Question 1

Assume an economy experienced a positive rate of inflation between 2003 and 2004 and again between 2004 and 2005. However, the inflation rate was higher between 2004 and 2005 than it was between 2003 and 2004. Which of the following scenarios is consistent with this assumption?

Accepted Answer

A)   The CPI was 100 in 2003, 110 in 2004, and 105 in 2005.
B)   The CPI was 100 in 2003, 120 in 2004, and 135 in 2005.
C)   The CPI was 100 in 2003, 105 in 2004, and 130 in 2005.
D)   The CPI was 100 in 2003, 90 in 2004, and 88 in 2005.E) A) and B)
F) A) and C)

Question 2

Suppose that over the past year, the real interest rate was 3 percent, the CPI was 126.2 at the beginning of the year, and the CPI was 129.5 at the end of the year. It follows that

Accepted Answer

A)   the dollar value of savings increased at 5.6 percent, and the purchasing power of savings increased at 3 percent.
B)   the dollar value of savings increased at 0.4 percent, and the purchasing power of savings increased at 3 percent.
C)   the dollar value of savings increased at 3 percent, and the purchasing power of savings increased at 5.6 percent.
D)   the dollar value of savings increased at 3 percent, and the purchasing power of savings increased at 0.4 percent.E) C) and D)
F) A) and D)

Question 3

In computing the consumer price index, a base year is chosen. Which of the following statements about the base year is correct?

Accepted Answer

A)   The base year is always the first year among the years for which computations are being made.
B)   It is necessary to designate a base year only in the simplest case of two goods; in more realistic cases, it is not necessary to designate a base year.
C)   The value of the consumer price index is always 100 in the base year.
D)   The base year is always the year in which the cost of the basket was highest among the years for which computations are being made.E) B) and C)
F) A) and D)

Question 4

In 1949, Sycamore, Illinois built a hospital for about $500,000. In 1987, the county restored the courthouse for about $1.7 million. A price index for nonresidential construction was 24 in 1949, 108 in 1987, and 126.5 in 2000. According to these numbers, the hospital cost about

Accepted Answer

A)   $2.1 million in 2000 dollars, which is less than the cost of the courthouse restoration in 2000 dollars.
B)   $2.1 million in 2000 dollars, which is more than the cost of the courthouse restoration in 2000 dollars.
C)   $2.6 million in 2000 dollars, which is less than the cost of the courthouse restoration in 2000 dollars.
D)   $2.6 million in 2000 dollars, which is more than the cost of the courthouse restoration in 2000 dollars.E) All of the above
F) A) and D)

Question 5

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

Question 6

For the purpose of calculating the consumer price index, the basket of goods

Accepted Answer

A)   is kept the same from year to year so that the effects of price changes are isolated from the effect of any quantity changes that might be occurring at the same time.
B)   is kept the same from year to year; otherwise, the value of the index would remain constant from year to year.
C)   varies from year to year; otherwise, the value of the index would remain constant from year to year.
D)   varies from year to year so that consumers' buying patterns are updated in a timely fashion.E) B) and C)
F) A) and D)

Question 7

In the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the largest?

Accepted Answer

A)   education & communication
B)   food & beverages
C)   medical care
D)   recreationE) All of the above
F) B) and C)

Question 8

In the calculation of the CPI, books are given greater weight than magazines if

Accepted Answer

A)   consumers buy more books than magazines.
B)   the price of books is higher than the price of magazines.
C)   it costs more to produce books than it costs to produce magazines.
D)   books are more readily available than magazines to the typical consumer.E) B) and C)
F) B) and D)

Question 9

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $50; in 2014, the basket's cost was $51; and in 2016, the basket's cost was $52. The value of the CPI in 2014 was

Accepted Answer

A)   98.0.
B)   102.0.
C)   104.0.
D)   151.0.E) A) and B)
F) All of the above

Question 10

Which of the following statements is correct?

Accepted Answer

A)   The consumer price index is a measure of the overall level of prices, whereas the GDP deflator is not a measure of the overall level of prices.
B)   If, in the year 2011, the consumer price index has a value of 123.50, then the inflation rate for 2011 must be 23.50 percent.
C)   Compared to the GDP deflator, the consumer price index is the more common gauge of inflation.
D)   The consumer price index and the GDP deflator reflect the goods and services bought by consumers equally well.E) B) and C)
F) None of the above

Question 11

In 1949, Sycamore, Illinois built a hospital for about $500,000. In 1987, the county restored the courthouse for about $2.4 million. A price index for nonresidential construction was 14 in 1949, 92 in 1987, and 114.5 in 2000. According to these numbers, the hospital cost about

Accepted Answer

A)   $3.6 million in 2000 dollars, which is less than the cost of the courthouse restoration in 2000 dollars.
B)   $3.6 million in 2000 dollars, which is more than the cost of the courthouse restoration in 2000 dollars.
C)   $4.1 million in 2000 dollars, which is less than the cost of the courthouse restoration in 2000 dollars.
D)   $4.1 million in 2000 dollars, which is more than the cost of the courthouse restoration in 2000 dollars.E) A) and B)
F) All of the above

Question 12

The inflation rate is calculated

Accepted Answer

A)   by determining the change in the price index from the preceding period.
B)   by determining the change in the price index from the base year.
C)   by determining the percentage change in the price index from the preceding period.
D)   by determining the percentage change in the price index from the base year.E) None of the above
F) A) and B)

Question 13

The price index was 92 in 2014, and the inflation rate was 8.7 percent between 2013 and 2014. The price index in 2013 was

Accepted Answer

A)   100.0.
B)   100.7.
C)   83.3.
D)   84.6.E) C) and D)
F) A) and B)

Question 14

If the nominal interest rate is 4 percent and the real interest rate is 7 percent, then the inflation rate is

Accepted Answer

A)   -3 percent.
B)   0.75 percent.
C)   3 percent.
D)   11 percent.E) B) and D)
F) A) and D)

Question 15

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 cost of the basket

Accepted Answer

A)   increased from 2004 to 2005 and increased from 2005 to 2006.
B)   increased from 2004 to 2005 and decreased from 2005 to 2006.
C)   decreased from 2004 to 2005 and increased from 2005 to 2006.
D)   decreased from 2004 to 2005 and decreased from 2005 to 2006.E) A) and C)
F) B) and C)

Question 16

Explain how the prices of goods and services used in the CPI differ from the prices used in the PPI.

Accepted Answer

The CPI focuses on goods and s...

Question 17

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 18

Changes in the quality of a good

Accepted Answer

A)   do not present a problem in the construction of the consumer price index.
B)   present a problem in the construction of the consumer price index, and that problem is sometimes referred to as substitution bias.
C)   are not accounted for, as a matter of policy, by the Bureau of Labor Statistics.
D)   can lead to either an increase or a decrease in the value of a dollar.E) All of the above
F) A) and B)

Question 19

Which of the following statements regarding the consumer price index and the GDP deflator is correct?

Accepted Answer

A)   The two price measures are always equal.
B)   Divergence between the two price measures is the rule, not the exception.
C)   Divergence between the two price measures is the exception, not the rule.
D)   None of the above is correct.E) B) and C)
F) B) and D)

Question 20

The consumer price index was 200 in 2008 and 190 in 2009. The nominal interest rate during this period was 4.5 percent. What was the real interest rate during this period?

Accepted Answer

A)   - 0.75 percent
B)   - 0.5 percent
C)   9.5 percent
D)   9.75 percentE) None of the above
F) All of the above

Exam 24: Measuring the Cost of Living

Which of the following statements is correct?

Correct Answer
verified

In 1949, Sycamore, Illinois built a hospital for about $500,000. In 1987, the county restored the courthouse for about $1.7 million. A price index for nonresidential construction was 24 in 1949, 108 in 1987, and 126.5 in 2000. According to these numbers, the hospital cost about

Correct Answer
verified

In the calculation of the CPI, books are given greater weight than magazines if

Correct Answer
verified

The consumer price index is used to

Correct Answer
verified

Assume an economy experienced a positive rate of inflation between 2003 and 2004 and again between 2004 and 2005. However, the inflation rate was higher between 2004 and 2005 than it was between 2003 and 2004. Which of the following scenarios is consistent with this assumption?

Correct Answer
verified

The consumer price index was 200 in 2008 and 190 in 2009. The nominal interest rate during this period was 4.5 percent. What was the real interest rate during this period?

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 cost of the basket

Correct Answer
verified

The inflation rate is calculated

Correct Answer
verified

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $50; in 2014, the basket's cost was $51; and in 2016, the basket's cost was $52. The value of the CPI in 2014 was

Correct Answer
verified

In computing the consumer price index, a base year is chosen. Which of the following statements about the base year is correct?

Correct Answer
verified

Suppose that over the past year, the real interest rate was 3 percent, the CPI was 126.2 at the beginning of the year, and the CPI was 129.5 at the end of the year. It follows that

Correct Answer
verified

In 1949, Sycamore, Illinois built a hospital for about $500,000. In 1987, the county restored the courthouse for about $2.4 million. A price index for nonresidential construction was 14 in 1949, 92 in 1987, and 114.5 in 2000. According to these numbers, the hospital cost about

Correct Answer
verified

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

The price index was 92 in 2014, and the inflation rate was 8.7 percent between 2013 and 2014. The price index in 2013 was

Correct Answer
verified

In the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the largest?

Correct Answer
verified

Which of the following statements regarding the consumer price index and the GDP deflator is correct?

Correct Answer
verified

Explain how the prices of goods and services used in the CPI differ from the prices used in the PPI.

Correct Answer
verified
The CPI focuses on goods and s...
View Answer

If the nominal interest rate is 4 percent and the real interest rate is 7 percent, then the inflation rate is

Correct Answer
verified

For the purpose of calculating the consumer price index, the basket of goods

Correct Answer
verified

Changes in the quality of a good

Correct Answer
verified

Exam 24: Measuring the Cost of Living

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

In 1949, Sycamore, Illinois built a hospital for about $500,000. In 1987, the county restored the courthouse for about $1.7 million. A price index for nonresidential construction was 24 in 1949, 108 in 1987, and 126.5 in 2000. According to these numbers, the hospital cost about

Correct AnswerverifiedShow Answer

In the calculation of the CPI, books are given greater weight than magazines if

Correct AnswerverifiedShow Answer

The consumer price index is used to

Correct AnswerverifiedShow Answer

Assume an economy experienced a positive rate of inflation between 2003 and 2004 and again between 2004 and 2005. However, the inflation rate was higher between 2004 and 2005 than it was between 2003 and 2004. Which of the following scenarios is consistent with this assumption?

Correct AnswerverifiedShow Answer

The consumer price index was 200 in 2008 and 190 in 2009. The nominal interest rate during this period was 4.5 percent. What was the real interest rate during this period?

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 cost of the basket

Correct AnswerverifiedShow Answer

The inflation rate is calculated

Correct AnswerverifiedShow Answer

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $50; in 2014, the basket's cost was $51; and in 2016, the basket's cost was $52. The value of the CPI in 2014 was

Correct AnswerverifiedShow Answer

In computing the consumer price index, a base year is chosen. Which of the following statements about the base year is correct?

Correct AnswerverifiedShow Answer

Suppose that over the past year, the real interest rate was 3 percent, the CPI was 126.2 at the beginning of the year, and the CPI was 129.5 at the end of the year. It follows that

Correct AnswerverifiedShow Answer

In 1949, Sycamore, Illinois built a hospital for about $500,000. In 1987, the county restored the courthouse for about $2.4 million. A price index for nonresidential construction was 14 in 1949, 92 in 1987, and 114.5 in 2000. According to these numbers, the hospital cost about

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThis creates a subst...View AnswerShow Answer

The price index was 92 in 2014, and the inflation rate was 8.7 percent between 2013 and 2014. The price index in 2013 was

Correct AnswerverifiedShow Answer

In the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the largest?

Correct AnswerverifiedShow Answer

Which of the following statements regarding the consumer price index and the GDP deflator is correct?

Correct AnswerverifiedShow Answer

Explain how the prices of goods and services used in the CPI differ from the prices used in the PPI.

Correct AnswerverifiedThe CPI focuses on goods and s...View AnswerShow Answer

If the nominal interest rate is 4 percent and the real interest rate is 7 percent, then the inflation rate is

Correct AnswerverifiedShow Answer

For the purpose of calculating the consumer price index, the basket of goods

Correct AnswerverifiedShow Answer

Changes in the quality of a good

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The CPI focuses on goods and s...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified