Question 1

Suppose the price index was 100 in 2014, 109 in 2015, and the inflation rate was lower between 2015 and 2016 than it was between 2014 and 2015. This means that

Accepted Answer

A)   the price index in 2016 was lower than 109.0.
B)   the price index in 2016 was lower than 118.9.
C)   the price index in 2016 was lower than 118.0.
D)   the inflation rate between 2015 and 2016 was lower than 1.09 percent.E) All of the above
F) B) and C)

Question 2

When the consumer price index rises, the typical family

Accepted Answer

A)   has to spend more dollars to maintain the same standard of living.
B)   can spend fewer dollars to maintain the same standard of living.
C)   finds that its standard of living is not affected.
D)   can offset the effects of rising prices by saving more.E) A) and B)
F) B) and C)

Question 3

Suppose that over the past year, the nominal interest rate was 5 percent, the CPI was 150.3 at the end of the year, and the CPI was 144.2 at the beginning of the year. It follows that

Accepted Answer

A)   the dollar value of savings increased at 5 percent, and the purchasing power of savings increased at 0.8 percent.
B)   the dollar value of savings increased at 5 percent, and the purchasing power of savings increased at 9.2 percent.
C)   the dollar value of savings increased at 0.8 percent, and the purchasing power of savings increased at 5 percent.
D)   the dollar value of savings increased at 9.2 percent, and the purchasing power of savings increased at 5 percent.E) B) and C)
F) A) and B)

Question 4

The content of the basket of goods and services used to compute the CPI changes every month.

Accepted Answer

A) True 
 B)False

Question 5

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 inflation rate in 2007 was 16 percent, then how much did a magazine cost in 2007?

Accepted Answer

A)   $1.87
B)   $2.08
C)   $2.32
D)   $3.00E) All of the above
F) C) and D)

Question 6

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) A) and C)

Question 7

The CPI assumes a fixed basket of goods over time. In fact, consumers are likely to change purchasing behavior over time by purchasing less of the goods whose prices have risen by relatively large amounts and by buying more of the goods whose prices have risen less or maybe even fallen. What problem does this cause for measuring the cost of living?

Accepted Answer

This creates a subst...

Question 8

Nate collected Social Security payments of $220 a month in 1985. If the price index rose from 90 to 108 between 1985 and 1986, then his Social Security payments for 1986 should have been

Accepted Answer

A)   $228.
B)   $238.
C)   $257.
D)   $264.E) B) and C)
F) A) and D)

Question 9

Suppose lawn mowers are part of the market basket used to compute the CPI. Suppose also that the quality of lawn mowers deteriorates while the price of lawn mowers stays the same. If the Bureau of Labor Statistics is able to precisely adjust the CPI for the improvement in quality, then, other things equal,

Accepted Answer

A)   the CPI will rise.
B)   the CPI will fall.
C)   the CPI will stay the same.
D)   lawn mowers will no longer be included in the market basket.E) All of the above
F) A) and B)

Question 10

The CPI and GDP deflator usually tell two different stories about how quickly prices are rising.

Accepted Answer

A) True 
 B)False

Question 11

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 12

Data from the Bureau of Labor Statistics show that the largest category of consumer spending is housing.

Accepted Answer

A) True 
 B)False

Question 13

It is possible to observe a positive nominal interest rate together with a negative real interest rate.

Accepted Answer

A) True 
 B)False

Question 14

Suppose the CPI was 56 in 1967, and suppose one must spend $349 today to obtain the same basket of goods and services that could be bought for $100 in 1967. Then today's CPI is

Accepted Answer

A)   223.7.
B)   195.0.
C)   623.2.
D)   195.4.E) A) and C)
F) A) and B)

Question 15

The consumer price index was 200 in 2012 and 208 in 2013. The nominal interest rate during this period was 9 percent. What was the real interest rate during this period?

Accepted Answer

A)   5.00 percent
B)   1.00 percent
C)   5.15 percent
D)   13.00 percentE) A) and D)
F) B) and C)

Question 16

The price index was 150 in the first year, 142.5 in the second year, and 138.2 in the third year. The economy experienced

Accepted Answer

A)   5.0 percent deflation between the first and second years, and 3.0 percent deflation between the second and third years.
B)   7.5 percent deflation between the first and second years, and 4.3 percent deflation between the second and third years.
C)   5.3 percent inflation between the first and second years, and 4.1 percent inflation between the second and third years.
D)   7.5 percent inflation between the first and second years, and 4.3 percent inflation between the second and third years.E) All of the above
F) B) and D)

Question 17

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 changes, 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 changes, 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) C) and D)
F) A) and B)

Question 18

In 1931, President Herbert Hoover was paid a salary of $75,000. Government statistics show a consumer price index of 15.2 for 1931 and 229.6 for 2012. President Hoover's 1931 salary was equivalent to a 2012 salary of about

Accepted Answer

A)   $4,965.
B)   $1,132,895.
C)   $1,057,894.
D)   $16,080,001.E) B) and C)
F) C) and D)

Question 19

The group of goods and services used to compute the GDP deflator changes automatically over time, but the group of goods and services used to compute the CPI does not.

Accepted Answer

A) True 
 B)False

Question 20

Table 24-4
The table below pertains to Studious, an economy in which the typical consumer's basket consists of 5 books and 10 calculators.
 
-Refer to Table 24-4. The cost of the basket

Accepted Answer

A)   increased by $8 from 2012 to 2013.
B)   increased by $41 from 2012 to 2013.
C)   increased by $50 from 2012 to 2013.
D)   increased by $60 from 2012 to 2013.E) A) and B)
F) C) and D)

Exam 6: Measuring the Cost of Living

The content of the basket of goods and services used to compute the CPI changes every month.

Correct Answer
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Data from the Bureau of Labor Statistics show that the largest category of consumer spending is housing.

Correct Answer
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Correct Answer
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Suppose the CPI was 56 in 1967, and suppose one must spend $349 today to obtain the same basket of goods and services that could be bought for $100 in 1967. Then today's CPI 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
verified

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

Correct Answer
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The group of goods and services used to compute the GDP deflator changes automatically over time, but the group of goods and services used to compute the CPI does not.

Correct Answer
verified

Suppose that over the past year, the nominal interest rate was 5 percent, the CPI was 150.3 at the end of the year, and the CPI was 144.2 at the beginning of the year. It follows that

Correct Answer
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The CPI and GDP deflator usually tell two different stories about how quickly prices are rising.

Correct Answer
verified

Suppose the price index was 100 in 2014, 109 in 2015, and the inflation rate was lower between 2015 and 2016 than it was between 2014 and 2015. This means that

Correct Answer
verified

In 1931, President Herbert Hoover was paid a salary of $75,000. Government statistics show a consumer price index of 15.2 for 1931 and 229.6 for 2012. President Hoover's 1931 salary was equivalent to a 2012 salary of about

Correct Answer
verified

The consumer price index was 200 in 2012 and 208 in 2013. The nominal interest rate during this period was 9 percent. What was the real interest rate during this period?

Correct Answer
verified

Nate collected Social Security payments of $220 a month in 1985. If the price index rose from 90 to 108 between 1985 and 1986, then his Social Security payments for 1986 should have been

Correct Answer
verified

Table 24-4 The table below pertains to Studious, an economy in which the typical consumer's basket consists of 5 books and 10 calculators. -Refer to Table 24-4. The cost of the basket

Correct Answer
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The price index was 150 in the first year, 142.5 in the second year, and 138.2 in the third year. The economy experienced

Correct Answer
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Which of the following statements is true?

Correct Answer
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When the consumer price index rises, the typical family

Correct Answer
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Correct Answer
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This creates a subst...
View Answer

It is possible to observe a positive nominal interest rate together with a negative real interest rate.

Correct Answer
verified

Exam 6: Measuring the Cost of Living

The content of the basket of goods and services used to compute the CPI changes every month.

Correct AnswerverifiedShow Answer

Data from the Bureau of Labor Statistics show that the largest category of consumer spending is housing.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose the CPI was 56 in 1967, and suppose one must spend $349 today to obtain the same basket of goods and services that could be bought for $100 in 1967. Then today's CPI 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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The group of goods and services used to compute the GDP deflator changes automatically over time, but the group of goods and services used to compute the CPI does not.

Correct AnswerverifiedShow Answer

Suppose that over the past year, the nominal interest rate was 5 percent, the CPI was 150.3 at the end of the year, and the CPI was 144.2 at the beginning of the year. It follows that

Correct AnswerverifiedShow Answer

The CPI and GDP deflator usually tell two different stories about how quickly prices are rising.

Correct AnswerverifiedShow Answer

Suppose the price index was 100 in 2014, 109 in 2015, and the inflation rate was lower between 2015 and 2016 than it was between 2014 and 2015. This means that

Correct AnswerverifiedShow Answer

In 1931, President Herbert Hoover was paid a salary of $75,000. Government statistics show a consumer price index of 15.2 for 1931 and 229.6 for 2012. President Hoover's 1931 salary was equivalent to a 2012 salary of about

Correct AnswerverifiedShow Answer

The consumer price index was 200 in 2012 and 208 in 2013. The nominal interest rate during this period was 9 percent. What was the real interest rate during this period?

Correct AnswerverifiedShow Answer

Nate collected Social Security payments of $220 a month in 1985. If the price index rose from 90 to 108 between 1985 and 1986, then his Social Security payments for 1986 should have been

Correct AnswerverifiedShow Answer

Table 24-4 The table below pertains to Studious, an economy in which the typical consumer's basket consists of 5 books and 10 calculators. -Refer to Table 24-4. The cost of the basket

Correct AnswerverifiedShow Answer

The price index was 150 in the first year, 142.5 in the second year, and 138.2 in the third year. The economy experienced

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

When the consumer price index rises, the typical family

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThis creates a subst...View AnswerShow Answer

It is possible to observe a positive nominal interest rate together with a negative real interest rate.

Correct AnswerverifiedShow Answer

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This creates a subst...
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