Question 1

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If deflation was 7 percent during the year the money was deposited, then Bob's purchasing power has increased by 12 percent.

Accepted Answer

A) True 
 B)False

Question 2

The relative importance of housing in the breakdown of consumer spending is

Accepted Answer

A)   41 percent.
B)   15 percent.
C)   6 percent.
D)   4 percent.E) B) and C)
F) A) and B)

Question 3

If you currently make $25,000 a year and the CPI rises from 110 today to 150 in five years, then you need to be making $43,333.33 in five years to have kept pace with consumer price inflation.

Accepted Answer

A) True 
 B)False

Question 4

When the relative price of a good increases, consumers respond by buying

Accepted Answer

A)   a larger quantity of that good and a larger quantity of substitutes for that good.
B)   a larger quantity of that good and a smaller quantity of substitutes for that good.
C)   a smaller quantity of that good and a larger quantity of substitutes for that good.
D)   a smaller quantity of that good and a smaller quantity of substitutes for that good.E) B) and C)
F) All of the above

Question 5

Elizabeth just received her Ph.D. in economics and has two competing job offers. The first is in Washington, D.C. and pays a salary of $200,000. She has a similar job offer in Austin, TX that pays $90,000. Which pair of CPIs would make the two salaries have the same purchasing power?

Accepted Answer

A)   70 in Washington, D.C. and 42 in Austin, TX
B)   140 in Washington, D.C. and 70 in Austin, TX
C)   160 in Washington, D.C. and 72 in Austin, TX
D)   210 in Washington, D.C. and 150 in Austin, TXE) A) and B)
F) None of the above

Question 6

An important difference between the GDP deflator and the consumer price index is that

Accepted Answer

A)   the GDP deflator reflects the prices of goods and services bought by producers, whereas the consumer price index reflects the prices of goods and services bought by consumers.
B)   the GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of goods and services bought by consumers.
C)   the GDP deflator reflects the prices of all final goods and services produced by a nation's citizens, whereas the consumer price index reflects the prices of all final goods and services bought by consumers.
D)   the GDP deflator reflects the prices of all final goods and services bought by producers and consumers, whereas the consumer price index reflects the prices of all final goods and services bought by consumers.E) A) and D)
F) None of the above

Question 7

When some dollar amount is automatically corrected for inflation by law or contract, the amount is said to be indexed for inflation.

Accepted Answer

A) True 
 B)False

Question 8

If the CPI was 120 in 1994, was 126 in 1995, and was 134.82 in 1996, what was the inflation rate in 1995 and in 1996?

Accepted Answer

The inflation rate i...

Question 9

Why does the GDP deflator give a different rate of inflation than the CPI?

Accepted Answer

The GDP deflator and the CPI differ in t...

Question 10

An increase in the price of Irish whiskey imported into the United States will be reflected in

Accepted Answer

A)   both the U.S. GDP deflator and the U.S. CPI.
B)   neither the U.S. GDP deflator nor the U.S. CPI.
C)   the U.S. GDP deflator, but not the U.S. CPI.
D)   the U.S. CPI, but not the U.S. GDP deflator.E) None of the above
F) B) and C)

Question 11

If the inflation rate decreased from 3.33% to 2.90% between October and November, while the nominal interest rate increased from 4.75% to 4.80%, what is the real interest rate in November?

Accepted Answer

The answer of If the inflation rate decreased from 3.33%...

Question 12

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

Question 13

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) A) and C)

Question 14

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

Question 15

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

Question 16

Which of the following changes in the price index produces the greatest rate of inflation: 80 to 100, 100 to 120, or 150 to 170?

Accepted Answer

A)   80 to 100
B)   100 to 120
C)   150 to 170
D)   All of these changes produce the same rate of inflation.E) All of the above
F) A) and D)

Question 17

Which of the following statements is true?

Accepted Answer

A)   Even if we know the values of the consumer price index for the years 2009 and 2010, we cannot calculate the inflation rate for 2010 if we do not know which year is the base year.
B)   If we know the base year is 1990, and if we know the value of the consumer price index for the year 2010, then we have all the information we need to calculate the inflation rate for 2010.
C)   If we know the base year is 2000, and if we know the value of the consumer price index for the year 1995, then we have all the information we need to calculate the inflation rate for 1995.
D)   If we know the base year is 2000, and if we know the value of the consumer price index for the year 1995, then we have all the information we need to calculate the percentage change in the cost of living between 1995 and 2000.E) A) and B)
F) C) and D)

Question 18

If the CPI was 95 in 1955 and is 475 today, then $100 today purchases the same amount of goods and services as

Accepted Answer

A)   $4.75 purchased in 1955.
B)   $20.00 purchased in 1955.
C)   $95.00 purchased in 1955.
D)   $500 purchased in 1955.E) A) and B)
F) A) and C)

Question 19

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 2001 salary in 2006 dollars is

Accepted Answer

A)   $75,000; thus, Ruben's purchasing power increased between 2001 and 2006.
B)   $75,000; thus, Ruben's purchasing power decreased between 2001 and 2006.
C)   $85,000; thus, Ruben's purchasing power increased between 2001 and 2006.
D)   $85,000; thus, Ruben's purchasing power decreased between 2001 and 2006.E) None of the above
F) All of the above

Question 20

The CPI was 172 in 2007, and the CPI was 46.5 in 1982. If your parents put aside $1,000 for you in 1982, then how much would you have needed in 2007 in order to buy what you could have bought with the $1,000 in 1982?

Accepted Answer

A)   $270.35
B)   $1,255.00
C)   $2,698.92
D)   $3,698.92E) A) and B)
F) B) and C)

Exam 24: Measuring the Cost of Living

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

Correct AnswerverifiedShow Answer

The CPI was 172 in 2007, and the CPI was 46.5 in 1982. If your parents put aside $1,000 for you in 1982, then how much would you have needed in 2007 in order to buy what you could have bought with the $1,000 in 1982?

Correct AnswerverifiedShow Answer

The consumer price index is used to

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The relative importance of housing in the breakdown of consumer spending is

Correct AnswerverifiedShow Answer

When some dollar amount is automatically corrected for inflation by law or contract, the amount is said to be indexed for inflation.

Correct AnswerverifiedShow Answer

Why does the GDP deflator give a different rate of inflation than the CPI?

Correct AnswerverifiedThe GDP deflator and the CPI differ in t...View AnswerShow Answer

If the inflation rate decreased from 3.33% to 2.90% between October and November, while the nominal interest rate increased from 4.75% to 4.80%, what is the real interest rate in November?

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

If the CPI was 120 in 1994, was 126 in 1995, and was 134.82 in 1996, what was the inflation rate in 1995 and in 1996?

Correct AnswerverifiedThe inflation rate i...View AnswerShow Answer

Which of the following changes in the price index produces the greatest rate of inflation: 80 to 100, 100 to 120, or 150 to 170?

Correct AnswerverifiedShow Answer

If the CPI was 95 in 1955 and is 475 today, then $100 today purchases the same amount of goods and services as

Correct AnswerverifiedShow Answer

Elizabeth just received her Ph.D. in economics and has two competing job offers. The first is in Washington, D.C. and pays a salary of $200,000. She has a similar job offer in Austin, TX that pays $90,000. Which pair of CPIs would make the two salaries have the same purchasing power?

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

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 2001 salary in 2006 dollars is

Correct AnswerverifiedShow Answer

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If deflation was 7 percent during the year the money was deposited, then Bob's purchasing power has increased by 12 percent.

Correct AnswerverifiedShow Answer

An increase in the price of Irish whiskey imported into the United States will be reflected in

Correct AnswerverifiedShow Answer

When the relative price of a good increases, consumers respond by buying

Correct AnswerverifiedShow Answer

If you currently make $25,000 a year and the CPI rises from 110 today to 150 in five years, then you need to be making $43,333.33 in five years to have kept pace with consumer price inflation.

Correct AnswerverifiedShow Answer

The consumer price index is

Correct AnswerverifiedShow Answer

An important difference between the GDP deflator and the consumer price index is that

Correct AnswerverifiedShow Answer

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The GDP deflator and the CPI differ in t...
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The inflation rate i...
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