Question 1

What is the difference between the Consumer Price Index and the Producer Price Index?

Accepted Answer

The CPI measures the cost of a...

Question 2

A worker received $5 for a daily wage in 1930. What is the value of that wage today if the CPI was 17 in 1930 and is 230 today?

Accepted Answer

A)   37 cents
B)   $4.63
C)   $67.65
D)   $37.86E) A) and B)
F) None of the above

Question 3

Table 24-7. 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 24-7. Between 2010 and 2011, the cost of living increased by

Accepted Answer

A)   5.30 percent.
B)   6.36 percent.
C)   7.78 percent.
D)   We need to know the base year in order to answer this question.E) None of the above
F) A) and C)

Question 4

If the price index was 90 in year 1, 100 in year 2, and 95 in year 3, then the economy experienced

Accepted Answer

A)   10 percent inflation between years 1 and 2, and 5 percent inflation between years 2 and 3.
B)   10 percent inflation between years 1 and 2, and 5 percent deflation between years 2 and 3.
C)   11.1 percent inflation between years 1 and 2, and 5 percent inflation between years 2 and 3.
D)   11.1 percent inflation between years 1 and 2, and 5 percent deflation between years 2 and 3.E) A) and C)
F) A) and B)

Question 5

Which of the following is the most accurate statement about the effects of quality change on the CPI?

Accepted Answer

A)   Even though the BLS adjusts the prices of products in the CPI basket when the quality of the products changes, changes in quality are still a problem because quality is so hard to measure.
B)   Because the BLS adjusts the prices of products in the CPI basket when the quality of the products changes, changes in quality are no longer a problem for the CPI.
C)   The BLS does not adjust the CPI for quality changes.
D)   Most economists believe that changes in the quality of goods included in the CPI basket do not bias the CPI as a measure of the cost of living.E) None of the above
F) B) and C)

Question 6

Scenario 24-5
Suppose the residents of Mediaville spend all of their income on books, CDs, and DVDs. In 2009, they buy 400 books for $3,200, 200 CDs for $1,400, and 100 DVDs for $900. In 2010, they buy 360 books for $3,240, 250 CDs for $1,500, and 125 DVDs for $1,250. Assume that the market basket for the CPI is defined in the base year.
-Refer to Scenario 24-5. Using 2010 as the base year, what is the CPI in each year?

Accepted Answer

In 2009 the CPI is 9...

Question 7

Which of the following is not a widely acknowledged problem with using the CPI as a measure of the cost of living?

Accepted Answer

A)   substitution bias
B)   introduction of new goods
C)   unmeasured quality change
D)   unmeasured price changeE) B) and C)
F) B) and D)

Question 8

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 9

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 Will's 2009 food expenditures in 2011 dollars amount to $5,750. Then x, the consumer price index for 2011, has a value of

Accepted Answer

A)   184.0.
B)   185.8.
C)   187.5.
D)   189.4.E) A) and B)
F) All of the above

Question 10

Dewey earned a salary of $75,000 in 2001 and $95,000 in 2006. The consumer price index was 177 in 2001 and 266 in 2006. Dewey's 2006 salary in 2001 dollars is

Accepted Answer

A)   $47,768.36.
B)   $63,214.29.
C)   $84,550.00.
D)   $142,768.36.E) B) and C)
F) A) and D)

Question 11

Sophia puts money in the bank and earns a 5 percent nominal interest rate. If the inflation rate is 2 percent, then after one year,

Accepted Answer

A)   Sophia will have 3 percent more money, which will purchase 5 percent more goods.
B)   Sophia will have 3 percent more money, which will purchase 7 percent more goods.
C)   Sophia will have 5 percent more money, which will purchase 3 percent more goods.
D)   Sophia will have 5 percent more money, which will purchase 7 percent more goods.E) None of the above
F) C) and D)

Question 12

The inflation rate is defined as the

Accepted Answer

A)   price level in an economy.
B)   change in the price level from one period to the next.
C)   percentage change in the price level from the previous period.
D)   price level minus the price level from the previous period.E) None of the above
F) A) and D)

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

Question 14

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 15

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 B)
F) B) and C)

Question 16

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

Question 17

If the real value of an item bought ten years ago is less than it's nominal value at that time, what can one infer about the change in the overall price level during this ten year period?

Accepted Answer

One can infer that t...

Question 18

The price of milk increases dramatically, causing a 0.5 percent increase in the CPI. The price increase will most likely cause the GDP deflator to increase by

Accepted Answer

A)   more than 0.5 percent.
B)   less than 0.5 percent.
C)   0.5 percent.
D)   None of the above is correct; this particular price increase will not affect the GDP deflator.E) A) and D)
F) B) and C)

Question 19

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

Question 20

If the nominal interest rate is 5 percent and the rate of inflation is 9 percent, then the real interest rate is

Accepted Answer

A)   -4 percent.
B)   -0.44 percent.
C)   4 percent.
D)   14 percent.E) A) and D)
F) None of the above

Exam 24: Measuring the Cost of Living

The price of milk increases dramatically, causing a 0.5 percent increase in the CPI. The price increase will most likely cause the GDP deflator to increase by

Correct Answer
verified

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
verified

The inflation rate is defined as the

Correct Answer
verified

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

Correct Answer
verified

Dewey earned a salary of $75,000 in 2001 and $95,000 in 2006. The consumer price index was 177 in 2001 and 266 in 2006. Dewey's 2006 salary in 2001 dollars is

Correct Answer
verified

Correct Answer
verified

A worker received $5 for a daily wage in 1930. What is the value of that wage today if the CPI was 17 in 1930 and is 230 today?

Correct Answer
verified

If the real value of an item bought ten years ago is less than it's nominal value at that time, what can one infer about the change in the overall price level during this ten year period?

Correct Answer
verified
One can infer that t...
View Answer

What is the difference between the Consumer Price Index and the Producer Price Index?

Correct Answer
verified
The CPI measures the cost of a...
View Answer

Which of the following is the most accurate statement about the effects of quality change on the CPI?

Correct Answer
verified

If the nominal interest rate is 5 percent and the rate of inflation is 9 percent, then the real interest rate is

Correct Answer
verified

Which of the following is not a widely acknowledged problem with using the CPI as a measure of the cost of living?

Correct Answer
verified

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

Correct Answer
verified

If the price index was 90 in year 1, 100 in year 2, and 95 in year 3, then the economy experienced

Correct Answer
verified

Sophia puts money in the bank and earns a 5 percent nominal interest rate. If the inflation rate is 2 percent, then after one year,

Correct Answer
verified

Table 24-7. 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 24-7. Between 2010 and 2011, the cost of living increased by

Correct Answer
verified

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 Will's 2009 food expenditures in 2011 dollars amount to $5,750. Then x, the consumer price index for 2011, has a value of

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified
In 2009 the CPI is 9...
View Answer

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 Answer
verified

Exam 24: Measuring the Cost of Living

The price of milk increases dramatically, causing a 0.5 percent increase in the CPI. The price increase will most likely cause the GDP deflator to increase by

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

The inflation rate is defined as the

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

Dewey earned a salary of $75,000 in 2001 and $95,000 in 2006. The consumer price index was 177 in 2001 and 266 in 2006. Dewey's 2006 salary in 2001 dollars is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A worker received $5 for a daily wage in 1930. What is the value of that wage today if the CPI was 17 in 1930 and is 230 today?

Correct AnswerverifiedShow Answer

If the real value of an item bought ten years ago is less than it's nominal value at that time, what can one infer about the change in the overall price level during this ten year period?

Correct AnswerverifiedOne can infer that t...View AnswerShow Answer

What is the difference between the Consumer Price Index and the Producer Price Index?

Correct AnswerverifiedThe CPI measures the cost of a...View AnswerShow Answer

Which of the following is the most accurate statement about the effects of quality change on the CPI?

Correct AnswerverifiedShow Answer

If the nominal interest rate is 5 percent and the rate of inflation is 9 percent, then the real interest rate is

Correct AnswerverifiedShow Answer

Which of the following is not a widely acknowledged problem with using the CPI as a measure of the cost of living?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the price index was 90 in year 1, 100 in year 2, and 95 in year 3, then the economy experienced

Correct AnswerverifiedShow Answer

Sophia puts money in the bank and earns a 5 percent nominal interest rate. If the inflation rate is 2 percent, then after one year,

Correct AnswerverifiedShow Answer

Table 24-7. 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 24-7. Between 2010 and 2011, the cost of living increased by

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 Will's 2009 food expenditures in 2011 dollars amount to $5,750. Then x, the consumer price index for 2011, has a value of

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedIn 2009 the CPI is 9...View AnswerShow Answer

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

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One can infer that t...
View Answer

Correct Answer
verified
The CPI measures the cost of a...
View Answer

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Correct Answer
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Correct Answer
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In 2009 the CPI is 9...
View Answer

Correct Answer
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