Question 1

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

Question 2

Suppose the typical consumer buys more bananas than oranges.In fixing the basket of goods and services for the purpose of calculating the consumer price index,the Bureau of Labor Statistics

Accepted Answer

A)   ignores the fact that the typical consumer buys more bananas than orange;this procedure does not affect the value of the index.
B)   ignores the fact that the typical consumer buys more bananas than orange;this procedure results in a potentially-serious bias in the index.
C)   places more weight on the price of bananas than on the price of oranges;the weights of the two prices are determined by surveying consumers.
D)   places more weight on the price of bananas than on the price of oranges;the weights of the two prices are determined by the extent to which those prices have changed over the previous year.E) A) and B)
F) C) and D)

Question 3

The introduction of the video cassette recorder in the 1970s exemplified a problem in measuring the cost of living;that problem is the problem of

Accepted Answer

A)   substitution bias.
B)   product-improvement bias.
C)   introduction of new goods.
D)   unmeasured quality change.E) C) and D)
F) B) and D)

Question 4

The CPI is calculated

Accepted Answer

A)   monthly by the Department of Commerce.
B)   monthly by the Bureau of Labor Statistics.
C)   quarterly by the Department of Commerce.
D)   quarterly by the Bureau of Labor Statistics.E) C) and D)
F) A) and C)

Question 5

The inflation rate is calculated

Accepted Answer

A)   by determining the change in the price index from the preceding period.
B)   by determining the change in the price index from the base year.
C)   by determining the percentage change in the price index from the preceding period.
D)   by determining the percentage change in the price index from the base year.E) A) and B)
F) A) and C)

Question 6

Suppose the typical basket for the calculation of the CPI includes one computer.Since computers have gotten better over time as a result of technological change,what problem does this create for calculating the CPI?

Accepted Answer

The improvement in t...

Question 7

The CPI is always 1 in the base year.

Accepted Answer

A) True 
 B)False

Question 8

On goods and services,Harry spent $32,000 in 2004 and $39,000 in 2009.The consumer price index was 192 for 2004 and 217 for 2009.Harry's 2009 spending in 2004 dollars is about

Accepted Answer

A)   $34,507.
B)   $35,911.
C)   $36,167.
D)   $37,578.E) A) and C)
F) A) and B)

Question 9

In the calculation of the CPI,books are given greater weight than magazines if

Accepted Answer

A)   consumers buy more books than magazines.
B)   the price of books is higher than the price of magazines.
C)   it costs more to produce books than it costs to produce magazines.
D)   books are more readily available than magazines to the typical consumer.E) B) and C)
F) A) and B)

Question 10

The basket of goods in the consumer price index changes

Accepted Answer

A)   occasionally,as does the group of goods used to compute the GDP deflator.
B)   automatically,as does the group of goods used to compute the GDP deflator.
C)   occasionally,whereas the group of goods used to compute the GDP deflator changes automatically.
D)   automatically,whereas the group of goods used to compute the GDP deflator changes occasionally.E) A) and B)
F) A) and C)

Question 11

The consumer price index is subject to substitution bias because

Accepted Answer

A)   some pairs of goods are complements rather than substitutes.
B)   some goods are inferior rather than normal.
C)   the law of demand applies to most,if not all,goods.
D)   the index does not take into account the likelihood that consumers substitute newly-introduced goods for more-established goods.E) None of the above
F) B) and D)

Question 12

For purposes of calculating the CPI,the housing category of consumer spending includes the cost of

Accepted Answer

A)   shelter.
B)   fuel and other utilities.
C)   household furnishings and operation.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 13

Each week,the Bureau of Labor Statistics computes and reports the consumer price index.

Accepted Answer

A) True 
 B)False

Question 14

Because the consumer price index reflects the goods and services bought by consumers better than the GDP deflator does,it is the more common gauge of inflation.

Accepted Answer

A) True 
 B)False

Question 15

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 215 today?

Accepted Answer

A)   40 cents
B)   $5
C)   $63.24
D)   $632.40E) B) and D)
F) C) and D)

Question 16

In 1979 and 1980,

Accepted Answer

A)   the U.S.inflation rate as measured by the GDP deflator was higher than that measured by the CPI,and the difference was explained by rapidly rising prices of goods exported by the U.S.
B)   the U.S.inflation rate as measured by the CPI was higher than that measured by the GDP deflator,and the difference was explained by rapidly rising prices of goods exported by the U.S.
C)   the U.S.inflation rate as measured by the GDP deflator was higher than that measured by the CPI,and the difference was explained by rapidly rising oil prices.
D)   the U.S.inflation rate as measured by the CPI was higher than that measured by the GDP deflator,and the difference was explained by rapidly rising oil prices.E) A) and B)
F) A) and C)

Question 17

Suppose that over the past year,the real interest rate was 3 percent and the inflation rate was -1 percent.It follows that

Accepted Answer

A)   the dollar value of savings increased at 2 percent,and the purchasing power of savings increased at 3 percent.
B)   the dollar value of savings increased at 2 percent,and the purchasing power of savings increased at 4 percent.
C)   the dollar value of savings increased at 4 percent,and the purchasing power of savings increased at 2 percent.
D)   the dollar value of savings increased at 4 percent,and the purchasing power of savings increased at 3 percent.E) B) and D)
F) None of the above

Question 18

Ruben earned a salary of $60,000 in 2001 and $80,000 in 2006.The consumer price index was 177 in 2001 and 221.25 in 2006.Ruben's 2001 salary in 2006 dollars is

Accepted Answer

A)   $75,000;thus,Ruben's purchasing power increased between 2001 and 2006.
B)   $75,000;thus,Ruben's purchasing power decreased between 2001 and 2006.
C)   $85,000;thus,Ruben's purchasing power increased between 2001 and 2006.
D)   $85,000;thus,Ruben's purchasing power decreased between 2001 and 2006.E) None of the above
F) B) and C)

Question 19

Suppose a basket of goods and services has been selected to calculate the CPI and 2002 has been chosen as the base year.In 2002,the basket's cost was $75.00;in 2004,the basket's cost was $79.50;and in 2006,the basket's cost was $85.86.The value of the CPI was

Accepted Answer

A)   100 in 2002.
B)   106 in 2004.
C)   114.48 in 2006.
D)   All of the above are correct.E) A) and D)
F) A) and C)

Question 20

Pauline is offered a Job in Minneapolis that pays $80,000.She is offered a similar job in Louisville that pays $71,200.Which pair of CPIs would ensure that the two salaries have the same purchasing power?

Accepted Answer

A)   90 in Minneapolis and 83 in Louisville
B)   90 in Minneapolis and 72 in Louisville
C)   100 in Minneapolis and 89 in Louisville
D)   105 in Minneapolis and 90 in LouisvilleE) C) and D)
F) A) and B)

Exam 24: Measuring the Cost of Living

For purposes of calculating the CPI,the housing category of consumer spending includes the cost of

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The CPI is calculated

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In 1979 and 1980,

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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 215 today?

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Suppose that over the past year,the real interest rate was 3 percent and the inflation rate was -1 percent.It follows that

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Because the consumer price index reflects the goods and services bought by consumers better than the GDP deflator does,it is the more common gauge of inflation.

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In the calculation of the CPI,books are given greater weight than magazines if

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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

The inflation rate is calculated

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Pauline is offered a Job in Minneapolis that pays $80,000.She is offered a similar job in Louisville that pays $71,200.Which pair of CPIs would ensure that the two salaries have the same purchasing power?

Correct AnswerverifiedShow Answer

Suppose a basket of goods and services has been selected to calculate the CPI and 2002 has been chosen as the base year.In 2002,the basket's cost was $75.00;in 2004,the basket's cost was $79.50;and in 2006,the basket's cost was $85.86.The value of the CPI was

Correct AnswerverifiedShow Answer

Suppose the typical basket for the calculation of the CPI includes one computer.Since computers have gotten better over time as a result of technological change,what problem does this create for calculating the CPI?

Correct AnswerverifiedThe improvement in t...View AnswerShow Answer

On goods and services,Harry spent $32,000 in 2004 and $39,000 in 2009.The consumer price index was 192 for 2004 and 217 for 2009.Harry's 2009 spending in 2004 dollars is about

Correct AnswerverifiedShow Answer

The basket of goods in the consumer price index changes

Correct AnswerverifiedShow Answer

The CPI is always 1 in the base year.

Correct AnswerverifiedShow Answer

Ruben earned a salary of $60,000 in 2001 and $80,000 in 2006.The consumer price index was 177 in 2001 and 221.25 in 2006.Ruben's 2001 salary in 2006 dollars is

Correct AnswerverifiedShow Answer

Each week,the Bureau of Labor Statistics computes and reports the consumer price index.

Correct AnswerverifiedShow Answer

The introduction of the video cassette recorder in the 1970s exemplified a problem in measuring the cost of living;that problem is the problem of

Correct AnswerverifiedShow Answer

Suppose the typical consumer buys more bananas than oranges.In fixing the basket of goods and services for the purpose of calculating the consumer price index,the Bureau of Labor Statistics

Correct AnswerverifiedShow Answer

The consumer price index is subject to substitution bias because

Correct AnswerverifiedShow Answer

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The improvement in t...
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