Question 1

The largest sector in the consumer price index market basket is food and beverage purchases.

Accepted Answer

A) True 
 B)False

Question 2

Suppose that in 2010,the producer price index increases by 1.5 percent.As a result,economists most likely will predict that

Accepted Answer

A)   GDP will increase in 2011.
B)   the producer price index will increase by more than 1.5 percent in 2011.
C)   interest rates will decrease in the future.
D)   the consumer price index will increase in the future.E) C) and D)
F) B) and D)

Question 3

A COLA automatically raises the wage when the CPI rises.

Accepted Answer

A) True 
 B)False

Question 4

Elizabeth just received her Ph.D.in economics and has two competing job offers.The first is in Washington,D.C.and pays a salary of $200,000.She has a similar job offer in Austin,TX that pays $90,000.Which pair of CPIs would make the two salaries have the same purchasing power?

Accepted Answer

A)   70 in Washington,D.C.and 42 in Austin,TX
B)   140 in Washington,D.C.and 70 in Austin,TX
C)   160 in Washington,D.C.and 72 in Austin,TX
D)   210 in Washington,D.C.and 150 in Austin,TXE) B) and D)
F) None of the above

Question 5

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

Question 6

Suppose a basket of goods and services has been selected to calculate the CPI and 2004 has been selected as the base year.In 2002,the basket's cost was $50;in 2004,the basket's cost was $52;and in 2006,the basket's cost was $54.60.The value of the CPI in 2006 was

Accepted Answer

A)   91.6.
B)   95.2.
C)   105.0.
D)   109.2.E) A) and B)
F) B) and D)

Question 7

Suppose the consumer price index was 184 in 2009 and 198.17 in 2010.The nominal interest rate during this period was 5.8 percent.What was the real interest rate during this period?

Accepted Answer

A)   0.4 percent
B)   1.2 percent
C)   -1.9 percent
D)   -2.6 percentE) A) and D)
F) None of the above

Question 8

Economists use the term inflation to describe a situation in which the economy's overall price level is rising.

Accepted Answer

A) True 
 B)False

Question 9

Kristine has a savings account at a bank.If the nominal interest rate she earns exceeds the rate of inflation,then her purchasing power increases over time.

Accepted Answer

A) True 
 B)False

Question 10

In 1972,one could buy a bag of chips,a pound of hamburger,a package of buns,and a small bag of charcoal for about $2.50.If the same goods today cost $6.00,then which pair of CPIs would make the cost in today's dollars the same for both years?

Accepted Answer

A)   60 in 1972 and 150 today
B)   65 in 1972 and 156 today
C)   75 in 1972 and 160 today
D)   90 in 1972 and 145.8 todayE) B) and C)
F) A) and D)

Question 11

Why does the GDP deflator give a different rate of inflation than the CPI?

Accepted Answer

The GDP deflator and the CPI differ in t...

Question 12

Table 11-6.The table below applies to an economy with only two goods - hamburgers and hot dogs.The fixed basket consists of 4 hamburgers and 8 hot dogs.
 
-Refer to Table 11-6.Which of the following scenarios is consistent with this statement? "The rate of inflation was 23.75 percent for 2011."

Accepted Answer

A)   The price of a hot dog was $2.44 rather than $3.30 in 2010,with other prices in the table remaining fixed.
B)   The price of a hot dog was $4.22 rather than $3.63 in 2011,with other prices in the table remaining fixed..
C)   The price of a hamburger was $3.80 rather than $5.50 in 2010,with other prices in the table remaining fixed.
D)   The price of a hamburger was $6.60 rather than $5.61 in 2011,with other prices in the table remaining fixed.E) A) and B)
F) A) and D)

Question 13

Which of the following statements is correct about the relationship between inflation and interest rates?

Accepted Answer

A)   There is no relationship between inflation and interest rates.
B)   The interest rate is determined by the rate of inflation.
C)   In order to fully understand inflation,we need to know how to correct for the effects of interest rates.
D)   In order to fully understand interest rates,we need to know how to correct for the effects of inflation.E) None of the above
F) B) and C)

Question 14

Table 11-1
The table below pertains to Pieway,an economy in which the typical consumer's basket consists of 10 bushels of peaches and 15 bushels of pecans.
 
-Refer to Table 11-1.If 2006 is the base year,then the inflation rate in 2006 was

Accepted Answer

A)   16.7 percent.
B)   20 percent.
C)   40 percent.
D)   44.1 percent.E) B) and D)
F) A) and B)

Question 15

The CPI and the GDP deflator

Accepted Answer

A)   generally move together.
B)   generally show different patterns of movement.
C)   always show identical changes.
D)   always show different patterns of movement.E) B) and C)
F) A) and C)

Question 16

the CPI was 96 in 1982,and the CPI was 208 in 2010.How much money would you have needed in 2010 in order to buy what you could have bought with $500 in 1982?

Accepted Answer

A)   $492.35
B)   $1,083.33
C)   $1,124.24
D)   $1,351.92E) All of the above
F) None of the above

Question 17

Table 11-3
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 11-3.The cost of the basket

Accepted Answer

A)   increased from 2006 to 2007 and increased from 2007 to 2008.
B)   increased from 2006 to 2007 and decreased from 2007 to 2008.
C)   decreased from 2006 to 2007 and increased from 2007 to 2008.
D)   decreased from 2006 to 2007 and decreased from 2007 to 2008.E) A) and B)
F) All of the above

Question 18

With respect to the consumer price index,which of the following does not serve as an example of how the substitution bias arises? Between 2010 and 2011,the price of a pound of peanuts

Accepted Answer

A)   rises from $0.80 to $1.00 while the price of a loaf of bread rises from $2.00 to $2.50.
B)   rises from $1.00 to $1.30 while the price of a loaf of bread rises from $2.00 to $2.30.
C)   remains constant,while the price of a loaf of bread rises from $2.00 to $2.30.
D)   falls from $1.00 to $0.80 while the price of a loaf of bread falls from $2.00 to $1.80.E) A) and B)
F) A) and C)

Question 19

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

Question 20

When computing the cost of the basket of goods and services purchased by a typical consumer,which of the following changes from year to year?

Accepted Answer

A)   the quantities of the goods and services purchased
B)   the prices of the goods and services
C)   the goods and services making up the basket
D)   All of the above are correct.E) C) and D)
F) B) and D)

Exam 24: Measuring the Cost of Living

With respect to the consumer price index,which of the following does not serve as an example of how the substitution bias arises? Between 2010 and 2011,the price of a pound of peanuts

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Kristine has a savings account at a bank.If the nominal interest rate she earns exceeds the rate of inflation,then her purchasing power increases over time.

Correct AnswerverifiedShow Answer

The CPI and the GDP deflator

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When computing the cost of the basket of goods and services purchased by a typical consumer,which of the following changes from year to year?

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Economists use the term inflation to describe a situation in which the economy's overall price level is rising.

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A COLA automatically raises the wage when the CPI rises.

Correct AnswerverifiedShow Answer

Table 11-3 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 11-3.The cost of the basket

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The largest sector in the consumer price index market basket is food and beverage purchases.

Correct AnswerverifiedShow Answer

Suppose the consumer price index was 184 in 2009 and 198.17 in 2010.The nominal interest rate during this period was 5.8 percent.What was the real interest rate during this period?

Correct AnswerverifiedShow Answer

Which of the following statements is correct about the relationship between inflation and interest rates?

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Suppose a basket of goods and services has been selected to calculate the CPI and 2004 has been selected as the base year.In 2002,the basket's cost was $50;in 2004,the basket's cost was $52;and in 2006,the basket's cost was $54.60.The value of the CPI in 2006 was

Correct AnswerverifiedShow Answer

Table 11-6.The table below applies to an economy with only two goods - hamburgers and hot dogs.The fixed basket consists of 4 hamburgers and 8 hot dogs. -Refer to Table 11-6.Which of the following scenarios is consistent with this statement? "The rate of inflation was 23.75 percent for 2011."

Correct AnswerverifiedShow Answer

Elizabeth just received her Ph.D.in economics and has two competing job offers.The first is in Washington,D.C.and pays a salary of $200,000.She has a similar job offer in Austin,TX that pays $90,000.Which pair of CPIs would make the two salaries have the same purchasing power?

Correct AnswerverifiedShow Answer

Why does the GDP deflator give a different rate of inflation than the CPI?

Correct AnswerverifiedThe GDP deflator and the CPI differ in t...View AnswerShow Answer

the CPI was 96 in 1982,and the CPI was 208 in 2010.How much money would you have needed in 2010 in order to buy what you could have bought with $500 in 1982?

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The nominal interest rate tells you

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In 1972,one could buy a bag of chips,a pound of hamburger,a package of buns,and a small bag of charcoal for about $2.50.If the same goods today cost $6.00,then which pair of CPIs would make the cost in today's dollars the same for both years?

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

Suppose that in 2010,the producer price index increases by 1.5 percent.As a result,economists most likely will predict that

Correct AnswerverifiedShow Answer

Table 11-1 The table below pertains to Pieway,an economy in which the typical consumer's basket consists of 10 bushels of peaches and 15 bushels of pecans. -Refer to Table 11-1.If 2006 is the base year,then the inflation rate in 2006 was

Correct AnswerverifiedShow Answer

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The GDP deflator and the CPI differ in t...
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