Question 1

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

Question 2

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 2006, then the inflation rate in 2005 was

Accepted Answer

A)   -44.5%.
B)   -30.8%.
C)   7.7%.
D)   12.5%.E) A) and B)
F) A) and C)

Question 3

With respect to the consumer price index, which of the following does not serve as an example of how the substitution bias arises? Between 2010 and 2011, the price of a pound of peanuts

Accepted Answer

A)   rises from $0.80 to $1.00 while the price of a loaf of bread rises from $2.00 to $2.50.
B)   rises from $1.00 to $1.30 while the price of a loaf of bread rises from $2.00 to $2.30.
C)   remains constant, while the price of a loaf of bread rises from $2.00 to $2.30.
D)   falls from $1.00 to $0.80 while the price of a loaf of bread falls from $2.00 to $1.80.E) A) and C)
F) B) and C)

Question 4

The substitution bias in the consumer price index refers to the

Accepted Answer

A)   substitution by consumers toward new goods and away from old goods.
B)   substitution by consumers toward a smaller number of high-quality goods and away from a larger number of low-quality goods.
C)   substitution by consumers toward goods that have become relatively less expensive and away from goods that have become relatively more expensive.
D)   substitution of new prices for old prices in the CPI basket of goods and services from one year to the next.E) B) and C)
F) A) and D)

Question 5

In 1979 and 1980,

Accepted Answer

A)   the U.S. inflation rate as measured by the GDP deflator was higher than that measured by the CPI, and the difference was explained by rapidly rising prices of goods exported by the U.S.
B)   the U.S. inflation rate as measured by the CPI was higher than that measured by the GDP deflator, and the difference was explained by rapidly rising prices of goods exported by the U.S.
C)   the U.S. inflation rate as measured by the GDP deflator was higher than that measured by the CPI, and the difference was explained by rapidly rising oil prices.
D)   the U.S. inflation rate as measured by the CPI was higher than that measured by the GDP deflator, and the difference was explained by rapidly rising oil prices.E) B) and C)
F) A) and B)

Question 6

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) None of the above
F) All of the above

Question 7

When computing the cost of the basket of goods and services purchased by a typical consumer, which of the following changes from year to year?

Accepted Answer

A)   the quantities of the goods and services purchased
B)   the prices of the goods and services
C)   the goods and services making up the basket
D)   All of the above are correct.E) A) and D)
F) A) and B)

Question 8

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) All of the above
F) None of the above

Question 9

The inflation rate is the absolute change in the price level from the previous period.

Accepted Answer

A) True 
 B)False

Question 10

When the consumer price index falls, the typical family

Accepted Answer

A)   has to spend more dollars to maintain the same standard of living.
B)   can spend fewer dollars to maintain the same standard of living.
C)   finds that its standard of living is not affected.
D)   can save less because they do not need to offset the effects of rising prices.E) A) and D)
F) All of the above

Question 11

When looking at a graph of nominal and real interest rates you notice the graph for nominal rates and the graph for real rates cross each other many times. From this you conclude

Accepted Answer

A)   consumer prices sometimes rose and sometimes fell 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) A) and D)
F) All of the above

Question 12

Table 24-2
The table below pertains to Pieway, an economy in which the typical consumer's basket consists of 15 bushels of peaches and 10 bushels of pecans.
 
-Refer to Table 24-2. If 2013 is the base year, then the inflation rate in 2013 was

Accepted Answer

A)   22.5 percent.
B)   2.35 percent.
C)   10 percent.
D)   4.4 percent.E) C) and D)
F) B) and D)

Question 13

Explain how the prices of goods and services used in the CPI differ from the prices reflected by GDP deflator.

Accepted Answer

The CPI focuses on goods and services bo...

Question 14

If the nominal interest rate is 5 percent and the inflation rate is 2 percent, then the real interest rate is 7 percent.

Accepted Answer

A) True 
 B)False

Question 15

Each week, the Bureau of Labor Statistics computes and reports the consumer price index.

Accepted Answer

A) True 
 B)False

Question 16

The consumer price index is subject to substitution bias because

Accepted Answer

A)   some pairs of goods are complements rather than substitutes.
B)   some goods are inferior rather than normal.
C)   the law of demand applies to most, if not all, goods.
D)   the index does not take into account the likelihood that consumers substitute newly-introduced goods for more- established goods.E) A) and B)
F) A) and C)

Question 17

An increase in the price of bread produced domestically 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 D)
F) A) and B)

Question 18

The inflation rate for 2007 is computed by dividing the CPI in 2007 minus the CPI in 2006) by the CPI in 2006, then multiplying by 100.

Accepted Answer

A) True 
 B)False

Question 19

If the nominal interest rate is 9 percent and the real interest rate is 3 percent, then the inflation rate is

Accepted Answer

A)   -6 percent.
B)   3 percent.
C)   6 percent.
D)   12 percent.E) A) and D)
F) A) and C)

Question 20

Consumer price index = × 100.

Accepted Answer

A) True 
 B)False

Exam 11: Measuring the Cost of Living

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

Correct AnswerverifiedShow Answer

The inflation rate is the absolute change in the price level from the previous period.

Correct AnswerverifiedShow Answer

Explain how the prices of goods and services used in the CPI differ from the prices reflected by GDP deflator.

Correct AnswerverifiedThe CPI focuses on goods and services bo...View AnswerShow 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

Consumer price index = × 100.

Correct AnswerverifiedShow Answer

The inflation rate for 2007 is computed by dividing the CPI in 2007 minus the CPI in 2006) by the CPI in 2006, then multiplying by 100.

Correct AnswerverifiedShow Answer

An increase in the price of bread produced domestically will be reflected in

Correct AnswerverifiedShow Answer

If the nominal interest rate is 9 percent and the real interest rate is 3 percent, then the inflation rate is

Correct AnswerverifiedShow Answer

When looking at a graph of nominal and real interest rates you notice the graph for nominal rates and the graph for real rates cross each other many times. From this you conclude

Correct AnswerverifiedShow Answer

If the nominal interest rate is 5 percent and the inflation rate is 2 percent, then the real interest rate is 7 percent.

Correct AnswerverifiedShow Answer

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

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 2006, then the inflation rate in 2005 was

Correct AnswerverifiedShow Answer

The substitution bias in the consumer price index refers to the

Correct AnswerverifiedShow Answer

With respect to the consumer price index, which of the following does not serve as an example of how the substitution bias arises? Between 2010 and 2011, the price of a pound of peanuts

Correct AnswerverifiedShow Answer

When computing the cost of the basket of goods and services purchased by a typical consumer, which of the following changes from year to year?

Correct AnswerverifiedShow Answer

In 1979 and 1980,

Correct AnswerverifiedShow Answer

Table 24-2 The table below pertains to Pieway, an economy in which the typical consumer's basket consists of 15 bushels of peaches and 10 bushels of pecans. -Refer to Table 24-2. If 2013 is the base year, then the inflation rate in 2013 was

Correct AnswerverifiedShow Answer

The consumer price index is subject to substitution bias because

Correct AnswerverifiedShow Answer

When the consumer price index falls, the typical family

Correct AnswerverifiedShow Answer

Each week, the Bureau of Labor Statistics computes and reports the consumer price index.

Correct AnswerverifiedShow Answer

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The CPI focuses on goods and services bo...
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