnack, an economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs. 
-Refer to Table 24-6. If the base year is 2010, then the consumer price index was

Accepted Answer

A)  83.33 in 2009, 100.00 in 2010, and 96.67 in 2011.
B)  85.56 in 2009, 100.00 in 2010, and 102.22 in 2011.
C)  85.56 in 2009, 100.00 in 2010, and 96.67 in 2011.
D)  92.22 in 2009, 99.00 in 2010, and 95.22 in 2011.E) All of the above
F) B) and D)

Question 9

Table 24-4
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 24-4. If 2014 is the base year, then the consumer price index was

Accepted Answer

A)  75 in 2012, 92.8 in 2013, and 100 in 2014.
B)  75 in 2012, 93.2 in 2013, and 100 in 2014.
C)  247.5 in 2012, 307.5 in 2013, and 330 in 2014.
D)  210 in 2012, 260 in 2013, and 280 in 2014.E) B) and C)
F) None of the above

Question 10

Table 24-5
The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. 
-Refer to Table 24-5. If the base year is 2004, then the inflation rate in 2006 was

Accepted Answer

A)  44.4%.
B)  50%.
C)  62.5%.
D)  80%.E) A) and B)
F) A) and C)

Question 11

​Table 24-14
​
The following table shows some values of the Consumer Price Index and the corresponding inflation rates for 2012-2015.
​ 
-Refer to Table 24-14. The inflation rate in 2013 was approximately

Accepted Answer

A)  ​0.8%.
B)  ​1.5%.
C)  ​2.3%.
D)  ​3.4%.E) B) and D)
F) B) and C)

Question 12

The CPI is a measure of the overall cost of

Accepted Answer

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.E) B) and C)
F) A) and B)

Question 13

A 2009 Chevrolet model has more horsepower than the 2008 version and is included in the BLS basket of goods. BLS attempts to account for this change in the market basket by

Accepted Answer

A)  dropping the good from the basket.
B)  substituting in a different vehicle with the same horsepower as the 2008 model.
C)  adjusting the share of the market basket allocated to transportation.
D)  adjusting the price of the good to account for the quality change.E) B) and D)
F) B) and C)

Question 14

If the price of beef rises and consumers buy more chicken and less beef, what kind of bias does the consumer price index exhibit?

Accepted Answer

The answer of If the price of beef rises and...

Question 15

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?

Accepted Answer

A)  12%
B)  154
C)  40%
D)  15%E) A) and B)
F) A) and C)

Question 16

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If deflation was 5 percent during the year the money was deposited, then Bob's purchasing power has not changed.

Accepted Answer

A) True 
 B)False

Question 17

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?

Accepted Answer

A)  $1.87
B)  $2.08
C)  $2.32
D)  $3.00E) C) and D)
F) A) and B)

Question 18

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

Accepted Answer

A)  106.0.
B)  104.0.
C)  111.5.
D)  116.0.E) A) and C)
F) A) and B)

Question 19

Economists use the term inflation to describe a situation in which

Accepted Answer

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.E) A) and C)
F) A) and D)

Question 20

To which of the problems in the construction of the CPI is the invention of pocket-sized computers most relevant?

Accepted Answer

A)  substitution bias
B)  introduction of new goods
C)  unmeasured quality change
D)  income biasE) B) and C)
F) None of the above

Exam 24: Measuring the Cost of Living

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If deflation was 5 percent during the year the money was deposited, then Bob's purchasing power has not changed.

Correct Answer
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Recent changes in methods used to compute the CPI have made the

Correct Answer
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The CPI is a measure of the overall cost of

Correct Answer
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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?

Correct Answer
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By far the largest category of goods and services in the CPI basket is

Correct Answer
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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

Correct Answer
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Table 24-6 The table below pertains to Napandsnack, an economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs. -Refer to Table 24-6. If the base year is 2010, then the consumer price index was

Correct Answer
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If the nominal interest rate is 8 percent and the rate of inflation is 3 percent, then the real interest rate is

Correct Answer
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When the quality of a good improves while its price remains the same, the purchasing power of the dollar

Correct Answer
verified

A 2009 Chevrolet model has more horsepower than the 2008 version and is included in the BLS basket of goods. BLS attempts to account for this change in the market basket by

Correct Answer
verified

Table 24-5 The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. -Refer to Table 24-5. If the base year is 2004, then the inflation rate in 2006 was

Correct Answer
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If the price of beef rises and consumers buy more chicken and less beef, what kind of bias does the consumer price index exhibit?

Correct Answer
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Table 24-14 The following table shows some values of the Consumer Price Index and the corresponding inflation rates for 2012-2015. -Refer to Table 24-14. The inflation rate in 2013 was approximately

Correct Answer
verified

Economists use the term inflation to describe a situation in which

Correct Answer
verified

Pauline is offered a Job in Minneapolis that pays $80,000. She is offered a similar job in Louisville that pays $71,200. Which pair of CPIs would ensure that the two salaries have the same purchasing power?

Correct Answer
verified

To which of the problems in the construction of the CPI is the invention of pocket-sized computers most relevant?

Correct Answer
verified

In general, if a consumer good is produced domestically and consumed domestically, an increase in its price will have which of the following effects?

Correct Answer
verified

Correct Answer
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Table 24-4 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 24-4. If 2014 is the base year, then the consumer price index was

Correct Answer
verified

Correct Answer
verified

Exam 24: Measuring the Cost of Living

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If deflation was 5 percent during the year the money was deposited, then Bob's purchasing power has not changed.

Correct AnswerverifiedShow Answer

Recent changes in methods used to compute the CPI have made the

Correct AnswerverifiedShow Answer

The CPI is a measure of the overall cost of

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

By far the largest category of goods and services in the CPI basket is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Table 24-6 The table below pertains to Napandsnack, an economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs. -Refer to Table 24-6. If the base year is 2010, then the consumer price index was

Correct AnswerverifiedShow Answer

If the nominal interest rate is 8 percent and the rate of inflation is 3 percent, then the real interest rate is

Correct AnswerverifiedShow Answer

When the quality of a good improves while its price remains the same, the purchasing power of the dollar

Correct AnswerverifiedShow Answer

A 2009 Chevrolet model has more horsepower than the 2008 version and is included in the BLS basket of goods. BLS attempts to account for this change in the market basket by

Correct AnswerverifiedShow Answer

Table 24-5 The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. -Refer to Table 24-5. If the base year is 2004, then the inflation rate in 2006 was

Correct AnswerverifiedShow Answer

If the price of beef rises and consumers buy more chicken and less beef, what kind of bias does the consumer price index exhibit?

Correct AnswerverifiedShow Answer

​Table 24-14 ​ The following table shows some values of the Consumer Price Index and the corresponding inflation rates for 2012-2015. ​ -Refer to Table 24-14. The inflation rate in 2013 was approximately

Correct AnswerverifiedShow Answer

Economists use the term inflation to describe a situation in which

Correct AnswerverifiedShow Answer

Pauline is offered a Job in Minneapolis that pays $80,000. She is offered a similar job in Louisville that pays $71,200. Which pair of CPIs would ensure that the two salaries have the same purchasing power?

Correct AnswerverifiedShow Answer

To which of the problems in the construction of the CPI is the invention of pocket-sized computers most relevant?

Correct AnswerverifiedShow Answer

In general, if a consumer good is produced domestically and consumed domestically, an increase in its price will have which of the following effects?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Table 24-4 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 24-4. If 2014 is the base year, then the consumer price index was

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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Table 24-14 The following table shows some values of the Consumer Price Index and the corresponding inflation rates for 2012-2015. -Refer to Table 24-14. The inflation rate in 2013 was approximately

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