Question 1

Categories of U.S. consumer spending, ranked from largest to smallest, are

Accepted Answer

A)   housing, food & beverages, education & communication, and transportation.
B)   education & communication, housing, food & beverages, and transportation.
C)   food & beverages, housing, transportation, and medical care.
D)   housing, transportation, food & beverages, and medical care.E) B) and D)
F) B) and C)

Question 2

The price index was 150 in the first year, 160 in the second year, and 165 in the third year. Which of the following statements is correct?

Accepted Answer

A)   The price level was higher in the second year than in the first year, and it was higher in the third year than in the second year.
B)   The inflation rate was positive between the first and second years, and it was positive between the second and third years.
C)   The inflation rate was lower between the second and third years than it was between the first and second years.
D)   All of the above are correct.E) None of the above
F) A) and C)

Question 3

Social Security payments are indexed for inflation using the CPI. A recent newspaper editorial claimed that Social Security recipients are harmed by years of low inflation because they do not receive as large an increase in their payments as they do in years of high inflation. Which of the following statements is correct?

Accepted Answer

A)   The newspaper editorial is correct under all circumstances.
B)   The newspaper editorial is correct if the market basket consumed by Social Security recipients is the same as the market basket used to compute the CPI.
C)   The newspaper editorial could be correct if the prices of the goods consumed by Social Security recipients change at a different rate than the prices of the goods in the market basket used to compute the CPI
D)   The newspaper editorial is incorrect under all circumstances.E) A) and C)
F) A) and B)

Question 4

Table 6-5
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 6-5. If the base year is 2011, then the CPI

Accepted Answer

A)   increased from 2009 to 2010 and increased from 2010 to 2011.
B)   increased from 2009 to 2010 and decreased from 2010 to 2011.
C)   decreased from 2009 to 2010 and increased from 2010 to 2011.
D)   decreased from 2009 to 2010 and decreased from 2010 to 2011.E) None of the above
F) A) and B)

Question 5

Table 6-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below.
 
-Refer to Table 6-12. If the nominal interest rate was 8 percent in 2010, then

Accepted Answer

A)   the real interest rate in 2010 was 3 percent.
B)   the real interest rate in 2010 was 4 percent.
C)   Will's 2009 food expenditures in 2010 dollars amount to $5,800.
D)   Will's 2009 food expenditures in 2011 dollars amount to $6,200.E) B) and C)
F) None of the above

Question 6

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) C) and D)
F) B) and D)

Question 7

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 D)
F) B) and C)

Question 8

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 1996 salary in 2006 dollars is

Accepted Answer

A)   $24,060.15.
B)   $42,400.00.
C)   $43,655.17.
D)   $66,500.00.E) A) and B)
F) B) and C)

Question 9

The market basket used to calculate the CPI in Aquilonia is 4 loaves of bread, 6 gallons of milk, 2 shirts, and 2 pairs of pants. In 2005, bread cost $1.00 per loaf, milk cost $1.50 per gallon, shirts cost $6.00 each, and pants cost $10.00 per pair. In 2006, bread cost $1.50 per loaf, milk cost $2.00 per gallon, shirts cost $7.00 each, and pants cost $12.00 per pair. Using 2005 as the base year, what was Aquilonia's inflation rate in 2006?

Accepted Answer

A)   4 percent
B)   11 percent
C)   19.6 percent
D)   24.4 percentE) B) and C)
F) All of the above

Question 10

Table 6-6. 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.
 
-Refer to Table 6-6. If the base year is 2009, then the economy's inflation rate is

Accepted Answer

A)   10 percent in 2010 and 6.36 percent in 2011.
B)   10 percent in 2010 and 17 percent in 2011.
C)   9.2 percent in 2010 and 6 percent in 2011.
D)   8.22 percent in 2010 and 5 percent in 2011.E) A) and B)
F) A) and C)

Question 11

The real interest rate tells you

Accepted Answer

A)   how fast the number of dollars in your bank account rises over time.
B)   how fast the purchasing power of your bank account rises over time.
C)   the number of dollars in your bank account today.
D)   the purchasing power of your bank account today.E) B) and C)
F) All of the above

Question 12

Which of the following statements is correct?

Accepted Answer

A)   In order to calculate the inflation rate for the year 2011, we need to know the values of the consumer price index for the years 2009, 2010, and 2011.
B)   Changes in the consumer price index are often thought to be useful in predicting changes in the producer price index.
C)   Despite its name, the "consumer price index" really measures the overall cost of the goods and services bought by consumers, business firms, and units of government.
D)   If the prices of all goods and services changed proportionately over time, then the consumer price index would reflect no substitution bias.E) A) and B)
F) A) and C)

Question 13

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 C)
F) All of the above

Question 14

Suppose the quality of televisions 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 most severe?

Accepted Answer

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

Question 15

When the overall level of prices in the economy is increasing, economists say that the economy is experiencing

Accepted Answer

A)   economic growth.
B)   stagflation.
C)   inflation.
D)   deflation.E) A) and D)
F) All of the above

Question 16

The Bureau of Labor Statistics does not try to account for quality changes in the goods and services in the basket used to compute the CPI.

Accepted Answer

A) True 
 B)False

Question 17

The CPI is a measure of the overall cost of the goods and services bought by

Accepted Answer

A)   a typical consumer, and the CPI is computed and reported by the Department of the Treasury.
B)   typical consumers and typical business firms, and the CPI is computed and reported by the Department of the Treasury.
C)   a typical consumer, and the CPI is computed and reported by the Bureau of Labor Statistics.
D)   typical consumers and typical business firms, and the CPI is computed and reported by the Bureau of Labor Statistics.E) C) and D)
F) A) and B)

Question 18

Table 6-6. 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.
 
-Refer to Table 6-6. Which of the following scenarios is consistent with this statement? "The rate of inflation was 23.75 percent for 2011."

Accepted Answer

A)   The price of a hot dog was $2.44 rather than $3.30 in 2010, with other prices in the table remaining fixed.
B)   The price of a hot dog was $4.22 rather than $3.63 in 2011, with other prices in the table remaining fixed..
C)   The price of a hamburger was $3.80 rather than $5.50 in 2010, with other prices in the table remaining fixed.
D)   The price of a hamburger was $6.60 rather than $5.61 in 2011, with other prices in the table remaining fixed.E) B) and D)
F) None of the above

Question 19

In 1972, one could buy a bag of chips, a pound of hamburger, a package of buns, and a small bag of charcoal for about $2.50. If the same goods today cost $6.00, then which pair of CPIs would make the cost in today's dollars the same for both years?

Accepted Answer

A)   60 in 1972 and 150 today
B)   65 in 1972 and 156 today
C)   75 in 1972 and 160 today
D)   90 in 1972 and 145.8 todayE) None of the above
F) B) and D)

Question 20

In an imaginary economy, consumers buy only razors and cologne. The fixed basket consists of 6 razors and 4 bottles of cologne. A razor cost $20 in 2009 and $25 in 2010. A bottle of cologne cost $30 in 2009 and $40 in 2010. Using 2009 as the base year, which of the following statements is correct?

Accepted Answer

A)   For the typical consumer, the number of dollars spent on razors is equal to the number of dollars spent on cologne in each of the two years.
B)   The consumer price index is 310 in 2010.
C)   The rate of inflation is 29.17% in 2010.
D)   None of the above is correct.E) A) and B)
F) C) and D)

Exam 6: Measuring the Cost of Living

When the overall level of prices in the economy is increasing, economists say that the economy is experiencing

Correct Answer
verified

The CPI is a measure of the overall cost of the goods and services bought by

Correct Answer
verified

Table 6-6. 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. -Refer to Table 6-6. If the base year is 2009, then the economy's inflation rate is

Correct Answer
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Correct Answer
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Categories of U.S. consumer spending, ranked from largest to smallest, are

Correct Answer
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Table 6-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. -Refer to Table 6-12. If the nominal interest rate was 8 percent in 2010, then

Correct Answer
verified

The Bureau of Labor Statistics does not try to account for quality changes in the goods and services in the basket used to compute the CPI.

Correct Answer
verified

The price index was 150 in the first year, 160 in the second year, and 165 in the third year. Which of the following statements is correct?

Correct Answer
verified

If the price of domestically produced power tools increases, then

Correct Answer
verified

Table 6-6. 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. -Refer to Table 6-6. Which of the following scenarios is consistent with this statement? "The rate of inflation was 23.75 percent for 2011."

Correct Answer
verified

The consumer price index is subject to substitution bias because

Correct Answer
verified

Suppose the quality of televisions 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 most severe?

Correct Answer
verified

In 1972, one could buy a bag of chips, a pound of hamburger, a package of buns, and a small bag of charcoal for about $2.50. If the same goods today cost $6.00, then which pair of CPIs would make the cost in today's dollars the same for both years?

Correct Answer
verified

Table 6-5 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 6-5. If the base year is 2011, then the CPI

Correct Answer
verified

Correct Answer
verified

The real interest rate tells you

Correct Answer
verified

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 1996 salary in 2006 dollars is

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

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 Answer
verified

In an imaginary economy, consumers buy only razors and cologne. The fixed basket consists of 6 razors and 4 bottles of cologne. A razor cost $20 in 2009 and $25 in 2010. A bottle of cologne cost $30 in 2009 and $40 in 2010. Using 2009 as the base year, which of the following statements is correct?

Correct Answer
verified

Exam 6: Measuring the Cost of Living

When the overall level of prices in the economy is increasing, economists say that the economy is experiencing

Correct AnswerverifiedShow Answer

The CPI is a measure of the overall cost of the goods and services bought by

Correct AnswerverifiedShow Answer

Table 6-6. 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. -Refer to Table 6-6. If the base year is 2009, then the economy's inflation rate is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Categories of U.S. consumer spending, ranked from largest to smallest, are

Correct AnswerverifiedShow Answer

Table 6-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. -Refer to Table 6-12. If the nominal interest rate was 8 percent in 2010, then

Correct AnswerverifiedShow Answer

The Bureau of Labor Statistics does not try to account for quality changes in the goods and services in the basket used to compute the CPI.

Correct AnswerverifiedShow Answer

The price index was 150 in the first year, 160 in the second year, and 165 in the third year. Which of the following statements is correct?

Correct AnswerverifiedShow Answer

If the price of domestically produced power tools increases, then

Correct AnswerverifiedShow Answer

Table 6-6. 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. -Refer to Table 6-6. Which of the following scenarios is consistent with this statement? "The rate of inflation was 23.75 percent for 2011."

Correct AnswerverifiedShow Answer

The consumer price index is subject to substitution bias because

Correct AnswerverifiedShow Answer

Suppose the quality of televisions 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 most severe?

Correct AnswerverifiedShow Answer

In 1972, one could buy a bag of chips, a pound of hamburger, a package of buns, and a small bag of charcoal for about $2.50. If the same goods today cost $6.00, then which pair of CPIs would make the cost in today's dollars the same for both years?

Correct AnswerverifiedShow Answer

Table 6-5 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 6-5. If the base year is 2011, then the CPI

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The real interest rate tells you

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 1996 salary in 2006 dollars is

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

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 an imaginary economy, consumers buy only razors and cologne. The fixed basket consists of 6 razors and 4 bottles of cologne. A razor cost $20 in 2009 and $25 in 2010. A bottle of cologne cost $30 in 2009 and $40 in 2010. Using 2009 as the base year, which of the following statements is correct?

Correct AnswerverifiedShow Answer

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