Question 1

Which of the following changes in the price index produces the greatest rate of inflation: 100 to 110, 150 to 165, or 180 to 198?

Accepted Answer

A)  100 to 110
B)  150 to 165
C)  180 to 198
D)  All of these changes produce the same rate of inflation.E) B) and C)
F) A) and D)

Question 2

​Table 24-16
​
The following table shows the value of the Consumer Price Index and the nominal interest rate for 2013-2015.
​  ​
-Refer to Table 24-16. What was the real interest rate in 2015?​

Accepted Answer

A)  1.8%
B)  ​2.0%
C)  ​2.2%
D)  ​2.4%E) All of the above
F) None of the above

Question 3

With respect to the consumer price index, which of the following serves 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)  falls from $0.90 to $0.72 while the price of a loaf of bread falls from $2.00 to $1.60.
C)  remains constant, as does the price of a loaf of bread.
D)  None of the above serves as an example of how the substitution bias arises.E) A) and D)
F) A) and C)

Question 4

If the CPI was 127 in 1972 and is 324 today, then $10 in 1972 purchased the same amount of goods and services as

Accepted Answer

A)  $3.92 purchases today.
B)  $25.51 purchases today.
C)  $207.00 purchases today.
D)  $324.00 purchases today.E) A) and C)
F) A) and D)

Question 5

The CPI is calculated

Accepted Answer

A)  weekly.
B)  monthly.
C)  quarterly.
D)  yearly.E) A) and B)
F) None of the above

Question 6

If the nominal interest rate is 5 percent and the inflation rate is 2 percent, then the real interest rate is 7 percent.

Accepted Answer

A) True 
 B)False

Question 7

Social Security payments are indexed for inflation using

Accepted Answer

A)  the CPI.
B)  the PPI.
C)  the GDP deflator.
D)  real interest rates.E) A) and D)
F) C) and D)

Question 8

The consumer price index was 225 in 2008 and 232.2 in 2009. The nominal interest rate during this period was 6.5 percent. What was the real interest rate during this period?

Accepted Answer

A)  1.6 percent
B)  3.3 percent
C)  5.1 percent
D)  7.4 percentE) B) and C)
F) A) and C)

Question 9

In comparison to the situation in the late 1970s, the United States experienced lower nominal interest rates and higher real interest rates in the late 1990s.

Accepted Answer

A) True 
 B)False

Question 10

The producer price index measures the cost of a basket of goods and services

Accepted Answer

A)  typically produced in the economy.
B)  produced for a typical consumer.
C)  sold by producers.
D)  bought by firms.E) B) and D)
F) B) and C)

Question 11

Changes in the producer price index are often thought to be useful in predicting changes in

Accepted Answer

A)  stock prices.
B)  the consumer price index.
C)  the unemployment rate.
D)  the rate of output of goods and services.E) A) and B)
F) None of the above

Question 12

The consumer price index tires to measure how much consumer incomes must rise in order to maintain a constant

Accepted Answer

A)  level of real GDP.
B)  ratio of consumption to GDP.
C)  ratio of net exports to GDP.
D)  standard of living.E) All of the above
F) None of the above

Question 13

For any given year, the CPI is the price of the basket of goods and services in the

Accepted Answer

A)  given year divided by the price of the basket in the base year, then multiplied by 100.
B)  given year divided by the price of the basket in the previous year, then multiplied by 100.
C)  base year divided by the price of the basket in the given year, then multiplied by 100.
D)  previous year divided by the price of the basket in the given year, then multiplied by 100.E) A) and D)
F) B) and C)

Question 14

Assume that consumers consider rice and potatoes to be substitutes, so that when the price of rice rises, consumers purchase less rice and more potatoes. When the CPI is computed following the increase in the price of rice, it takes into account

Accepted Answer

A)  the increase in the price of rice.
B)  the decrease in the quantity of rice purchased and the increase in the quantity of potatoes purchased.
C)  Both (a)  and (b)  are correct.
D)  None of the above is correct.E) A) and D)
F) B) and C)

Question 15

By not taking into account the possibility of consumer substitution, the CPI

Accepted Answer

A)  understates the cost of living.
B)  overstates the cost of living.
C)  may overstate or understate the cost of living, depending on how quickly prices rise.
D)  may overstate or understate the cost of living, regardless of how quickly prices rise.E) A) and D)
F) A) and C)

Question 16

Suppose today's CPI is 134.85, and suppose one must spend $580 today to purchase the same basket of goods and services that could be bought for $400 in 1989. Then the CPI in 1989 was

Accepted Answer

A)  24.27.
B)  60.68.
C)  93.00.
D)  195.53.E) A) and D)
F) None of the above

Question 17

Consumer price index =  
 × 100.

Accepted Answer

A) True 
 B)False

Question 18

Suppose the typical household spends $3,500 on goods and services during the month of January, and $4,300 on the same goods and services in February. Using January as the base period, what is the consumer price index for February?

Accepted Answer

A)  151.4
B)  81.4
C)  55.1
D)  122.9E) B) and C)
F) B) and D)

Question 19

You know that a candy bar cost five cents in 1962. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in today's prices?

Accepted Answer

A)  five cents  (1962 CPI / today's CPI) 
B)  five cents  ((today's CPI - 1962 CPI) /1962 CPI) 
C)  five cents  (today's CPI / 1962 CPI) 
D)  five cents  today's CPI - five cents  1962 CPI.E) A) and D)
F) All of the above

Question 20

In 1954, Mickey Mantle earned $21,000 playing for the New York Yankees. The CPI in 1954 was 26.9, and the CPI in 2010 was 218.06. What is Mickey Mantle's 1954 salary in 2010 dollars?

Accepted Answer

Mickey Mantle's 1954...

Exam 24: Measuring the Cost of Living

Changes in the producer price index are often thought to be useful in predicting changes in

Correct AnswerverifiedShow Answer

In comparison to the situation in the late 1970s, the United States experienced lower nominal interest rates and higher real interest rates in the late 1990s.

Correct AnswerverifiedShow Answer

With respect to the consumer price index, which of the following serves as an example of how the substitution bias arises? Between 2010 and 2011, the price of a pound of peanuts

Correct AnswerverifiedShow Answer

In 1954, Mickey Mantle earned $21,000 playing for the New York Yankees. The CPI in 1954 was 26.9, and the CPI in 2010 was 218.06. What is Mickey Mantle's 1954 salary in 2010 dollars?

Correct AnswerverifiedMickey Mantle's 1954...View AnswerShow Answer

Suppose the typical household spends $3,500 on goods and services during the month of January, and $4,300 on the same goods and services in February. Using January as the base period, what is the consumer price index for February?

Correct AnswerverifiedShow Answer

For any given year, the CPI is the price of the basket of goods and services in the

Correct AnswerverifiedShow Answer

If the CPI was 127 in 1972 and is 324 today, then $10 in 1972 purchased the same amount of goods and services as

Correct AnswerverifiedShow Answer

Suppose today's CPI is 134.85, and suppose one must spend $580 today to purchase the same basket of goods and services that could be bought for $400 in 1989. Then the CPI in 1989 was

Correct AnswerverifiedShow Answer

Social Security payments are indexed for inflation using

Correct AnswerverifiedShow Answer

Assume that consumers consider rice and potatoes to be substitutes, so that when the price of rice rises, consumers purchase less rice and more potatoes. When the CPI is computed following the increase in the price of rice, it takes into account

Correct AnswerverifiedShow Answer

By not taking into account the possibility of consumer substitution, the CPI

Correct AnswerverifiedShow Answer

The CPI is calculated

Correct AnswerverifiedShow Answer

The producer price index measures the cost of a basket of goods and services

Correct AnswerverifiedShow Answer

​Table 24-16 ​ The following table shows the value of the Consumer Price Index and the nominal interest rate for 2013-2015. ​ ​ -Refer to Table 24-16. What was the real interest rate in 2015?​

Correct AnswerverifiedShow Answer

The consumer price index was 225 in 2008 and 232.2 in 2009. The nominal interest rate during this period was 6.5 percent. What was the real interest rate during this period?

Correct AnswerverifiedShow Answer

If the nominal interest rate is 5 percent and the inflation rate is 2 percent, then the real interest rate is 7 percent.

Correct AnswerverifiedShow Answer

Consumer price index = × 100.

Correct AnswerverifiedShow Answer

Which of the following changes in the price index produces the greatest rate of inflation: 100 to 110, 150 to 165, or 180 to 198?

Correct AnswerverifiedShow Answer

The consumer price index tires to measure how much consumer incomes must rise in order to maintain a constant

Correct AnswerverifiedShow Answer

You know that a candy bar cost five cents in 1962. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in today's prices?

Correct AnswerverifiedShow Answer

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Mickey Mantle's 1954...
View Answer

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Table 24-16 The following table shows the value of the Consumer Price Index and the nominal interest rate for 2013-2015. -Refer to Table 24-16. What was the real interest rate in 2015?

Correct Answer
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