Question 1

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 2010, then the economy's inflation rate in 2010 was

Accepted Answer

A)   10.5 percent.
B)   15.0 percent.
C)   20.0 percent.
D)   25.00 percent.E) A) and B)
F) A) and C)

Question 2

If the CPI today is 120 and the CPI five years ago was 80, then something that cost $1 five years ago would cost $1.50 in today's prices.

Accepted Answer

A) True 
 B)False

Question 3

Suppose the price of a gallon of ice cream rises from $4 to $5 and the price of a can of coffee rises from $2 to $2.50. If the CPI rises from 150 to 177, then people likely will buy

Accepted Answer

A)   more ice cream and more coffee.
B)   more ice cream and less coffee.
C)   less ice cream and more coffee.
D)   less ice cream and less coffee.E) A) and C)
F) All of the above

Question 4

If the nominal interest rate is 4 percent and the real interest rate is -2.5 percent, then the inflation rate is

Accepted Answer

A)   -6.5 percent.
B)   -1.5 percent.
C)   1.5 percent.
D)   6.5 percent.E) A) and C)
F) None of the above

Question 5

The Bureau of Labor Statistics is part of the U.S. Department of Labor.

Accepted Answer

A) True 
 B)False

Question 6

To which of the problems in the construction of the CPI is the invention of pocket-sized computers most relevant?

Accepted Answer

A)   substitution bias
B)   introduction of new goods
C)   unmeasured quality change
D)   income biasE) None of the above
F) A) and B)

Question 7

John just graduated law school and has two competing job offers. The first is in Phoenix and pays a salary of $150,000. He has a similar job offer in Cleveland that pays $90,000. Which pair of CPIs would make the two salaries have the same purchasing power?

Accepted Answer

A)   70 in Phoenix and 42 in Cleveland
B)   68 in Phoenix and 34 in Cleveland
C)   42 in Phoenix and 70 in Cleveland
D)   34 in Phoenix and 68 in ClevelandE) All of the above
F) A) and C)

Question 8

Several studies in the 1990s concluded that the consumer price index overstated inflation by about

Accepted Answer

A)   3 percentage points per year, and that number of percentage points likely still applies now.
B)   3 percentage points per year, but recent improvements to the CPI probably have reduced the overstatement of inflation to something less than 3 percentage points.
C)   1 percentage point per year, and that number of percentage points likely still applies now.
D)   1 percentage point per year, but recent improvements to the CPI probably have reduced the overstatement of inflation to something less than 1 percentage pointE) None of the above
F) A) and C)

Question 9

The nominal interest rate for a consumer loan lasting from 2007 to 2008 is 8.5 percent and the real interest rate is 4.5 percent. If the consumer price index was 200 in 2007, what would the consumer price index value be in 2008?

Accepted Answer

A)   192
B)   208
C)   209
D)   217E) A) and D)
F) B) and D)

Question 10

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 2012 is the base year, then the inflation rate in 2013 was

Accepted Answer

A)   23.5 percent.
B)   1.04 percent.
C)   10 percent.
D)   4.4 percent.E) B) and C)
F) B) and D)

Question 11

When some dollar amount is automatically corrected for inflation by law or contract, the amount is said to be indexed for inflation.

Accepted Answer

A) True 
 B)False

Question 12

Many economists believe the bias in the CPI is now only about half as large as it once was.

Accepted Answer

A) True 
 B)False

Question 13

Table 24-1
The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year.
 
-Refer to Table 24-1. What belongs in space D?

Accepted Answer

A)   12%
B)   154
C)   40%
D)   15%E) A) and B)
F) All of the above

Question 14

The price index was 220 in one year and 238.2 in the next year. What was the inflation rate?

Accepted Answer

A)   8.3 percent
B)   108.3 percent
C)   4.8 percent
D)   38.2 percentE) B) and D)
F) A) and B)

Question 15

Which of the following statements best represents economists' beliefs about the bias in the CPI as a measure of the cost of living?

Accepted Answer

A)   Economists agree that the bias in the CPI is a very serious problem.
B)   Economists agree that the bias in the CPI is not a serious problem.
C)   Economists agree on the severity of the CPI bias, but there is still debate on what to do about it.
D)   There is still debate among economists on the severity of the CPI bias and what to do about it.E) All of the above
F) C) and D)

Question 16

Suppose the price of a quart of milk rises from $1.00 to $1.20 and the price of a T-shirt rises from $8.00 to $9.60. If the CPI rises from 150 to 195, then people likely will buy

Accepted Answer

A)   more milk and more T-shirts.
B)   more milk and fewer T-shirts.
C)   less milk and more T-shirts.
D)   less milk and fewer T-shirts.E) None of the above
F) A) and C)

Question 17

If the real interest rate is 6.8% and the inflation rate is 3.9%, what is the nominal interest rate?

Accepted Answer

The nomina...

Question 18

If the real interest rate is 10.3% and the nominal interest rate is 12.6%, what is the inflation rate?

Accepted Answer

The inflat...

Question 19

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

Accepted Answer

A)   The consumer price index will increase relatively more than will the GDP deflator.
B)   The consumer price index and the GDP deflator will increase by the same amount.
C)   The consumer price index will increase relatively less than will the GDP deflator.
D)   One cannot generalize about the increase in the consumer price index relative to the increase in the GDP deflator.E) None of the above
F) A) and B)

Question 20

In 1972, one could buy model rocket engines for $1.50 each. If those same engines cost $2.50 each today, then which pair of CPIs would make the engine prices in today's dollars the same for both years?

Accepted Answer

A)   60 in 1972 and 95 today
B)   60 in 1972 and 120 today
C)   90 in 1972 and 150 today
D)   96 in 1972 and 154 todayE) B) and D)
F) B) and C)

Exam 6: Measuring the Cost of Living

If the real interest rate is 6.8% and the inflation rate is 3.9%, what is the nominal interest rate?

Correct AnswerverifiedThe nomina...View AnswerShow Answer

Suppose the price of a quart of milk rises from $1.00 to $1.20 and the price of a T-shirt rises from $8.00 to $9.60. If the CPI rises from 150 to 195, then people likely will buy

Correct AnswerverifiedShow Answer

Many economists believe the bias in the CPI is now only about half as large as it once was.

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 2012 is the base year, then the inflation rate in 2013 was

Correct AnswerverifiedShow Answer

To which of the problems in the construction of the CPI is the invention of pocket-sized computers most relevant?

Correct AnswerverifiedShow Answer

Which of the following statements best represents economists' beliefs about the bias in the CPI as a measure of the cost of living?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the CPI today is 120 and the CPI five years ago was 80, then something that cost $1 five years ago would cost $1.50 in today's prices.

Correct AnswerverifiedShow Answer

Table 24-1 The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year. -Refer to Table 24-1. What belongs in space D?

Correct AnswerverifiedShow Answer

If the nominal interest rate is 4 percent and the real interest rate is -2.5 percent, then the inflation rate is

Correct AnswerverifiedShow Answer

Suppose the price of a gallon of ice cream rises from $4 to $5 and the price of a can of coffee rises from $2 to $2.50. If the CPI rises from 150 to 177, then people likely will buy

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 2010, then the economy's inflation rate in 2010 was

Correct AnswerverifiedShow Answer

The price index was 220 in one year and 238.2 in the next year. What was the inflation rate?

Correct AnswerverifiedShow Answer

When some dollar amount is automatically corrected for inflation by law or contract, the amount is said to be indexed for inflation.

Correct AnswerverifiedShow Answer

The Bureau of Labor Statistics is part of the U.S. Department of Labor.

Correct AnswerverifiedShow Answer

John just graduated law school and has two competing job offers. The first is in Phoenix and pays a salary of $150,000. He has a similar job offer in Cleveland that pays $90,000. Which pair of CPIs would make the two salaries have the same purchasing power?

Correct AnswerverifiedShow Answer

If the real interest rate is 10.3% and the nominal interest rate is 12.6%, what is the inflation rate?

Correct AnswerverifiedThe inflat...View AnswerShow Answer

Several studies in the 1990s concluded that the consumer price index overstated inflation by about

Correct AnswerverifiedShow Answer

In 1972, one could buy model rocket engines for $1.50 each. If those same engines cost $2.50 each today, then which pair of CPIs would make the engine prices in today's dollars the same for both years?

Correct AnswerverifiedShow Answer

The nominal interest rate for a consumer loan lasting from 2007 to 2008 is 8.5 percent and the real interest rate is 4.5 percent. If the consumer price index was 200 in 2007, what would the consumer price index value be in 2008?

Correct AnswerverifiedShow Answer

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The inflat...
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