Question 1

Harry spent $39,000 in 2009 and $42,000 in 2014 on goods and services. The consumer price index was 220 for 2009 and 231 for 2014. Harry's 2009 spending in 2014 dollars is about

Accepted Answer

A)   $43,290.
B)   $37,143.
C)   $40,950.
D)   $40,857.E) B) and C)
F) A) and B)

Question 2

Social Security payments are indexed for inflation using the CPI. A recent newspaper editorial claimed that Social Security recipients are harmed by years of low inflation because they do not receive as large an increase in their payments as they do in years of high inflation. Which of the following statements is correct?

Accepted Answer

A)   The newspaper editorial is correct under all circumstances.
B)   The newspaper editorial is correct if the market basket consumed by Social Security recipients is the same as the market basket used to compute the CPI.
C)   The newspaper editorial could be correct if the prices of the goods consumed by Social Security recipients change at a different rate than the prices of the goods in the market basket used to compute the CPI
D)   The newspaper editorial is incorrect under all circumstances.E) A) and B)
F) B) and D)

Question 3

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) All of the above

Question 4

Table 24-6
The table below pertains to Napandsnack, an economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs.
 
-Refer to Table 24-6. If the base year is 2011, then the consumer price index was

Accepted Answer

A)   125.0 in 2009, 150.0 in 2010, and 145.0 in 2011.
B)   86.2 in 2009, 96.7 in 2010, and 100.0 in 2011.
C)   86.2 in 2009, 103.4 in 2010, and 100.0 in 2011.
D)   124.1 in 2009, 103.4 in 2010, and 100.0 in 2011.E) C) and D)
F) A) and D)

Question 5

Reports on the current consumer price index are released every

Accepted Answer

A)   quarter.
B)   two weeks.
C)   month.
D)   week.E) A) and C)
F) B) and D)

Question 6

Scenario 24-1
The price tag on a tennis ball in 1975 read $0.10, and the price tag on a tennis ball in 2005 read $1.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3.
-Refer to Scenario 24-1. In 1975 dollars, a 1975 tennis ball cost $0.10 and a 2005 tennis ball cost

Accepted Answer

A)   $0.27, so tennis balls were cheaper in 1975.
B)   $0.27, so tennis balls were cheaper in 2005.
C)   $3.66, so tennis balls were cheaper in 1975.
D)   $3.66, so tennis balls were cheaper in 2005.E) B) and C)
F) A) and C)

Question 7

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

Question 8

Suppose that the prices of dairy products have risen relatively less than prices in general over the last several years. 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) B) and C)
F) A) and D)

Question 9

Table 24-6
The table below pertains to Napandsnack, an economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs.
 
-Refer to Table 24-6. If the base year is 2011, then the CPI

Accepted Answer

A)   increased from 2009 to 2010 and increased from 2010 to 2011.
B)   increased from 2009 to 2010 and decreased from 2010 to 2011.
C)   decreased from 2009 to 2010 and increased from 2010 to 2011.
D)   decreased from 2009 to 2010 and decreased from 2010 to 2011.E) A) and B)
F) All of the above

Question 10

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 D)
F) None of the above

Question 11

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) C) and D)
F) All of the above

Question 12

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

Accepted Answer

A)   food & beverages
B)   recreation
C)   housing
D)   apparelE) A) and D)
F) B) and C)

Question 13

The consumer price index and the GDP deflator are two alternative measures of the overall price level. Which of the following statements about the two measures is correct?

Accepted Answer

A)   The two measures are constructed differently, but they always indicate the same inflation rate.
B)   The substitution bias applies equally to both measures.
C)   A change in the price of Korean televisions is reflected in the U.S. consumer price index but not in the U.S. GDP deflator.
D)   All of the above are correct.E) C) and D)
F) None of the above

Question 14

Suppose the price index was 105 in 2017, 126 in 2018, and the inflation rate was lower between 2018 and 2019 than it was between 2017 and 2018. This means that

Accepted Answer

A)   the price index in 2019 was lower than 126.0.
B)   the price index in 2019 was lower than 147.0.
C)   the price index in 2019 was lower than 151.2.
D)   the inflation rate between 2018 and 2019 was lower than 1.2 percent.E) None of the above
F) A) and C)

Question 15

Table 24-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below.
 
-Refer to Table 24-12. Suppose the consumer price index is 15.5 percent higher in 2011 than in 2009. Then Will's food expenditures for 2010 in 2011 dollars amount to

Accepted Answer

A)   $6,352.
B)   $6,380.
C)   $6,426.
D)   $6,651.E) C) and D)
F) B) and D)

Question 16

In general, if a consumer good is produced domestically and consumed domestically, a decrease in its price will have which of the following effects?

Accepted Answer

A)   The consumer price index will decrease relatively more than will the GDP deflator.
B)   The consumer price index and the GDP deflator will decrease by the same amount.
C)   The consumer price index will decrease relatively less than will the GDP deflator.
D)   One cannot generalize about the decrease in the consumer price index relative to the decrease in the GDP deflator.E) B) and C)
F) A) and D)

Question 17

Economists use the term inflation to describe a situation in which

Accepted Answer

A)   some prices are rising faster than others.
B)   the economy's overall price level is rising.
C)   the economy's overall price level is high, but not necessarily rising.
D)   the economy's overall output of goods and services is rising faster than the economy's overall price level.E) C) and D)
F) All of the above

Question 18

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) A) and C)
F) None of the above

Question 19

Which of the following statements about real and nominal interest rates is correct?

Accepted Answer

A)   When the nominal interest rate is rising, the real interest rate is necessarily rising; when the nominal interest rate is falling, the real interest rate is necessarily falling.
B)   If the nominal interest rate is 4 percent and the inflation rate is 3 percent, then the real interest rate is 7 percent.
C)   An increase in the real interest rate is necessarily accompanied by either an increase in the nominal interest rate, an increase in the inflation rate, or both.
D)   When the inflation rate is positive, the nominal interest rate is necessarily greater than the real interest rate.E) B) and C)
F) None of the above

Question 20

The real interest rate is the interest rate corrected for inflation.

Accepted Answer

A) True 
 B)False

Exam 6: Measuring the Cost of Living

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

Correct Answer
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Table 24-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. -Refer to Table 24-12. Suppose the consumer price index is 15.5 percent higher in 2011 than in 2009. Then Will's food expenditures for 2010 in 2011 dollars amount to

Correct Answer
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Table 24-6 The table below pertains to Napandsnack, an economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs. -Refer to Table 24-6. If the base year is 2011, then the CPI

Correct Answer
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Scenario 24-1 The price tag on a tennis ball in 1975 read $0.10, and the price tag on a tennis ball in 2005 read $1.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3. -Refer to Scenario 24-1. In 1975 dollars, a 1975 tennis ball cost $0.10 and a 2005 tennis ball cost

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

Correct Answer
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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

Suppose the price index was 105 in 2017, 126 in 2018, and the inflation rate was lower between 2018 and 2019 than it was between 2017 and 2018. This means that

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

Table 24-6 The table below pertains to Napandsnack, an economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs. -Refer to Table 24-6. If the base year is 2011, then the consumer price index was

Correct Answer
verified

Economists use the term inflation to describe a situation in which

Correct Answer
verified

Suppose that the prices of dairy products have risen relatively less than prices in general over the last several years. To which problem in the construction of the CPI is this situation most relevant?

Correct Answer
verified

Reports on the current consumer price index are released every

Correct Answer
verified

Harry spent $39,000 in 2009 and $42,000 in 2014 on goods and services. The consumer price index was 220 for 2009 and 231 for 2014. Harry's 2009 spending in 2014 dollars is about

Correct Answer
verified

The consumer price index and the GDP deflator are two alternative measures of the overall price level. Which of the following statements about the two measures is correct?

Correct Answer
verified

The real interest rate is the interest rate corrected for inflation.

Correct Answer
verified

Which of the following statements about real and nominal interest rates is correct?

Correct Answer
verified

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

Correct Answer
verified

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 Answer
verified

In general, if a consumer good is produced domestically and consumed domestically, a decrease in its price will have which of the following effects?

Correct Answer
verified

Exam 6: Measuring the Cost of Living

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

Correct AnswerverifiedShow Answer

Table 24-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. -Refer to Table 24-12. Suppose the consumer price index is 15.5 percent higher in 2011 than in 2009. Then Will's food expenditures for 2010 in 2011 dollars amount to

Correct AnswerverifiedShow Answer

Table 24-6 The table below pertains to Napandsnack, an economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs. -Refer to Table 24-6. If the base year is 2011, then the CPI

Correct AnswerverifiedShow Answer

Scenario 24-1 The price tag on a tennis ball in 1975 read $0.10, and the price tag on a tennis ball in 2005 read $1.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3. -Refer to Scenario 24-1. In 1975 dollars, a 1975 tennis ball cost $0.10 and a 2005 tennis ball cost

Correct AnswerverifiedShow Answer

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 smallest?

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

Suppose the price index was 105 in 2017, 126 in 2018, and the inflation rate was lower between 2018 and 2019 than it was between 2017 and 2018. This means that

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

Table 24-6 The table below pertains to Napandsnack, an economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs. -Refer to Table 24-6. If the base year is 2011, then the consumer price index was

Correct AnswerverifiedShow Answer

Economists use the term inflation to describe a situation in which

Correct AnswerverifiedShow Answer

Suppose that the prices of dairy products have risen relatively less than prices in general over the last several years. To which problem in the construction of the CPI is this situation most relevant?

Correct AnswerverifiedShow Answer

Reports on the current consumer price index are released every

Correct AnswerverifiedShow Answer

Harry spent $39,000 in 2009 and $42,000 in 2014 on goods and services. The consumer price index was 220 for 2009 and 231 for 2014. Harry's 2009 spending in 2014 dollars is about

Correct AnswerverifiedShow Answer

The consumer price index and the GDP deflator are two alternative measures of the overall price level. Which of the following statements about the two measures is correct?

Correct AnswerverifiedShow Answer

The real interest rate is the interest rate corrected for inflation.

Correct AnswerverifiedShow Answer

Which of the following statements about real and nominal interest rates is correct?

Correct AnswerverifiedShow Answer

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

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 general, if a consumer good is produced domestically and consumed domestically, a decrease in its price will have which of the following effects?

Correct AnswerverifiedShow Answer

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