Question 1

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

Question 2

Table 24-2
The table below pertains to Iowan,an economy in which the typical consumer's basket consists of 3 pounds of pork and 4 bushels of corn.
 
-Refer to Table 24-2.The cost of the basket in 2009 was

Accepted Answer

A)   $108.
B)   $147.
C)   $160.
D)   $301.E) C) and D)
F) None of the above

Question 3

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 4

Which of the following is not an example of a price index computed by the Bureau of Labor Statistics?

Accepted Answer

A)   the Los Angeles price index
B)   the energy price index
C)   the producer price index
D)   the stock price indexE) A) and B)
F) None of the above

Question 5

Table 24-5
The table below pertains to Yackandsnack,an economy in which the typical consumer's basket consists of 2 cell phones and 20 ham sandwiches.
 
-Refer to Table 24-5.If the base year is 2007,then the consumer price index was

Accepted Answer

A)   80 in 2006,100 in 2007,and 105 in 2008.
B)   80 in 2006,200 in 2007,and 210 in 2008.
C)   160 in 2006,100 in 2007,and 105 in 2008.
D)   160 in 2006,200 in 2007,and 210 in 2008.E) None of the above
F) C) and D)

Question 6

In an imaginary economy,consumers buy only sandwiches and magazines.The fixed basket consists of 20 sandwiches and 30 magazines.In 2006,a sandwich cost $4 and a magazine cost $2.In 2007,a sandwich cost $5.The base year is 2006.If the consumer price index in 2007 was 125,then how much did a magazine cost in 2007?

Accepted Answer

A)   $0.83
B)   $2.25
C)   $2.50
D)   $3.00E) All of the above
F) B) and D)

Question 7

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

Question 8

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

Accepted Answer

A)   subways.
B)   gasoline.
C)   both subways and gasoline.
D)   neither subways nor gasoline.E) All of the above
F) A) and C)

Question 9

Laura bought word-processing software in 2005 for $50.Laura's twin brother,Laurence,bought an upgrade of the same software in 2006 for $50.To which problem in the construction of the CPI is this situation most relevant?

Accepted Answer

A)   substitution bias
B)   unmeasured quality change
C)   introduction of new goods
D)   income biasE) A) and B)
F) A) and C)

Question 10

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 D)

Question 11

Suppose the price index was 110 in 2004,120 in 2005,and 125 in 2006.Which of the following statements is correct?

Accepted Answer

A)   The economy experienced inflation between 2004 and 2005 and between 2005 and 2006.
B)   The inflation rate was positive between 2004 and 2005,and it was negative between 2005 and 2006.
C)   The inflation rate was higher between 2005 and 2006 than it was between 2004 and 2005.
D)   All of the above are correct.E) A) and D)
F) None of the above

Question 12

Table 24-2
The table below pertains to Iowan,an economy in which the typical consumer's basket consists of 3 pounds of pork and 4 bushels of corn.
 
-Refer to Table 24-2.If 2008 is the base year,then the CPI for 2009 was

Accepted Answer

A)   73.5.
B)   100
C)   136.1.
D)   147.E) C) and D)
F) A) and B)

Question 13

Scenario 24-3
Grant Gant was a doctor in 1944 and earned $12,000 that year.His daughter,Gretta Gant,is a doctor today and she earned $210,000 in 2005.The price index was 17.6 in 1944 and 184 in 2005.
-Refer to Scenario 24-3.In real terms,Gretta Gant's income amounts to about what percentage of Grant Gant's income?

Accepted Answer

A)   67 percent
B)   167 percent
C)   1045 percent
D)   1750 percentE) B) and C)
F) A) and D)

Question 14

A COLA automatically raises the wage when

Accepted Answer

A)   GDP increases.
B)   taxes increase.
C)   the consumer price index increases.
D)   the producer price index increases.E) B) and D)
F) B) and C)

Question 15

Piper is offered a job in Seattle that pays $50,000 and a job in Boston that pays $60,000.Which pair of CPIs would make the two salaries have the same purchasing power?

Accepted Answer

A)   80 in Seattle and 100 in Boston
B)   125 in Seattle and 150 in Boston
C)   100 in Seattle and 124.5 in Boston
D)   100 in Seattle and 140 in BostonE) B) and C)
F) A) and C)

Question 16

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

Question 17

Which of the following statements about real and nominal interest rates is correct?

Accepted Answer

A)   When the nominal interest rate is rising,the real interest rate is necessarily rising;when the nominal interest rate is falling,the real interest rate is necessarily falling.
B)   If the nominal interest rate is 4 percent and the inflation rate is 3 percent,then the real interest rate is 7 percent.
C)   An increase in the real interest rate is necessarily accompanied by either an increase in the nominal interest rate,an increase in the inflation rate,or both.
D)   When the inflation rate is positive,the nominal interest rate is necessarily greater than the real interest rate.E) B) and C)
F) A) and D)

Question 18

Ms.Take borrowed $1,000 from her bank for one year at an interest rate of 10 percent.During that year,the price level went up by 15 percent.Which of the following statements is correct?

Accepted Answer

A)   Ms.Take will repay the bank fewer dollars than she initially borrowed.
B)   Ms.Take's repayment will give the bank less purchasing power than it originally loaned her.
C)   Ms.Take's repayment will give the bank greater purchasing power than it originally loaned her.
D)   Ms.Take's repayment will give the bank the same purchasing power that it originally loaned her.E) All of the above
F) B) and C)

Question 19

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

Question 20

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

Exam 24: Measuring the Cost of Living

Suppose the price index was 110 in 2004,120 in 2005,and 125 in 2006.Which of the following statements is correct?

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

Correct Answer
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Correct Answer
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The basket of goods in the consumer price index changes

Correct Answer
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The consumer price index is

Correct Answer
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Table 24-2 The table below pertains to Iowan,an economy in which the typical consumer's basket consists of 3 pounds of pork and 4 bushels of corn. -Refer to Table 24-2.The cost of the basket in 2009 was

Correct Answer
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Table 24-2 The table below pertains to Iowan,an economy in which the typical consumer's basket consists of 3 pounds of pork and 4 bushels of corn. -Refer to Table 24-2.If 2008 is the base year,then the CPI for 2009 was

Correct Answer
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Piper is offered a job in Seattle that pays $50,000 and a job in Boston that pays $60,000.Which pair of CPIs would make the two salaries have the same purchasing power?

Correct Answer
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A COLA automatically raises the wage when

Correct Answer
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Which of the following statements about real and nominal interest rates is correct?

Correct Answer
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Ms.Take borrowed $1,000 from her bank for one year at an interest rate of 10 percent.During that year,the price level went up by 15 percent.Which of the following statements is correct?

Correct Answer
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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
verified

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

Correct Answer
verified

Correct Answer
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Laura bought word-processing software in 2005 for $50.Laura's twin brother,Laurence,bought an upgrade of the same software in 2006 for $50.To which problem in the construction of the CPI is this situation most relevant?

Correct Answer
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Table 24-5 The table below pertains to Yackandsnack,an economy in which the typical consumer's basket consists of 2 cell phones and 20 ham sandwiches. -Refer to Table 24-5.If the base year is 2007,then the consumer price index was

Correct Answer
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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 Answer
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Which of the following is not an example of a price index computed by the Bureau of Labor Statistics?

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

Exam 24: Measuring the Cost of Living

Suppose the price index was 110 in 2004,120 in 2005,and 125 in 2006.Which of the following statements is correct?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The basket of goods in the consumer price index changes

Correct AnswerverifiedShow Answer

The consumer price index is

Correct AnswerverifiedShow Answer

Table 24-2 The table below pertains to Iowan,an economy in which the typical consumer's basket consists of 3 pounds of pork and 4 bushels of corn. -Refer to Table 24-2.The cost of the basket in 2009 was

Correct AnswerverifiedShow Answer

Table 24-2 The table below pertains to Iowan,an economy in which the typical consumer's basket consists of 3 pounds of pork and 4 bushels of corn. -Refer to Table 24-2.If 2008 is the base year,then the CPI for 2009 was

Correct AnswerverifiedShow Answer

Piper is offered a job in Seattle that pays $50,000 and a job in Boston that pays $60,000.Which pair of CPIs would make the two salaries have the same purchasing power?

Correct AnswerverifiedShow Answer

A COLA automatically raises the wage when

Correct AnswerverifiedShow Answer

Which of the following statements about real and nominal interest rates is correct?

Correct AnswerverifiedShow Answer

Ms.Take borrowed $1,000 from her bank for one year at an interest rate of 10 percent.During that year,the price level went up by 15 percent.Which of the following statements is correct?

Correct AnswerverifiedShow Answer

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

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Laura bought word-processing software in 2005 for $50.Laura's twin brother,Laurence,bought an upgrade of the same software in 2006 for $50.To which problem in the construction of the CPI is this situation most relevant?

Correct AnswerverifiedShow Answer

Table 24-5 The table below pertains to Yackandsnack,an economy in which the typical consumer's basket consists of 2 cell phones and 20 ham sandwiches. -Refer to Table 24-5.If the base year is 2007,then the consumer price index was

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

Which of the following is not an example of a price index computed by the Bureau of Labor Statistics?

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

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