Question 1

Suppose the price of a gallon of ice cream rises from $4 to $5 and the price of a can of coffee rises from $2 to $2.50.If the CPI rises from 150 to 177,then people likely will buy

Accepted Answer

A)   more ice cream and more coffee.
B)   more ice cream and less coffee.
C)   less ice cream and more coffee.
D)   less ice cream and less coffee.E) B) and C)
F) None of the above

Question 2

Several studies in the 1990s concluded that the consumer price index overstated inflation by about

Accepted Answer

A)   3 percentage points per year,and that number of percentage points likely still applies now.
B)   3 percentage points per year,but recent improvements to the CPI probably have reduced the overstatement of inflation to something less than 3 percentage points.
C)   1 percentage point per year,and that number of percentage points likely still applies now.
D)   1 percentage point per year,but recent improvements to the CPI probably have reduced the overstatement of inflation to something less than 1 percentage pointE) A) and D)
F) A) and C)

Question 3

Which of the following is the most accurate statement about the effects of quality change on the CPI?

Accepted Answer

A)   Even though the BLS adjusts the prices of products in the CPI basket when the quality of the products change,changes in quality are still a problem because quality is so hard to measure.
B)   Because the BLS adjusts the prices of products in the CPI basket when the quality of the products change,changes in quality are no longer a problem for the CPI.
C)   The BLS does not adjust the CPI for quality changes.
D)   Most economists believe that changes in the quality of goods included in the CPI basket do not bias the CPI as a measure of the cost of living.E) B) and C)
F) C) and D)

Question 4

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

Accepted Answer

A)   -2 percent.
B)   0.4 percent.
C)   2 percent.
D)   12 percent.E) A) and B)
F) C) and D)

Question 5

Consternation Corporation has an agreement with its workers to index completely the wage of its employees using the CPI.Consternation Corporation currently pays its production line workers $7.50 an hour and is scheduled to index their wages today.If the CPI is currently 130 and was 125 a year ago,the firm should increase the hourly wages of its workers by

Accepted Answer

A)   $0.04.
B)   $0.29.
C)   $0.30.
D)   $0.50.E) C) and D)
F) All of the above

Question 6

The basket of goods in the consumer price index changes

Accepted Answer

A)   occasionally,as does the group of goods used to compute the GDP deflator.
B)   automatically,as does the group of goods used to compute the GDP deflator.
C)   occasionally,whereas the group of goods used to compute the GDP deflator changes automatically.
D)   automatically,whereas the group of goods used to compute the GDP deflator changes occasionally.E) B) and D)
F) All of the above

Question 7

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

Question 8

Suppose a basket of goods and services has been selected to calculate the CPI and 2002 has been chosen as the base year.In 2002,the basket's cost was $75.00; in 2004,the basket's cost was $79.50; and in 2006,the basket's cost was $85.86.The value of the CPI was

Accepted Answer

A)   100 in 2002.
B)   106 in 2004.
C)   114.48 in 2006.
D)   All of the above are correct.E) A) and D)
F) B) and D)

Question 9

The consumer price index is used to

Accepted Answer

A)   convert nominal GDP into real GDP.
B)   turn dollar figures into meaningful measures of purchasing power.
C)   characterize the types of goods and services that consumers purchase.
D)   measure the quantity of goods and services that the economy produces.E) None of the above
F) A) and C)

Question 10

The consumer price index tries to gauge how much incomes must rise to maintain

Accepted Answer

A)   an increasing standard of living.
B)   a constant standard of living.
C)   a decreasing standard of living.
D)   the highest standard of living possible.E) All of the above
F) B) and D)

Question 11

Jay and Joyce meet George,the banker,to work out the details of a mortgage.They all expect that inflation will be 2 percent over the term of the loan,and they agree on a nominal interest rate of 6 percent.As it turns out,the inflation rate is 5 percent over the term of the loan.
a.
What was the expected real interest rate?
b.
What was the actual real interest rate?
c.
Who benefited and who lost because of the unexpected inflation?

Accepted Answer

a. The expected real interest rate was 4...

Question 12

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 13

Which of the following changes in the price index produces the greatest rate of inflation: 100 to 110,150 to 165,or 180 to 198?

Accepted Answer

A)   100 to 110
B)   150 to 165
C)   180 to 198
D)   All of these changes produce the same rate of inflation.E) A) and D)
F) A) and C)

Question 14

The Bureau of Labor Statistics surveys consumers to determine a fixed basket of goods.

Accepted Answer

A) True 
 B)False

Question 15

The nominal 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) A) and D)
F) A) and B)

Question 16

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 17

The CPI does not reflect the increase in the value of the dollar that arises from the introduction of new goods.

Accepted Answer

A) True 
 B)False

Question 18

Pauline is offered a Job in Minneapolis that pays $80,000.She is offered a similar job in Louisville that pays $71,200.Which pair of CPIs would ensure that the two salaries have the same purchasing power?

Accepted Answer

A)   90 in Minneapolis and 83 in Louisville
B)   90 in Minneapolis and 72 in Louisville
C)   100 in Minneapolis and 89 in Louisville
D)   105 in Minneapolis and 90 in LouisvilleE) None of the above
F) A) and B)

Question 19

From 2008 to 2009,the CPI for medical care increased from 150.8 to 164.4.What was the inflation rate for medical care?

Accepted Answer

A)   4.4 percent
B)   7.6 percent
C)   9.0 percent
D)   12.1 percentE) All of the above
F) A) and C)

Question 20

For some racquet sports,there have been increases in the size of the racquets; also,the methods and materials used for making racquets have improved.To which problem in the construction of the CPI is this situation most relevant?

Accepted Answer

A)   substitution bias
B)   introduction of new goods
C)   unmeasured quality change
D)   income biasE) C) and D)
F) None of the above

Exam 16: Measuring the Cost of Living

The consumer price index is used to

Correct Answer
verified

Several studies in the 1990s concluded that the consumer price index overstated inflation by about

Correct Answer
verified

The consumer price index tries to gauge how much incomes must rise to maintain

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

From 2008 to 2009,the CPI for medical care increased from 150.8 to 164.4.What was the inflation rate for medical care?

Correct Answer
verified

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

Correct Answer
verified

Suppose a basket of goods and services has been selected to calculate the CPI and 2002 has been chosen as the base year.In 2002,the basket's cost was $75.00; in 2004,the basket's cost was $79.50; and in 2006,the basket's cost was $85.86.The value of the CPI was

Correct Answer
verified

The Bureau of Labor Statistics surveys consumers to determine a fixed basket of goods.

Correct Answer
verified

The CPI does not reflect the increase in the value of the dollar that arises from the introduction of new goods.

Correct Answer
verified

The nominal interest rate tells you

Correct Answer
verified

The basket of goods in the consumer price index changes

Correct Answer
verified

Correct Answer
verified

For some racquet sports,there have been increases in the size of the racquets; also,the methods and materials used for making racquets have improved.To which problem in the construction of the CPI is this situation most relevant?

Correct Answer
verified

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 Answer
verified

Suppose the price of a gallon of ice cream rises from $4 to $5 and the price of a can of coffee rises from $2 to $2.50.If the CPI rises from 150 to 177,then people likely will buy

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified
a. The expected real interest rate was 4...
View Answer

Which of the following changes in the price index produces the greatest rate of inflation: 100 to 110,150 to 165,or 180 to 198?

Correct Answer
verified

Which of the following is the most accurate statement about the effects of quality change on the CPI?

Correct Answer
verified

Pauline is offered a Job in Minneapolis that pays $80,000.She is offered a similar job in Louisville that pays $71,200.Which pair of CPIs would ensure that the two salaries have the same purchasing power?

Correct Answer
verified

Exam 16: Measuring the Cost of Living

The consumer price index is used to

Correct AnswerverifiedShow Answer

Several studies in the 1990s concluded that the consumer price index overstated inflation by about

Correct AnswerverifiedShow Answer

The consumer price index tries to gauge how much incomes must rise to maintain

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

From 2008 to 2009,the CPI for medical care increased from 150.8 to 164.4.What was the inflation rate for medical care?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose a basket of goods and services has been selected to calculate the CPI and 2002 has been chosen as the base year.In 2002,the basket's cost was $75.00; in 2004,the basket's cost was $79.50; and in 2006,the basket's cost was $85.86.The value of the CPI was

Correct AnswerverifiedShow Answer

The Bureau of Labor Statistics surveys consumers to determine a fixed basket of goods.

Correct AnswerverifiedShow Answer

The CPI does not reflect the increase in the value of the dollar that arises from the introduction of new goods.

Correct AnswerverifiedShow Answer

The nominal interest rate tells you

Correct AnswerverifiedShow Answer

The basket of goods in the consumer price index changes

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

For some racquet sports,there have been increases in the size of the racquets; also,the methods and materials used for making racquets have improved.To which problem in the construction of the CPI is this situation most relevant?

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

Suppose the price of a gallon of ice cream rises from $4 to $5 and the price of a can of coffee rises from $2 to $2.50.If the CPI rises from 150 to 177,then people likely will buy

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

Correct Answerverifieda. The expected real interest rate was 4...View AnswerShow Answer

Which of the following changes in the price index produces the greatest rate of inflation: 100 to 110,150 to 165,or 180 to 198?

Correct AnswerverifiedShow Answer

Which of the following is the most accurate statement about the effects of quality change on the CPI?

Correct AnswerverifiedShow Answer

Pauline is offered a Job in Minneapolis that pays $80,000.She is offered a similar job in Louisville that pays $71,200.Which pair of CPIs would ensure that the two salaries have the same purchasing power?

Correct AnswerverifiedShow Answer

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a. The expected real interest rate was 4...
View Answer

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