Question 1

The inflation rate is defined as the

Accepted Answer

A)  price level in an economy.
B)  change in the price level from one period to the next.
C)  percentage change in the price level from the previous period.
D)  price level minus the price level from the previous period.E) All of the above
F) C) and D)

Question 2

Suppose the price of a six-pack of cola rises from $3 to $3.75 and the price of a pack of mints rises from $1.25 to $1.75. If the CPI rises from 140 to 182, then people likely will buy

Accepted Answer

A)  more cola and more mints.
B)  more cola and fewer mints.
C)  less cola and more mints.
D)  less cola and fewer mints.E) A) and B)
F) A) and C)

Question 3

If the value of the consumer price index is 110 in 2005 and 121 in 2006, then the inflation rate is 11 percent for 2006.

Accepted Answer

A) True 
 B)False

Question 4

For purposes of calculating the CPI, the housing category of consumer spending includes the cost of

Accepted Answer

A)  shelter.
B)  fuel and other utilities.
C)  household furnishings and operation.
D)  All of the above are correct.E) B) and C)
F) C) and D) D

Question 5

Which of the following statements best represents economists' beliefs about the bias in the CPI as a measure of the cost of living?

Accepted Answer

A)  Economists agree that the bias in the CPI is a very serious problem.
B)  Economists agree that the bias in the CPI is not a serious problem.
C)  Economists agree on the severity of the CPI bias, but there is still debate on what to do about it.
D)  There is still debate among economists on the severity of the CPI bias and what to do about it.E) A) and C)
F) B) and C)

Question 6

The price index was 110 in the first year, 100 in the second year, and 96 in the third year. The economy experienced

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A)  9.1 percent deflation between the first and second years, and 4 percent deflation between the second and third years.
B)  9.1 percent deflation between the first and second years, and 4.2 percent deflation between the second and third years.
C)  10 percent deflation between the first and second years, and 4 percent deflation between the second and third years.
D)  10 percent deflation between the first and second years, and 4.2 percent deflation between the second and third years.E) None of the above
F) All of the above

Question 7

Table 11-6. The table below applies to an economy with only two goods - hamburgers and hot dogs. The fixed basket consists of 4 hamburgers and 8 hot dogs.   Year  Priee of hamburegers  Prife of hat doges 2009$5.00$3.0020105.503.3020115.613.63\begin{array} { l c c } \hline 	ext { Year } & 	ext { Priee of hamburegers } & 	ext { Prife of hat doges } \\hline 2009 & \$ 5.00 & \$ 3.00 \2010 & 5.50 & 3.30 \2011 & 5.61 & 3.63 \\hline\end{array} Year 200920102011​ Priee of hamburegers $5.005.505.61​ Prife of hat doges $3.003.303.63​​ 
-Refer to Table 11-6. If the base year is 2009, then the consumer price index is

Accepted Answer

A)  100 in 2009, 109 in 2010, and 115 in 2011.
B)  100 in 2009, 110 in 2010, and 117 in 2011.
C)  110 in 2009, 121 in 2010, and 128.26 in 2011.
D)  44 in 2009, 48.4 in 2010, and 51.48 in 2011. E) None of the above
F) All of the above

Question 8

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

Question 9

The CPI for 2008 is computed by dividing the price of the basket of goods and services in 2008 by the price of the basket of goods and services in the base year, then multiplying by 100.

Accepted Answer

A) True 
 B)False

Question 10

When the quality of a good improves while its price remains the same, the purchasing power of the dollar

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A)  increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for.
B)  increases, so the CPI understates the change in the cost of living if the quality change is not accounted for.
C)  decreases, so the CPI overstates the change in the cost of living if the quality change is not accounted for.
D)  decreases, so the CPI understates the change in the cost of living if the quality change is not accounted for.E) A) and B)
F) A) and C)

Question 11

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 12

The goal of the consumer price index is to gauge how much incomes must rise to maintain a constant standard of living.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A)  the number of apples bought by the typical consumer is equal to the number of pears bought by the typical consumer in each year.
B)  neither the number of apples nor the number of pears bought by the typical consumer changes from year to year.
C)  the percentage change in the price of apples is equal to the percentage change in the price of pears from year to year.
D)  neither the price of apples nor the price of pears changes from year to year.E) None of the above
F) A) and B)

Question 14

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 15

Table 11-3
The table below pertains to Studious, an economy in which the typical consumer's basket consists of 5 books and 10 calculators.   Year  Price of a  Buak  Price of a  Calculator 2006$24$82007$30$122008$32$15\begin{array} { | c | c | c | } \hline 	ext { Year } & \begin{array} { c } 	ext { Price of a } \	ext { Buak }\end{array} & \begin{array} { c } 	ext { Price of a } \	ext { Calculator }\end{array} \\hline 2006 & \$ 24 & \$ 8 \\hline 2007 & \$ 30 & \$ 12 \\hline 2008 & \$ 32 & \$ 15 \\hline\end{array} Year 200620072008​ Price of a  Buak ​$24$30$32​ Price of a  Calculator ​$8$12$15​​ 
-Refer to Table 11-3. The cost of the basket in 2006 was

Accepted Answer

A)  $32.
B)  $200.
C)  $280.
D)  $480. E) A) and B)
F) A) and C)

Question 16

Compute how much each of the following items is worth in terms of today's dollars using 177 as the price index for today.
a.In 1926, the CPI was 17.7 and the price of a movie ticket was $0.25.

Accepted Answer

a.The movie ticket is worth $.25177/17.7 = $2.50 in today's dollars.b.The cook's weekly wage is worth $15.00177/13.1 = $202.67 in today's dollars.c.The gallon of gas is worth $.19177/17.4 = $1.93 in today's dollars.

Question 17

A dollar figure from 1908 is converted into 2008 dollars by dividing the 2008 price level by the 1908 price level, then multiplying by the 1908 dollar figure.

Accepted Answer

A) True 
 B)False

Question 18

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

Question 19

In the CPI, goods and services are weighted according to

Accepted Answer

A)  how long a market has existed for each good or service.
B)  the extent to which each good or service is regarded by the government as a necessity.
C)  how much consumers buy of each good or service.
D)  the number of firms that produce and sell each good or service.E) A) and B)
F) C) and D)

Question 20

The consumer price index is used to

Accepted Answer

A)  monitor changes in the level of wholesale prices in the economy.
B)  monitor changes in the cost of living over time.
C)  monitor changes in the level of real GDP over time.
D)  monitor changes in the stock market.E) All of the above
F) B) and D)

Exam 11: Measuring the Cost of Living

The inflation rate is defined as the

Correct Answer
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Suppose the price of a six-pack of cola rises from $3 to $3.75 and the price of a pack of mints rises from $1.25 to $1.75. If the CPI rises from 140 to 182, then people likely will buy

Correct Answer
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If the value of the consumer price index is 110 in 2005 and 121 in 2006, then the inflation rate is 11 percent for 2006.

Correct Answer
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For purposes of calculating the CPI, the housing category of consumer spending includes the cost of

Correct Answer
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D

Which of the following statements best represents economists' beliefs about the bias in the CPI as a measure of the cost of living?

Correct Answer
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The price index was 110 in the first year, 100 in the second year, and 96 in the third year. The economy experienced

Correct Answer
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Indexation refers to

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B

The CPI for 2008 is computed by dividing the price of the basket of goods and services in 2008 by the price of the basket of goods and services in the base year, then multiplying by 100.

Correct Answer
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When the quality of a good improves while its price remains the same, the purchasing power of the dollar

Correct Answer
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The consumer price index is

Correct Answer
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The goal of the consumer price index is to gauge how much incomes must rise to maintain a constant standard of living.

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

Correct Answer
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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 Answer
verified

Correct Answer
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Compute how much each of the following items is worth in terms of today's dollars using 177 as the price index for today. a.In 1926, the CPI was 17.7 and the price of a movie ticket was $0.25.

Correct Answer
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a.The movie ticket is worth $.25177/17.7 = $2.50 in today's dollars.b.The cook's weekly wage is worth $15.00177/13.1 = $202.67 in today's dollars.c.The gallon of gas is worth $.19177/17.4 = $1.93 in today's dollars.

A dollar figure from 1908 is converted into 2008 dollars by dividing the 2008 price level by the 1908 price level, then multiplying by the 1908 dollar figure.

Correct Answer
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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 2001 salary in 2006 dollars is

Correct Answer
verified

In the CPI, goods and services are weighted according to

Correct Answer
verified

The consumer price index is used to

Correct Answer
verified

Exam 11: Measuring the Cost of Living

The inflation rate is defined as the

Correct AnswerverifiedShow Answer

Suppose the price of a six-pack of cola rises from $3 to $3.75 and the price of a pack of mints rises from $1.25 to $1.75. If the CPI rises from 140 to 182, then people likely will buy

Correct AnswerverifiedShow Answer

If the value of the consumer price index is 110 in 2005 and 121 in 2006, then the inflation rate is 11 percent for 2006.

Correct AnswerverifiedShow Answer

For purposes of calculating the CPI, the housing category of consumer spending includes the cost of

Correct AnswerverifiedD

Which of the following statements best represents economists' beliefs about the bias in the CPI as a measure of the cost of living?

Correct AnswerverifiedShow Answer

The price index was 110 in the first year, 100 in the second year, and 96 in the third year. The economy experienced

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Indexation refers to

Correct AnswerverifiedB

The CPI for 2008 is computed by dividing the price of the basket of goods and services in 2008 by the price of the basket of goods and services in the base year, then multiplying by 100.

Correct AnswerverifiedShow Answer

When the quality of a good improves while its price remains the same, the purchasing power of the dollar

Correct AnswerverifiedShow Answer

The consumer price index is

Correct AnswerverifiedShow Answer

The goal of the consumer price index is to gauge how much incomes must rise to maintain a constant standard of living.

Correct AnswerverifiedShow Answer

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

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

Correct AnswerverifiedShow Answer

Compute how much each of the following items is worth in terms of today's dollars using 177 as the price index for today. a.In 1926, the CPI was 17.7 and the price of a movie ticket was $0.25.

Correct Answerverifieda.The movie ticket is worth $.25177/17.7 = $2.50 in today's dollars.b.The cook's weekly wage is worth $15.00177/13.1 = $202.67 in today's dollars.c.The gallon of gas is worth $.19177/17.4 = $1.93 in today's dollars.

A dollar figure from 1908 is converted into 2008 dollars by dividing the 2008 price level by the 1908 price level, then multiplying by the 1908 dollar figure.

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

In the CPI, goods and services are weighted according to

Correct AnswerverifiedShow Answer

The consumer price index is used to

Correct AnswerverifiedShow Answer

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D

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B

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a.The movie ticket is worth $.25177/17.7 = $2.50 in today's dollars.b.The cook's weekly wage is worth $15.00177/13.1 = $202.67 in today's dollars.c.The gallon of gas is worth $.19177/17.4 = $1.93 in today's dollars.

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