Question 1

When the price of Italian wine rises, this change is reflected in the U.S. CPI but not in the U.S. GDP deflator.

Accepted Answer

A) True 
 B)False

Question 2

When a new good is introduced, consumers have more variety from which to choose, and this in turn increases the cost of maintaining the same level of economic well-being.

Accepted Answer

A) True 
 B)False

Question 3

If the value of the consumer price index is 110 in 2005 and 121 in 2006, then the inflation rate is 11 percent for 2006.

Accepted Answer

A) True 
 B)False

Question 4

Table 24-2
The table below pertains to Pieway, an economy in which the typical consumer's basket consists of 15 bushels of peaches and 10 bushels of pecans. 
-Refer to Table 24-2. If 2013 is the base year, then the CPI for 2013 was

Accepted Answer

A)   95.7.
B)   100.0.
C)   90.0.
D)   213.6.E) C) and D)
F) A) and C)

Question 5

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

Question 6

One of the differences between the GDP deflator and the consumer price index is

Accepted Answer

A)   the GDP deflator includes income earned by American citizens working in foreign countries and the consumer price index is based solely on purchases made in the U.S.
B)   the consumer price index basket of goods is updated constantly by the Bureau of Labor Statistics whereas the GDP deflator is updated only occasionally.
C)   the consumer price index includes items not included in the GDP deflator such as airplanes purchased by the Air Force.
D)   the GDP deflator reflects prices for all goods and services produced domestically and the consumer price index reflects prices for some goods and services bought by consumers.E) A) and D)
F) B) and D)

Question 7

When ranking movies by nominal box office receipts, what important fact is overlooked?

Accepted Answer

A)   More people go to movies now than in the past.
B)   There are no good substitutes for movies currently.
C)   Prices, including those for movie tickets, have been rising over time.
D)   Movies and DVD are complements.E) A) and B)
F) A) and C)

Question 8

In the United States in the late 1970s, nominal interest rates were high and inflation rates were very high. As a result, real interest rates were

Accepted Answer

A)   very high.
B)   high.
C)   low, but never negative.
D)   low, and in some years they were negative.E) A) and C)
F) A) and D)

Question 9

Henri earned a salary of $50,000 in 2001 and $70,000 in 2006. The consumer price index was 177 in 2001 and 265.5 in 2006. Henri's 2006 salary in 2001 dollars is

Accepted Answer

A)   $35,000.00.
B)   $46,666.67.
C)   $61,950.00
D)   $105,000.00.E) All of the above
F) A) and B)

Question 10

When constructing the consumer price index, the Bureau of Labor Statistics does not do which of the following?

Accepted Answer

A)   Try to include all the goods and services that the typical consumer buys.
B)   Try to weight the goods and services that the typical consumer buys according to how much consumers buy of each item.
C)   Survey consumers to determine what the typical consumer buys.
D)   Survey sellers to determine what the typical consumer buys.E) None of the above
F) B) and D)

Question 11

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 CPI in each year?

Accepted Answer

The CPI is...

Question 12

Table 24-16
The table below lists annual consumer price index and inflation rates for a country over the period 2010-2013. Assume the year 2010 is used as the base year. 
-Refer to Table 24-16. Calculate the missing value that belongs in space B.

Accepted Answer

The answer of Table 24-16
The table below lists annual consumer...

Question 13

The second largest category, by relative importance, in the CPI calculation is

Accepted Answer

A)   housing.
B)   apparel.
C)   transportation.
D)   medical care.E) A) and D)
F) All of the above

Question 14

For an imaginary economy, the value of the consumer price index was 140 in 2013 and 146.5 in 2014. The economy's inflation rate for 2014 was

Accepted Answer

A)   4.6 percent.
B)   6.5 percent.
C)   4.4 percent.
D)   46.5 percent.E) B) and D)
F) B) and C)

Question 15

A Korean steel company produces steel in the United States, with some of its steel being exported to other nations and some of it being sold within the United States. If the prices of this steel increase, then

Accepted Answer

A)   the GDP deflator and the CPI will both increase.
B)   the GDP deflator will increase and the CPI will be unchanged.
C)   the GDP deflator will be unchanged and the CPI will increase.
D)   the GDP deflator and the CPI will both be unchanged.E) B) and D)
F) None of the above

Question 16

Suppose that the CPI in 2009 is 220 and that the inflation rate is 5% in 2010. What is the CPI in 2010?

Accepted Answer

The CPI in...

Question 17

When box office receipts are not corrected for inflation, the most popular movie of all time is

Accepted Answer

A)   Star Wars.
B)   Avatar.
C)   Gone With the Wind.
D)   The Dark Knight.E) B) and D)
F) A) and C)

Question 18

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If inflation was 7 percent during the year the money was deposited, then Bob's purchasing power has increased by 2 percent.

Accepted Answer

A) True 
 B)False

Question 19

The introduction of a new good

Accepted Answer

A)   increases the cost of maintaining the same level of economic well-being.
B)   decreases the cost of maintaining the same level of economic well-being.
C)   has no impact on the cost of maintaining the same level of economic well-being.
D)   may increase or decrease the cost of maintaining the same level of economic well-being, depending on how expensive the new good is.E) B) and C)
F) A) and C)

Question 20

In the United States, if the price of imported oil rises so that the prices of gasoline and heating oil rise, then the

Accepted Answer

A)   GDP deflator rises much more than does the consumer price index.
B)   consumer price index rises much more than does the GDP deflator.
C)   GDP deflator and the consumer price index rise by about the same amount.
D)   consumer price index rises slightly more than does the GDP deflator.E) B) and C)
F) None of the above

Exam 24: Measuring the Cost of Living

For an imaginary economy, the value of the consumer price index was 140 in 2013 and 146.5 in 2014. The economy's inflation rate for 2014 was

Correct AnswerverifiedShow Answer

In the United States, if the price of imported oil rises so that the prices of gasoline and heating oil rise, then the

Correct AnswerverifiedShow Answer

When the price of Italian wine rises, this change is reflected in the U.S. CPI but not in the U.S. GDP deflator.

Correct AnswerverifiedShow Answer

A Korean steel company produces steel in the United States, with some of its steel being exported to other nations and some of it being sold within the United States. If the prices of this steel increase, then

Correct AnswerverifiedShow Answer

Table 24-16 The table below lists annual consumer price index and inflation rates for a country over the period 2010-2013. Assume the year 2010 is used as the base year. -Refer to Table 24-16. Calculate the missing value that belongs in space B.

Correct AnswerverifiedShow Answer

Table 24-2 The table below pertains to Pieway, an economy in which the typical consumer's basket consists of 15 bushels of peaches and 10 bushels of pecans. -Refer to Table 24-2. If 2013 is the base year, then the CPI for 2013 was

Correct AnswerverifiedShow Answer

Henri earned a salary of $50,000 in 2001 and $70,000 in 2006. The consumer price index was 177 in 2001 and 265.5 in 2006. Henri's 2006 salary in 2001 dollars is

Correct AnswerverifiedShow Answer

Suppose that the CPI in 2009 is 220 and that the inflation rate is 5% in 2010. What is the CPI in 2010?

Correct AnswerverifiedThe CPI in...View AnswerShow Answer

One of the differences between the GDP deflator and the consumer price index is

Correct AnswerverifiedShow Answer

When ranking movies by nominal box office receipts, what important fact is overlooked?

Correct AnswerverifiedShow Answer

When constructing the consumer price index, the Bureau of Labor Statistics does not do which of the following?

Correct AnswerverifiedShow Answer

If the value of the consumer price index is 110 in 2005 and 121 in 2006, then the inflation rate is 11 percent for 2006.

Correct AnswerverifiedShow Answer

When a new good is introduced, consumers have more variety from which to choose, and this in turn increases the cost of maintaining the same level of economic well-being.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The second largest category, by relative importance, in the CPI calculation is

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 CPI in each year?

Correct AnswerverifiedThe CPI is...View AnswerShow Answer

The introduction of a new good

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When box office receipts are not corrected for inflation, the most popular movie of all time is

Correct AnswerverifiedShow Answer

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If inflation was 7 percent during the year the money was deposited, then Bob's purchasing power has increased by 2 percent.

Correct AnswerverifiedShow Answer

In the United States in the late 1970s, nominal interest rates were high and inflation rates were very high. As a result, real interest rates were

Correct AnswerverifiedShow Answer

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The CPI in...
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The CPI is...
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