Question 1

The second largest category, by relative importance, in the CPI calculation is

Accepted Answer

A)   housing.
B)   apparel.
C)   transportation.
D)   medical care.E) C) and D)
F) A) and D)

Question 2

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) A) and B)

Question 3

Janelle earned a salary of $40,000 in 1996 and $65,000 in 2006. The consumer price index was 160 in 1996 and 266 in 2006. Janelle's 2006 salary in 1996 dollars is

Accepted Answer

A)   $39,097.74.
B)   $43,062.50.
C)   $68,900.00.
D)   $108,062.50.E) A) and B)
F) A) and D)

Question 4

With respect to the consumer price index, the substitution bias arises because

Accepted Answer

A)   prices of goods and services do not change in the same proportion from year to year.
B)   consumers are slow to adjust their buying patterns from year to year in response to price changes.
C)   consumers are eager to buy new products as they are introduced, despite their lack of full information about the quality of those products until they buy and use them.
D)   All of the above are correct.E) A) and D)
F) A) and C)

Question 5

Consumer spending in what category is the largest component of the CPI?

Accepted Answer

The answer of Consumer spending in what category is the...

Question 6

Assume an economy experienced a positive rate of inflation between 2003 and 2004 and again between 2004 and 2005. However, the inflation rate was higher between 2004 and 2005 than it was between 2003 and 2004. Which of the following scenarios is consistent with this assumption?

Accepted Answer

A)   The CPI was 100 in 2003, 110 in 2004, and 105 in 2005.
B)   The CPI was 100 in 2003, 120 in 2004, and 135 in 2005.
C)   The CPI was 100 in 2003, 105 in 2004, and 130 in 2005.
D)   The CPI was 100 in 2003, 90 in 2004, and 88 in 2005.E) A) and C)
F) A) and B)

Question 7

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?

Accepted Answer

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.E) A) and B)
F) None of the above

Question 8

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

Accepted Answer

A)   5.0 percent
B)   6.0 percent
C)   7.2 percent
D)   105 percentE) C) and D)
F) A) and D)

Question 9

Henri earned a salary of $50,000 in 2001 and $70,000 in 2006. The consumer price index was 177 in 2001 and 265.5 in 2006. Henri's 2006 salary in 2001 dollars is

Accepted Answer

A)   $35,000.00.
B)   $46,666.67.
C)   $61,950.00
D)   $105,000.00.E) A) and B)
F) C) and D)

Question 10

The consumer price index is

Accepted Answer

A)   not very useful as a measure of the cost of living.
B)   a perfect measure of the cost of living.
C)   a useful measure, but not a perfect measure, of the cost of living.
D)   not used as a measure of the cost of living.E) A) and B)
F) None of the above

Question 11

When the consumer price index falls, the typical family has to spend fewer dollars to maintain the same standard of living.

Accepted Answer

A) True 
 B)False

Question 12

In 1970, Professor Plum earned $12,000; in 1980, he earned $24,000; and in 1990, he earned $36,000. If the CPI was 40 in 1970, 60 in 1980, and 100 in 1990, then in real terms, Professor Plum's salary was highest in

Accepted Answer

A)   1980 and lowest in 1970.
B)   1980 and lowest in 1990.
C)   1990 and lowest in 1970.
D)   1990 and lowest in 1980.E) C) and D)
F) B) and D)

Question 13

In 1931 the price of a movie ticket was $0.25. The consumer price index was 15.2 in 1931, and 210 in 2008. Using 2008 prices, the real price of a movie in 1931 was

Accepted Answer

A)   $13.82.
B)   $52.50.
C)   $1.81.
D)   $3.45.E) C) and D)
F) None of the above

Question 14

Explain how the introduction of new goods might bias the calculation of the consumer price index.

Accepted Answer

Because the CPI is based on a fixed bask...

Question 15

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 CPI

Accepted Answer

A)   increased from 2004 to 2005 and increased from 2005 to 2006.
B)   increased from 2004 to 2005 and decreased from 2005 to 2006.
C)   decreased from 2004 to 2005 and increased from 2005 to 2006.
D)   decreased from 2004 to 2005 and decreased from 2005 to 2006.E) B) and C)
F) C) and D)

Question 16

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?

Accepted Answer

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

Question 17

Suppose that the CPI in 2009 is 220 and that the inflation rate is 5% in 2010. What is the CPI in 2010?

Accepted Answer

The CPI in...

Question 18

Suppose a basket of goods and services has been selected to calculate the consumer price index. In 2005, the basket of goods cost $108.00; in 2006, it cost $135.00; and in 2007, it cost $168.75. Which of the following statements is correct?

Accepted Answer

A)   Using 2005 as the base year, the economy's inflation rate was higher in 2007 than it was in 2006.
B)   If 2007 is the base year, then the CPI is 33.75 in 2006.
C)   If the CPI is 156.25 in 2007, then 2005 is the base year.
D)   Using 2005 as the base year, the economy's inflation rate for 2006 was 27 percent.E) All of the above
F) C) and D)

Question 19

The goal of the consumer price index is to measure changes in the

Accepted Answer

A)   costs of production.
B)   cost of living.
C)   relative prices of consumer goods.
D)   production of consumer goods.E) A) and D)
F) All of the above

Question 20

If the inflation rate decreased from 3.33% to 2.90% between October and November, while the nominal interest rate increased from 4.75% to 4.80%, what is the real interest rate in November?

Accepted Answer

The answer of If the inflation rate decreased from 3.33%...

Exam 6: Measuring the Cost of Living

Consumer spending in what category is the largest component of the CPI?

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Henri earned a salary of $50,000 in 2001 and $70,000 in 2006. The consumer price index was 177 in 2001 and 265.5 in 2006. Henri's 2006 salary in 2001 dollars is

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In 1970, Professor Plum earned $12,000; in 1980, he earned $24,000; and in 1990, he earned $36,000. If the CPI was 40 in 1970, 60 in 1980, and 100 in 1990, then in real terms, Professor Plum's salary was highest in

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The second largest category, by relative importance, in the CPI calculation is

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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?

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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

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

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With respect to the consumer price index, the substitution bias arises because

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If the inflation rate decreased from 3.33% to 2.90% between October and November, while the nominal interest rate increased from 4.75% to 4.80%, what is the real interest rate in November?

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Explain how the introduction of new goods might bias the calculation of the consumer price index.

Correct AnswerverifiedBecause the CPI is based on a fixed bask...View AnswerShow Answer

When the consumer price index falls, the typical family has to spend fewer dollars to maintain the same standard of living.

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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?

Correct AnswerverifiedShow Answer

Janelle earned a salary of $40,000 in 1996 and $65,000 in 2006. The consumer price index was 160 in 1996 and 266 in 2006. Janelle's 2006 salary in 1996 dollars is

Correct AnswerverifiedShow Answer

In 1931 the price of a movie ticket was $0.25. The consumer price index was 15.2 in 1931, and 210 in 2008. Using 2008 prices, the real price of a movie in 1931 was

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 CPI

Correct AnswerverifiedShow Answer

Suppose a basket of goods and services has been selected to calculate the consumer price index. In 2005, the basket of goods cost $108.00; in 2006, it cost $135.00; and in 2007, it cost $168.75. Which of the following statements is correct?

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The goal of the consumer price index is to measure changes in the

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Suppose that the CPI in 2009 is 220 and that the inflation rate is 5% in 2010. What is the CPI in 2010?

Correct AnswerverifiedThe CPI in...View AnswerShow Answer

Assume an economy experienced a positive rate of inflation between 2003 and 2004 and again between 2004 and 2005. However, the inflation rate was higher between 2004 and 2005 than it was between 2003 and 2004. Which of the following scenarios is consistent with this assumption?

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The consumer price index is

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Because the CPI is based on a fixed bask...
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The CPI in...
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