Question 1

Consumer price index =  × 100.

Accepted Answer

A) True 
 B)False

Question 2

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 3

If the CPI was 110 this year and 100 last year, then

Accepted Answer

A)   the cost of the CPI basket of goods and services increased by 10 percent this year.
B)   the price level increased by 110 percent this year.
C)   the inflation rate for this year was 10 percent higher than the inflation rate for last year.
D)   All of the above are correct.E) All of the above
F) A) and C)

Question 4

The three problems with using the consumer price index as a measure of the cost of living are

Accepted Answer

A)   widely acknowledged and easy to solve.
B)   widely acknowledged and difficult to solve.
C)   nearly unacknowledged and easy to solve.
D)   nearly unacknowledged and difficult to solve.E) None of the above
F) A) and D)

Question 5

In 1970, Professor Plum earned $12,000; in 1980, he earned $24,000; and in 1990, he earned $36,000. If the CPI was 40 in 1970, 70 in 1980, and 130 in 1990, then in real terms, Professor Plum's salary was highest in

Accepted Answer

A)   1970 and lowest in 1980.
B)   1970 and lowest in 1990.
C)   1980 and lowest in 1970.
D)   1980 and lowest in 1990.E) None of the above
F) A) and D)

Question 6

Scenario 24-6
A small economy produced and consumed goods X and Y in 2010 and 2011 in the amounts shown in the table below. Assume that the market basket for the CPI is defined in the base year.
 
-Refer to Scenario 24-6. Using 2010 as the base year, what is the inflation rate in 2011?

Accepted Answer

The inflat...

Question 7

Suppose a basket of goods and services has been selected to calculate the CPI and 2014 has been selected as the base year. In 2013, the basket's cost was $80; in 2014, the basket's cost was $86; and in 2015, the basket's cost was $90. The value of the CPI in 2015 was

Accepted Answer

A)   112.5 and the inflation rate was 12.5%.
B)   112.5 and the inflation rate was 4.6%.
C)   104.6 and the inflation rate was 4.6%.
D)   104.6 and the inflation rate was 12.5%.E) B) and C)
F) A) and D)

Question 8

In 1983, one could buy a model radio-controlled airplane for $11.50 each. Those same planes are available today and the price increased at exactly the rate of inflation. If the CPI today is 220.5 and in 1983 was 105, what is the price of the airplane today?

Accepted Answer

A)   $24.15
B)   $11.50
C)   $5.48
D)   $2.10E) A) and B)
F) B) and C)

Question 9

Table 24-5
The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys.
 
-Refer to Table 24-5. The inflation rate was

Accepted Answer

A)   negative in 2005 and negative in 2006.
B)   negative in 2005 and positive in 2006.
C)   positive in 2005 and negative in 2006.
D)   positive in 2005 and positive in 2006.E) A) and B)
F) B) and C)

Question 10

Corey deposits $1,000 in a savings account that pays an annual interest rate of 5 percent. Over the course of a year, the inflation rate is 1.7 percent. At the end of the year, Corey has

Accepted Answer

A)   $17 more in his account, and his purchasing power has increased by $10.
B)   $30 more in his account, and his purchasing power has increased by $50.
C)   $40 more in his account, and his purchasing power has increased by $33.
D)   $50 more in his account, and his purchasing power has increased by $33.E) C) and D)
F) A) and D)

Question 11

When the relative price of a good decreases, 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) All of the above
F) None of the above

Question 12

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

Question 13

The Bureau of Labor Statistics determines which prices are most important to the typical consumer by surveying consumers.

Accepted Answer

A) True 
 B)False

Question 14

Scenario 24-5
Suppose the residents of Mediaville spend all of their income on books, CDs, and DVDs. In 2009, they buy 400 books for $3,200, 200 CDs for $1,400, and 100 DVDs for $900. In 2010, they buy 360 books for $3,240, 250 CDs for $1,500, and 125 DVDs for $1,250. Assume that the market basket for the CPI is defined in the base year.
-Refer to Scenario 24-5. What are the prices of books, CDs, and DVDs in 2010?

Accepted Answer

In 2009, books are $...

Question 15

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 16

An increase in the price of dairy products 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 D)
F) B) and D)

Question 17

Scenario 24-6
A small economy produced and consumed goods X and Y in 2010 and 2011 in the amounts shown in the table below. Assume that the market basket for the CPI is defined in the base year.
 
-Refer to Scenario 24-6. Using 2011 as the base year, what is the inflation rate in 2011?

Accepted Answer

The inflat...

Question 18

In the calculation of the CPI, tea is given greater weight than beer if

Accepted Answer

A)   the price of tea is higher than the price of beer.
B)   it costs more to produce tea than it costs to produce beer.
C)   tea is more readily available than beer to the typical consumer.
D)   consumers buy more tea than beer.E) None of the above
F) A) and D)

Question 19

Suppose that over the past year, the real interest rate was 5 percent and the inflation rate was 3 percent. It follows that

Accepted Answer

A)   the dollar value of savings increased at 5 percent, and the purchasing power of savings increased at 2 percent.
B)   the dollar value of savings increased at 5 percent, and the purchasing power of savings increased at 8 percent.
C)   the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 2 percent.
D)   the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 5 percent.E) A) and B)
F) None of the above

Question 20

In the U.S., when the price of oil rises, the CPI rises by much more than does the GDP deflator.

Accepted Answer

A) True 
 B)False

Exam 11: Measuring the Cost of Living

Corey deposits $1,000 in a savings account that pays an annual interest rate of 5 percent. Over the course of a year, the inflation rate is 1.7 percent. At the end of the year, Corey has

Correct Answer
verified

In 1983, one could buy a model radio-controlled airplane for $11.50 each. Those same planes are available today and the price increased at exactly the rate of inflation. If the CPI today is 220.5 and in 1983 was 105, what is the price of the airplane today?

Correct Answer
verified

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

The Bureau of Labor Statistics determines which prices are most important to the typical consumer by surveying consumers.

Correct Answer
verified

In the calculation of the CPI, tea is given greater weight than beer if

Correct Answer
verified

Scenario 24-6 A small economy produced and consumed goods X and Y in 2010 and 2011 in the amounts shown in the table below. Assume that the market basket for the CPI is defined in the base year. -Refer to Scenario 24-6. Using 2011 as the base year, what is the inflation rate in 2011?

Correct Answer
verified
The inflat...
View Answer

In 1970, Professor Plum earned $12,000; in 1980, he earned $24,000; and in 1990, he earned $36,000. If the CPI was 40 in 1970, 70 in 1980, and 130 in 1990, then in real terms, Professor Plum's salary was highest in

Correct Answer
verified

Correct Answer
verified
In 2009, books are $...
View Answer

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

Correct Answer
verified

Table 24-5 The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. -Refer to Table 24-5. The inflation rate was

Correct Answer
verified

Consumer price index = × 100.

Correct Answer
verified

In the U.S., when the price of oil rises, the CPI rises by much more than does the GDP deflator.

Correct Answer
verified

Suppose that over the past year, the real interest rate was 5 percent and the inflation rate was 3 percent. It follows that

Correct Answer
verified

Scenario 24-6 A small economy produced and consumed goods X and Y in 2010 and 2011 in the amounts shown in the table below. Assume that the market basket for the CPI is defined in the base year. -Refer to Scenario 24-6. Using 2010 as the base year, what is the inflation rate in 2011?

Correct Answer
verified
The inflat...
View Answer

If the CPI was 110 this year and 100 last year, then

Correct Answer
verified

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

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

An increase in the price of dairy products produced domestically will be reflected in

Correct Answer
verified

Suppose a basket of goods and services has been selected to calculate the CPI and 2014 has been selected as the base year. In 2013, the basket's cost was $80; in 2014, the basket's cost was $86; and in 2015, the basket's cost was $90. The value of the CPI in 2015 was

Correct Answer
verified

The three problems with using the consumer price index as a measure of the cost of living are

Correct Answer
verified

Exam 11: Measuring the Cost of Living

Corey deposits $1,000 in a savings account that pays an annual interest rate of 5 percent. Over the course of a year, the inflation rate is 1.7 percent. At the end of the year, Corey has

Correct AnswerverifiedShow Answer

In 1983, one could buy a model radio-controlled airplane for $11.50 each. Those same planes are available today and the price increased at exactly the rate of inflation. If the CPI today is 220.5 and in 1983 was 105, what is the price of the airplane today?

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

The Bureau of Labor Statistics determines which prices are most important to the typical consumer by surveying consumers.

Correct AnswerverifiedShow Answer

In the calculation of the CPI, tea is given greater weight than beer if

Correct AnswerverifiedShow Answer

Scenario 24-6 A small economy produced and consumed goods X and Y in 2010 and 2011 in the amounts shown in the table below. Assume that the market basket for the CPI is defined in the base year. -Refer to Scenario 24-6. Using 2011 as the base year, what is the inflation rate in 2011?

Correct AnswerverifiedThe inflat...View AnswerShow Answer

In 1970, Professor Plum earned $12,000; in 1980, he earned $24,000; and in 1990, he earned $36,000. If the CPI was 40 in 1970, 70 in 1980, and 130 in 1990, then in real terms, Professor Plum's salary was highest in

Correct AnswerverifiedShow Answer

Correct AnswerverifiedIn 2009, books are $...View AnswerShow 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

Table 24-5 The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. -Refer to Table 24-5. The inflation rate was

Correct AnswerverifiedShow Answer

Consumer price index = × 100.

Correct AnswerverifiedShow Answer

In the U.S., when the price of oil rises, the CPI rises by much more than does the GDP deflator.

Correct AnswerverifiedShow Answer

Suppose that over the past year, the real interest rate was 5 percent and the inflation rate was 3 percent. It follows that

Correct AnswerverifiedShow Answer

Scenario 24-6 A small economy produced and consumed goods X and Y in 2010 and 2011 in the amounts shown in the table below. Assume that the market basket for the CPI is defined in the base year. -Refer to Scenario 24-6. Using 2010 as the base year, what is the inflation rate in 2011?

Correct AnswerverifiedThe inflat...View AnswerShow Answer

If the CPI was 110 this year and 100 last year, then

Correct AnswerverifiedShow Answer

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

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

An increase in the price of dairy products produced domestically will be reflected in

Correct AnswerverifiedShow Answer

Suppose a basket of goods and services has been selected to calculate the CPI and 2014 has been selected as the base year. In 2013, the basket's cost was $80; in 2014, the basket's cost was $86; and in 2015, the basket's cost was $90. The value of the CPI in 2015 was

Correct AnswerverifiedShow Answer

The three problems with using the consumer price index as a measure of the cost of living are

Correct AnswerverifiedShow Answer

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The inflat...
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In 2009, books are $...
View Answer

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The inflat...
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