Question 1

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) B) and C)
F) All of the above

Question 2

Indexation refers to

Accepted Answer

A)   a process of adjusting the nominal interest rate so that it is equal to the real interest rate.
B)   using a law or contract to automatically correct a dollar amount for the effects of inflation.
C)   using a price index to deflate dollar values.
D)   an adjustment made by the Bureau of Labor Statistics to the CPI so that the index is in line with the GDP deflator.E) C) and D)
F) A) and B)

Question 3

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 4

Changes in the consumer price index are useful in predicting changes in the producer price index.

Accepted Answer

A) True 
 B)False

Question 5

A 2009 Chevrolet model has more horsepower than the 2008 version and is included in the BLS basket of goods.BLS attempts to account for this change in the market basket by

Accepted Answer

A)   dropping the good from the basket.
B)   substituting in a different vehicle with the same horsepower as the 2008 model.
C)   adjusting the share of the market basket allocated to transportation.
D)   adjusting the price of the good to account for the quality change.E) A) and B)
F) None of the above

Question 6

In comparison to the situation in the late 1970s,the United States experienced lower nominal interest rates and higher real interest rates in the late 1990s.

Accepted Answer

A) True 
 B)False

Question 7

Suppose that the price of one gallon of milk was $0.25 in 1950,that the CPI in 1950 was 25,and that in 2000 the CPI was 200.What is the price of a 1950 gallon of milk in 2000 dollars?

Accepted Answer

The price of a 1950 ...

Question 8

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 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 2001 salary in 2006 dollars is

Accepted Answer

A)   $25,000.00.
B)   $33,333.33.
C)   $44,250.00
D)   $75,000.00.E) A) and C)
F) B) and D)

Question 10

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

Question 11

When box office receipts are corrected for inflation,the most popular movie of all time is

Accepted Answer

A)   Star Wars.
B)   Titanic.
C)   Gone With the Wind.
D)   The Sound of Music.E) C) and D)
F) A) and B)

Question 12

Babe Ruth,the famous baseball player,earned $80,000 in 1931.Today,the best baseball players can earn more than 400 times as much as Babe Ruth earned in 1931.However,prices have also risen since 1931.We can conclude that

Accepted Answer

A)   the best baseball players today are about 400 times better off than Babe Ruth was in 1931.
B)   because prices have also risen,the standard of living of baseball stars hasn't changed since 1931.
C)   one cannot make judgments about changes in the standard of living based on changes in prices and changes in incomes.
D)   one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931.E) A) and C)
F) B) and C)

Question 13

Between October 2001 and October 2002,the CPI in Canada rose from 116.5 to 119.8 and the CPI in Mexico rose from 93.2 to 102.3.What were the inflation rates for Canada and Mexico over this one-year period?

Accepted Answer

A)   2.8 percent for Canada and 9.1 percent for Mexico
B)   2.8 percent for Canada and 9.8 percent for Mexico
C)   3.3 percent for Canada and 9.1 percent for Mexico
D)   3.3 percent for Canada and 9.8 percent for MexicoE) C) and D)
F) A) and B)

Question 14

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 C)
F) B) and D)

Question 15

In computing the consumer price index,a base year is chosen.Which of the following statements about the base year is correct?

Accepted Answer

A)   The base year is always the first year among the years for which computations are being made.
B)   It is necessary to designate a base year only in the simplest case of two goods;in more realistic cases,it is not necessary to designate a base year.
C)   The value of the consumer price index is always 100 in the base year.
D)   The base year is always the year in which the cost of the basket was highest among the years for which computations are being made.E) B) and C)
F) All of the above

Question 16

Consider a small economy in which consumers buy only two goods: pretzels and cookies.In order to compute the consumer price index for this economy for two or more consecutive years,we assume that

Accepted Answer

A)   the percentage change in the price of pretzels is equal to the percentage change in the price of cookies from year to year.
B)   the number of pretzels bought by the typical consumer is equal to the number of cookies bought by the typical consumer in each year.
C)   neither the number of pretzels nor the number of cookies bought by the typical consumer changes from year to year.
D)   neither the price of pretzels nor the price of cookies changes from year to year.E) A) and B)
F) A) and C)

Question 17

Suppose that over the past year,the real interest rate was 6 percent and the inflation rate was -2 percent.It follows that

Accepted Answer

A)   the dollar value of savings increased at 4 percent,and the purchasing power of savings increased at 6 percent.
B)   the dollar value of savings increased at 4 percent,and the purchasing power of savings increased at 8 percent.
C)   the dollar value of savings increased at 8 percent,and the purchasing power of savings increased at 4 percent.
D)   the dollar value of savings increased at 8 percent,and the purchasing power of savings increased at 6 percent.E) A) and D)
F) B) and C)

Question 18

A decrease in the price of large tractors imported into the United States from Russia

Accepted Answer

A)   leaves the GDP deflator unchanged but decreases the consumer price index.
B)   decreases the GDP deflator but leaves the consumer price index unchanged.
C)   decreases both the GDP deflator and the consumer price index.
D)   leaves both the GDP deflator and the consumer price index unchanged.E) None of the above
F) B) and C)

Question 19

Table 11-1
The table below pertains to Pieway,an economy in which the typical consumer's basket consists of 10 bushels of peaches and 15 bushels of pecans.
 
-Refer to Table 11-1.If 2005 is the base year,then the inflation rate in 2006 was

Accepted Answer

A)   16.7 percent.
B)   20 percent.
C)   40 percent.
D)   44.1 percent.E) B) and C)
F) None of the above

Question 20

Table 11-5
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 11-5.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) A) and B)
F) A) and C)

Exam 24: Measuring the Cost of Living

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

In computing the consumer price index,a base year is chosen.Which of the following statements about the base year is correct?

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

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

Table 11-1 The table below pertains to Pieway,an economy in which the typical consumer's basket consists of 10 bushels of peaches and 15 bushels of pecans. -Refer to Table 11-1.If 2005 is the base year,then the inflation rate in 2006 was

Correct AnswerverifiedShow Answer

A 2009 Chevrolet model has more horsepower than the 2008 version and is included in the BLS basket of goods.BLS attempts to account for this change in the market basket by

Correct AnswerverifiedShow Answer

Babe Ruth,the famous baseball player,earned $80,000 in 1931.Today,the best baseball players can earn more than 400 times as much as Babe Ruth earned in 1931.However,prices have also risen since 1931.We can conclude that

Correct AnswerverifiedShow Answer

Table 11-5 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 11-5.If the base year is 2010,then the consumer price index was

Correct AnswerverifiedShow Answer

A decrease in the price of large tractors imported into the United States from Russia

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Indexation refers to

Correct AnswerverifiedShow Answer

Consider a small economy in which consumers buy only two goods: pretzels and cookies.In order to compute the consumer price index for this economy for two or more consecutive years,we assume that

Correct AnswerverifiedShow Answer

Changes in the consumer price index are useful in predicting changes in the producer price index.

Correct AnswerverifiedShow Answer

Suppose that over the past year,the real interest rate was 6 percent and the inflation rate was -2 percent.It follows that

Correct AnswerverifiedShow Answer

Between October 2001 and October 2002,the CPI in Canada rose from 116.5 to 119.8 and the CPI in Mexico rose from 93.2 to 102.3.What were the inflation rates for Canada and Mexico over this one-year period?

Correct AnswerverifiedShow Answer

When box office receipts are corrected for inflation,the most popular movie of all time is

Correct AnswerverifiedShow Answer

Suppose that the price of one gallon of milk was $0.25 in 1950,that the CPI in 1950 was 25,and that in 2000 the CPI was 200.What is the price of a 1950 gallon of milk in 2000 dollars?

Correct AnswerverifiedThe price of a 1950 ...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

In comparison to the situation in the late 1970s,the United States experienced lower nominal interest rates and higher real interest rates in the late 1990s.

Correct AnswerverifiedShow Answer

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 2001 salary in 2006 dollars is

Correct AnswerverifiedShow Answer

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The price of a 1950 ...
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