Question 1

When the quality of a good deteriorates 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) C) and D)
F) B) and C)

Question 2

Table 24-11. Megan's salary for three consecutive years, along with other values, are presented in the table below.
 
-Refer to Table 24-11. Megan's 2011 salary in 2013 dollars is

Accepted Answer

A)   $67,600.
B)   $67,489.
C)   $67,588.
D)   $70,850.E) All of the above
F) C) and D)

Question 3

Table 24-10
The table below shows the prices of baseballs and baseball bats for three years. Assume the typical consumer's basket consists of 6 baseballs and 2 baseball bats.
 
-Refer to Table 24-10. If 2009 is the base year, then the consumer price index was

Accepted Answer

A)   83.00 in 2008, 100.00 in 2009, and 132.50 in 2010.
B)   89.97 in 2008, 100.00 in 2009, and 117.43 in 2010.
C)   90.88 in 2008, 100.00 in 2009, and 117.43 in 2010.
D)   169.50 in 2008, 186.50 in 2009, and 219.00 in 2010.E) A) and B)
F) C) and D)

Question 4

Which of the following is not a widely acknowledged problem with using the CPI as a measure of the cost of living?

Accepted Answer

A)   substitution bias
B)   introduction of new goods
C)   unmeasured quality change
D)   unmeasured price changeE) All of the above
F) None of the above

Question 5

Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?

Accepted Answer

A)   The real interest rate is the nominal interest rate times the rate of inflation.
B)   The real interest rate is the nominal interest rate minus the rate of inflation.
C)   The real interest rate is the nominal interest rate plus the rate of inflation.
D)   The real interest rate is the nominal interest rate divided by the rate of inflation.E) A) and D)
F) B) and C)

Question 6

Two alternative measures of the overall level of prices are

Accepted Answer

A)   the inflation rate and the consumer price index.
B)   the inflation rate and the GDP deflator.
C)   the GDP deflator and the consumer price index.
D)   the cost of living index and nominal GDP.E) A) and C)
F) B) and C)

Question 7

Ruben earned a salary of $60,000 in 2001 and $80,000 in 2006. The consumer price index was 177 in 2001 and 221.25 in 2006. Ruben's 2006 salary in 2001 dollars is

Accepted Answer

A)   $20,000; thus, Ruben's purchasing power increased between 2001 and 2006.
B)   $20,000; thus, Ruben's purchasing power decreased between 2001 and 2006.
C)   $64,000; thus, Ruben's purchasing power increased between 2001 and 2006.
D)   $64,000; thus, Ruben's purchasing power decreased between 2001 and 2006.E) B) and D)
F) A) and B)

Question 8

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

Accepted Answer

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

Question 9

Table 24-3
The table below pertains to Iowan, an economy in which the typical consumer's basket consists of 4 pounds of pork and 3 bushels of corn.
 
-Refer to Table 24-3. If 2012 is the base year, then the inflation rate in 2013 was

Accepted Answer

A)   24.7 percent.
B)   54.0 percent.
C)   32.8 percent.
D)   38.0 percent.E) B) and C)
F) None of the above

Question 10

The GDP deflator reflects the

Accepted Answer

A)   level of prices in the base year relative to the current level of prices.
B)   current level of prices relative to the level of prices in the base year.
C)   level of real output in the base year relative to the current level of real output.
D)   current level of real output relative to the level of real output in the base year.E) B) and C)
F) C) and D)

Question 11

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

Accepted Answer

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.E) A) and D)
F) A) and B)

Question 12

The U.S. economy has never experienced deflation.

Accepted Answer

A) True 
 B)False

Question 13

If the current year CPI is 140, then the price level has increased 40 percent since the base year.

Accepted Answer

A) True 
 B)False

Question 14

Changes in the quality of a good

Accepted Answer

A)   do not present a problem in the construction of the consumer price index.
B)   present a problem in the construction of the consumer price index, and that problem is sometimes referred to as substitution bias.
C)   are not accounted for, as a matter of policy, by the Bureau of Labor Statistics.
D)   can lead to either an increase or a decrease in the value of a dollar.E) None of the above
F) A) and B)

Question 15

The inflation rate reported in the news is usually calculated from the GDP deflator rather than the consumer price index.

Accepted Answer

A) True 
 B)False

Question 16

Table 24-8
The table below relates to the economy of Mainland, where the typical consumer's market basket consists of 2 televisions and 300 hamburgers.
 
-Refer to Table 24-8. If the base year is 2014, then the consumer price index was

Accepted Answer

A)   80 in 2013, 100 in 2014, and 60 in 2015.
B)   98 in 2013, 100 in 2014, and 96 in 2015.
C)   90 in 2013, 100 in 2014, and 80 in 2015.
D)   180 in 2013, 200 in 2014, and 160 in 2015.E) A) and D)
F) A) and C)

Question 17

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 2011, then the economy's inflation rate in 2011 was

Accepted Answer

A)   -5.0 percent.
B)   -3.3 percent.
C)   3.3 percent.
D)   16.0 percent.E) B) and C)
F) B) and D)

Question 18

Which of these events would cause the consumer price index to overstate the increase in the cost of living?

Accepted Answer

A)   Car makers benefit from a new technology that allows them to sell higher-quality cars to consumers with no increase in price.
B)   Energy prices decrease, and consumers respond by buying more gas and electricity.
C)   A new good is introduced that renders cellular telephones inferior and obsolete.
D)   All of the above are correct.E) All of the above
F) A) and B)

Question 19

If the nominal interest rate is 5 percent and the rate of inflation is 9 percent, then the real interest rate is

Accepted Answer

A)   -4 percent.
B)   -0.44 percent.
C)   4 percent.
D)   14 percent.E) A) and B)
F) A) and C)

Question 20

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

Accepted Answer

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

Exam 6: Measuring the Cost of Living

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

Correct AnswerverifiedShow Answer

Which of the following is not a widely acknowledged problem with using the CPI as a measure of the cost of living?

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 2011, then the economy's inflation rate in 2011 was

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The GDP deflator reflects the

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Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?

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If the current year CPI is 140, then the price level has increased 40 percent since the base year.

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Table 24-3 The table below pertains to Iowan, an economy in which the typical consumer's basket consists of 4 pounds of pork and 3 bushels of corn. -Refer to Table 24-3. If 2012 is the base year, then the inflation rate in 2013 was

Correct AnswerverifiedShow Answer

Ruben earned a salary of $60,000 in 2001 and $80,000 in 2006. The consumer price index was 177 in 2001 and 221.25 in 2006. Ruben's 2006 salary in 2001 dollars is

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If the nominal interest rate is 5 percent and the rate of inflation is 9 percent, then the real interest rate is

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

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Changes in the quality of a good

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Table 24-8 The table below relates to the economy of Mainland, where the typical consumer's market basket consists of 2 televisions and 300 hamburgers. -Refer to Table 24-8. If the base year is 2014, then the consumer price index was

Correct AnswerverifiedShow Answer

Table 24-10 The table below shows the prices of baseballs and baseball bats for three years. Assume the typical consumer's basket consists of 6 baseballs and 2 baseball bats. -Refer to Table 24-10. If 2009 is the base year, then the consumer price index was

Correct AnswerverifiedShow Answer

Table 24-11. Megan's salary for three consecutive years, along with other values, are presented in the table below. -Refer to Table 24-11. Megan's 2011 salary in 2013 dollars is

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The U.S. economy has never experienced deflation.

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The inflation rate reported in the news is usually calculated from the GDP deflator rather than the consumer price index.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of these events would cause the consumer price index to overstate the increase in the cost of living?

Correct AnswerverifiedShow Answer

Two alternative measures of the overall level of prices are

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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