Question 1

Suppose the CPI was 108 in 1967,and suppose one must spend $936 today to obtain the same basket of goods and services that could be bought for $200 in 1967.Then today's CPI is

Accepted Answer

A)   116.67.
B)   131.08.
C)   397.44.
D)   505.44.E) C) and D)
F) A) and D)

Question 2

Table 11-11.Megan's salary for three consecutive years,along with other values,are presented in the table below.
 
-Refer to Table 11-11.The nominal interest rate for 2009 is

Accepted Answer

A)   2.40 percent.
B)   3.66 percent.
C)   6.60 percent.
D)   9.60 percent.E) B) and D)
F) B) and C)

Question 3

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

Question 4

If the nominal interest rate is 5 percent and the real interest rate is 2 percent,then the inflation rate is 3 percent.

Accepted Answer

A) True 
 B)False

Question 5

Suppose prices of personal computers fall significantly and consumers respond by buying more personal computers.The consumer price index

Accepted Answer

A)   reflects this price decrease accurately.
B)   understates this price decrease due to the substitution bias.
C)   overstates this price decrease due to the income bias.
D)   overstates this price decrease due to the substitution bias.E) None of the above
F) All of the above B

Question 6

Suppose the quality of televisions changes over time,but the quality change goes unmeasured for the purpose of computing the consumer price index.In which of the following instances would the bias resulting from the unmeasured quality change be most severe?

Accepted Answer

A)   The quality of televisions deteriorates and televisions become more expensive relative to other goods.
B)   The quality of televisions improves and televisions become less expensive relative to other goods.
C)   The quality of televisions improves and televisions become more expensive relative to other goods.
D)   The quality of televisions deteriorates and the price of televisions relative to other prices remains unchanged.E) None of the above
F) A) and D)

Question 7

Suppose the price index was 100 in 2004,118 in 2005,and the inflation rate was lower between 2005 and 2006 than it was between 2004 and 2005.This means that

Accepted Answer

A)   the price index in 2006 was lower than 118.
B)   the price index in 2006 was lower than 136.
C)   the price index in 2006 was lower than 139.24.
D)   the inflation rate between 2005 and 2006 was lower than 1.18 percent.E) A) and B)
F) A) and C)

Question 8

For purposes of calculating the CPI,the food & beverages category of consumer spending includes the cost of

Accepted Answer

A)   food away from home.
B)   alcoholic beverages.
C)   both food away from home and alcoholic beverages.
D)   neither food away from home nor alcoholic beverages because these are included in the recreation category of consumer spending.E) B) and C)
F) None of the above

Question 9

A decrease in the price of domestically produced industrial robots will be reflected in

Accepted Answer

A)   both the GDP deflator and the consumer price index.
B)   neither the GDP deflator nor the consumer price index.
C)   the GDP deflator but not in the consumer price index.
D)   the consumer price index but not in the GDP deflator.E) B) and C)
F) None of the above

Question 10

If the price of domestically produced power tools increases,then

Accepted Answer

A)   the consumer price index and the GDP deflator will both increase.
B)   the consumer price index will increase,and the GDP deflator will be unaffected.
C)   the consumer price index will be unaffected,and the GDP deflator will increase.
D)   the consumer price index and the GDP deflator will both be unaffected.E) All of the above
F) None of the above

Question 11

When consumer spending is broken down into the major categories of goods and services,the largest single category is spending on transportation.

Accepted Answer

A) True 
 B)False

Question 12

Archie has a savings account at a bank.If he earns 6 percent interest on his account and if there is deflation,then his purchasing power rises by more than 6 percent over the course of a year.

Accepted Answer

A) True 
 B)False

Question 13

Refer to Scenario 11-2.The price of a 1975 golf ball in 2005 dollars is

Accepted Answer

A)   $0.05.
B)   $0.53.
C)   $0.73.
D)   $2.00.E) All of the above
F) None of the above

Question 14

Suppose the nominal interest rate this year is 6.5% and that the economy experiences 2.3% deflation.What is the real interest rate?

Accepted Answer

The real i...

Question 15

The price of DVD players increases dramatically,causing a 1 percent increase in the CPI.The price increase will most likely cause the GDP deflator to increase by

Accepted Answer

A)   more than 1 percent.
B)   less than 1 percent.
C)   1 percent.
D)   None of the above is correct;this particular price increase will not affect the GDP deflator.E) All of the above
F) B) and D)

Question 16

Table 11-4
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 11-4.If the base year is 2006,then the inflation rate in 2005 was

Accepted Answer

A)   -44.5%.
B)   -30.8%.
C)   7.7%.
D)   12.5%.E) None of the above
F) B) and C)

Question 17

To which of the problems in the construction of the CPI is the creation of the mobile phone most relevant?

Accepted Answer

A)   substitution bias
B)   introduction of new goods
C)   unmeasured quality change
D)   income biasE) C) and D)
F) B) and D)

Question 18

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) C) and D)
F) B) and C)

Question 19

The CPI is calculated

Accepted Answer

A)   weekly.
B)   monthly.
C)   quarterly.
D)   yearly.E) A) and B)
F) A) and C)

Question 20

The problems with using the consumer price index as a measure of the cost of living are important because

Accepted Answer

A)   even the appearance of high rates of inflation cause voters to become disenchanted.
B)   politicians have manipulated the measurement problems to their advantage.
C)   many government programs use the CPI to adjust for changes in the overall level of prices.
D)   if the price level is overstated,consumers will be taken advantage of by sellers of consumer goods.E) None of the above
F) A) and B) C

Exam 24: Measuring the Cost of Living

Suppose the CPI was 108 in 1967,and suppose one must spend $936 today to obtain the same basket of goods and services that could be bought for $200 in 1967.Then today's CPI is

Correct AnswerverifiedShow Answer

Table 11-11.Megan's salary for three consecutive years,along with other values,are presented in the table below. -Refer to Table 11-11.The nominal interest rate for 2009 is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedB

If the nominal interest rate is 5 percent and the real interest rate is 2 percent,then the inflation rate is 3 percent.

Correct AnswerverifiedShow Answer

Suppose prices of personal computers fall significantly and consumers respond by buying more personal computers.The consumer price index

Correct AnswerverifiedB

Suppose the quality of televisions changes over time,but the quality change goes unmeasured for the purpose of computing the consumer price index.In which of the following instances would the bias resulting from the unmeasured quality change be most severe?

Correct AnswerverifiedShow Answer

Suppose the price index was 100 in 2004,118 in 2005,and the inflation rate was lower between 2005 and 2006 than it was between 2004 and 2005.This means that

Correct AnswerverifiedShow Answer

For purposes of calculating the CPI,the food & beverages category of consumer spending includes the cost of

Correct AnswerverifiedShow Answer

A decrease in the price of domestically produced industrial robots will be reflected in

Correct AnswerverifiedShow Answer

If the price of domestically produced power tools increases,then

Correct AnswerverifiedShow Answer

When consumer spending is broken down into the major categories of goods and services,the largest single category is spending on transportation.

Correct AnswerverifiedShow Answer

Archie has a savings account at a bank.If he earns 6 percent interest on his account and if there is deflation,then his purchasing power rises by more than 6 percent over the course of a year.

Correct AnswerverifiedShow Answer

Refer to Scenario 11-2.The price of a 1975 golf ball in 2005 dollars is

Correct AnswerverifiedShow Answer

Suppose the nominal interest rate this year is 6.5% and that the economy experiences 2.3% deflation.What is the real interest rate?

Correct AnswerverifiedThe real i...View AnswerShow Answer

The price of DVD players increases dramatically,causing a 1 percent increase in the CPI.The price increase will most likely cause the GDP deflator to increase by

Correct AnswerverifiedShow Answer

Table 11-4 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 11-4.If the base year is 2006,then the inflation rate in 2005 was

Correct AnswerverifiedShow Answer

To which of the problems in the construction of the CPI is the creation of the mobile phone most relevant?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The CPI is calculated

Correct AnswerverifiedShow Answer

The problems with using the consumer price index as a measure of the cost of living are important because

Correct AnswerverifiedC

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B

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B

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The real i...
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C