Question 1

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) A) and D)
F) None of the above

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 2009, then the economy's inflation rate in 2010 is

Accepted Answer

A)   20 percent.
B)   25 percent.
C)   30 percent.
D)   120 percent.E) A) and D)
F) None of the above

Question 3

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 D)
F) B) and C)

Question 4

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. The inflation rate was

Accepted Answer

A)   negative in 2005 and negative in 2006.
B)   negative in 2005 and positive in 2006.
C)   positive in 2005 and negative in 2006.
D)   positive in 2005 and positive in 2006.E) A) and D)
F) A) and C)

Question 5

When looking at a graph of nominal and real interest rates you notice that nominal rates always lie above real rates. From this you conclude

Accepted Answer

A)   there were serious episodes of deflation in the time frame represented on the graph.
B)   consumer prices were always rising in the time frame represented on the graph.
C)   the economy never experienced a recession in the time frame represented on the graph.
D)   GDP was always increasing for the time frame represented on the graph.E) C) and D)
F) All of the above

Question 6

Suppose the quality of beef 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 least severe?

Accepted Answer

A)   The quality of beef deteriorates and beef becomes more expensive relative to other goods.
B)   The quality of beef deteriorates and beef becomes less expensive relative to other goods.
C)   The quality of beef improves and beef becomes more expensive relative to other goods.
D)   The quality of beef improves and the price of beef relative to other prices remains unchanged.E) A) and B)
F) A) and C)

Question 7

One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI

Accepted Answer

A)   fails to account for consumer spending on housing.
B)   accounts only for consumer spending on food, clothing, and energy.
C)   fails to account for the fact that consumers spend larger percentages of their incomes on some goods and smaller percentages of their incomes on other goods.
D)   fails to account for the introduction of new goods.E) C) and D)
F) B) and C)

Question 8

Rosa deposits $100 in a bank account that pays an annual interest rate of 20 percent. A year later, after Rosa has accumulated $20 in interest, she withdraws her $120. Rosa's purchasing power

Accepted Answer

A)   did not change if the inflation rate was 20 percent.
B)   decreased if the inflation rate was -5 percent.
C)   increased if the inflation rate was 22 percent.
D)   More than one of the above is correct.E) A) and B)
F) A) and C)

Question 9

Marion collected Social Security payments of $250 a month in 1985. If the price index rose from 90 to 108 between 1985 and 1986, then her Social Security payments for 1986 should have been

Accepted Answer

A)   $268.
B)   $292.
C)   $300.
D)   $358.E) A) and C)
F) All of the above

Question 10

The consumer price index was 200 in 2012 and 208 in 2013. The nominal interest rate during this period was 9 percent. What was the real interest rate during this period?

Accepted Answer

A)   5.00 percent
B)   1.00 percent
C)   5.15 percent
D)   13.00 percentE) A) and C)
F) C) and D)

Question 11

Which of the following statements about real and nominal interest rates is correct?

Accepted Answer

A)   When the nominal interest rate is rising, the real interest rate is necessarily rising; when the nominal interest rate is falling, the real interest rate is necessarily falling.
B)   If the nominal interest rate is 4 percent and the inflation rate is 3 percent, then the real interest rate is 7 percent.
C)   An increase in the real interest rate is necessarily accompanied by either an increase in the nominal interest rate, an increase in the inflation rate, or both.
D)   When the inflation rate is positive, the nominal interest rate is necessarily greater than the real interest rate.E) A) and D)
F) B) and C)

Question 12

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 CPI for 2012 was

Accepted Answer

A)   75.3.
B)   100.0.
C)   116.0.
D)   132.8.E) None of the above
F) C) and D)

Question 13

Scenario 24-5
Suppose the residents of Mediaville spend all of their income on books, CDs, and DVDs. In 2009, they buy 400 books for $3,200, 200 CDs for $1,400, and 100 DVDs for $900. In 2010, they buy 360 books for $3,240, 250 CDs for $1,500, and 125 DVDs for $1,250. Assume that the market basket for the CPI is defined in the base year.
-Refer to Scenario 24-5. Using 2010 as the base year, what is the inflation rate in 2010?

Accepted Answer

The inflat...

Question 14

Suppose OPEC succeeds in raising world oil prices by 300 percent. This price increase causes inventors to look at alternative sources of fuel for internal-combustion engines. A hydrogen-powered engine is developed which is cheaper to operate than gasoline engines. Which problems in the construction of the CPI does this situation represent?

Accepted Answer

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

Question 15

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) A) and B)
F) A) and C)

Question 16

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 17

If the nominal interest rate is 5 percent and the rate of inflation is -2.5 percent, then the real interest rate is

Accepted Answer

A)   -7.5 percent.
B)   -2.5 percent.
C)   2.5 percent.
D)   7.5 percent.E) B) and D)
F) B) and C)

Question 18

If the price of Italian shoes imported into the United States increases, then

Accepted Answer

A)   both the GDP deflator and the consumer price index will increase.
B)   neither the GDP deflator nor the consumer price index will increase.
C)   the GDP deflator will increase, but the consumer price index will not increase.
D)   the consumer price index will increase, but the GDP deflator will not increase.E) B) and C)
F) A) and B)

Question 19

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. How much was the cost of the basket in 2008?

Accepted Answer

A)   $78.25
B)   $84.75
C)   $169.50
D)   $456.50E) All of the above
F) A) and B)

Question 20

In a period of inflation real interest rates will be greater than nominal interest rates.

Accepted Answer

A) True 
 B)False

Exam 24: Measuring the Cost of Living

Which of the following statements about real and nominal interest rates is correct?

Correct Answer
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In a period of inflation real interest rates will be greater than nominal interest rates.

Correct Answer
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Suppose the quality of beef 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 least severe?

Correct Answer
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Correct Answer
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The inflat...
View Answer

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 CPI for 2012 was

Correct Answer
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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. How much was the cost of the basket in 2008?

Correct Answer
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Rosa deposits $100 in a bank account that pays an annual interest rate of 20 percent. A year later, after Rosa has accumulated $20 in interest, she withdraws her $120. Rosa's purchasing power

Correct Answer
verified

When looking at a graph of nominal and real interest rates you notice that nominal rates always lie above real rates. From this you conclude

Correct Answer
verified

If the price of domestically produced power tools increases, then

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. The inflation rate 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 2009, then the economy's inflation rate in 2010 is

Correct Answer
verified

One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI

Correct Answer
verified

If the nominal interest rate is 5 percent and the rate of inflation is -2.5 percent, then the real interest rate is

Correct Answer
verified

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

Correct Answer
verified

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 Answer
verified

The consumer price index was 200 in 2012 and 208 in 2013. The nominal interest rate during this period was 9 percent. What was the real interest rate during this period?

Correct Answer
verified

If the price of Italian shoes imported into the United States increases, then

Correct Answer
verified

Marion collected Social Security payments of $250 a month in 1985. If the price index rose from 90 to 108 between 1985 and 1986, then her Social Security payments for 1986 should have been

Correct Answer
verified

Correct Answer
verified

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 Answer
verified

Exam 24: Measuring the Cost of Living

Which of the following statements about real and nominal interest rates is correct?

Correct AnswerverifiedShow Answer

In a period of inflation real interest rates will be greater than nominal interest rates.

Correct AnswerverifiedShow Answer

Suppose the quality of beef 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 least severe?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe inflat...View AnswerShow Answer

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 CPI for 2012 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. How much was the cost of the basket in 2008?

Correct AnswerverifiedShow Answer

Rosa deposits $100 in a bank account that pays an annual interest rate of 20 percent. A year later, after Rosa has accumulated $20 in interest, she withdraws her $120. Rosa's purchasing power

Correct AnswerverifiedShow Answer

When looking at a graph of nominal and real interest rates you notice that nominal rates always lie above real rates. From this you conclude

Correct AnswerverifiedShow Answer

If the price of domestically produced power tools increases, then

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. The inflation rate 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 2009, then the economy's inflation rate in 2010 is

Correct AnswerverifiedShow Answer

One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI

Correct AnswerverifiedShow Answer

If the nominal interest rate is 5 percent and the rate of inflation is -2.5 percent, then the real interest rate is

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

Correct AnswerverifiedShow Answer

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

The consumer price index was 200 in 2012 and 208 in 2013. The nominal interest rate during this period was 9 percent. What was the real interest rate during this period?

Correct AnswerverifiedShow Answer

If the price of Italian shoes imported into the United States increases, then

Correct AnswerverifiedShow Answer

Marion collected Social Security payments of $250 a month in 1985. If the price index rose from 90 to 108 between 1985 and 1986, then her Social Security payments for 1986 should have been

Correct AnswerverifiedShow Answer

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

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The inflat...
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