Question 1

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 2

The price index that measures the cost of a basket of goods and services bought by firms is called the

Accepted Answer

A)   industrial price index.
B)   producer price index.
C)   core price index.
D)   GDP deflator.E) All of the above
F) A) and B)

Question 3

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

Question 4

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

Accepted Answer

A)   education & communication
B)   food & beverages
C)   medical care
D)   recreationE) B) and D)
F) B) and C)

Question 5

An important difference between the GDP deflator and the consumer price index is that

Accepted Answer

A)   the GDP deflator reflects the prices of goods and services bought by producers, whereas the consumer price index reflects the prices of goods and services bought by consumers.
B)   the GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of goods and services bought by consumers.
C)   the GDP deflator reflects the prices of all final goods and services produced by a nation's citizens, whereas the consumer price index reflects the prices of all final goods and services bought by consumers.
D)   the GDP deflator reflects the prices of all final goods and services bought by producers and consumers, whereas the consumer price index reflects the prices of all final goods and services bought by consumers.E) None of the above
F) B) and C)

Question 6

To which of the problems in the construction of the CPI is the creation of the mobile phone 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 7

With respect to the consumer price index, which of the following does not serve 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)   rises from $1.00 to $1.30 while the price of a loaf of bread rises from $2.00 to $2.30.
C)   remains constant, while the price of a loaf of bread rises from $2.00 to $2.30.
D)   falls from $1.00 to $0.80 while the price of a loaf of bread falls from $2.00 to $1.80.E) A) and D)
F) A) and B)

Question 8

The price index was 120 in 2006 and 127.2 in 2007. What was the inflation rate?

Accepted Answer

A)   5.7 percent
B)   6.0 percent
C)   7.2 percent
D)   27.2 percentE) A) and B)
F) C) and D)

Question 9

If the cost of housing increases by 10 percent, then, other things the same, the CPI is likely to increase by about

Accepted Answer

A)   1.7 percent.
B)   3.3 percent.
C)   4.2 percent.
D)   10 percent.E) B) and D)
F) A) and B)

Question 10

Scenario 6-3
Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2008. The price index was 17.6 in 1944 and 184 in 2008.
-Refer to Scenario 6-3. In real terms, Sue Holloway's income amounts to about what percentage of Josh Holloway's income?

Accepted Answer

A)   5.71 percent
B)   9.6 percent
C)   59.7 percent
D)   67.4 percentE) B) and C)
F) All of the above

Question 11

In the late 1970s, U.S. nominal interest rates were high and real interest rates were low, but in the late 1990s, U.S. nominal interest rates were low and real interest rates were high.

Accepted Answer

A) True 
 B)False

Question 12

The price index was 110 in the first year, 100 in the second year, and 96 in the third year. The economy experienced

Accepted Answer

A)   9.1 percent deflation between the first and second years, and 4 percent deflation between the second and third years.
B)   9.1 percent deflation between the first and second years, and 4.2 percent deflation between the second and third years.
C)   10 percent deflation between the first and second years, and 4 percent deflation between the second and third years.
D)   10 percent deflation between the first and second years, and 4.2 percent deflation between the second and third years.E) All of the above
F) A) and B)

Question 13

Henry Ford paid his workers $5 a day in 1914, when the CPI was 10. Today, with the price index at 177, the $5 a day is worth $88.50.

Accepted Answer

A) True 
 B)False

Question 14

When looking at a graph of nominal and real interest rates you notice the graph for nominal rates and the graph for real rates cross each other many times. From this you conclude

Accepted Answer

A)   consumer prices sometimes rose and sometimes fell in the time frame represented on the graph.
B)   consumer prices were always rising in the time frame represented on the graph.
C)   the economy never experienced a recession in the time frame represented on the graph.
D)   GDP was always increasing for the time frame represented on the graph.E) A) and D)
F) A) and C)

Question 15

The CPI differs from the GDP deflator in that

Accepted Answer

A)   the CPI is an inflation index, while the GDP deflator is a price index.
B)   substitution bias is not a problem with the CPI, but it is a problem with the GDP deflator.
C)   increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the GDP deflator but not in the CPI.
D)   increases in the prices of domestically produced goods that are sold to the U.S. government show up in the GDP deflator but not in the CPI.E) B) and C)
F) A) and D)

Question 16

Table 6-5
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 6-5. If the base year is 2009, then the economy's inflation rate in 2010 is

Accepted Answer

A)   20 percent.
B)   25 percent.
C)   30 percent.
D)   120 percent.E) A) and B)
F) A) and C)

Question 17

Table 6-4
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 6-4. If the base year is 2004, then the inflation rate in 2006 was

Accepted Answer

A)   44.4%.
B)   50%.
C)   62.5%.
D)   80%.E) B) and C)
F) B) and D)

Question 18

Table 6-5
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 6-5. The cost of the basket

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 C)
F) A) and B)

Question 19

Henri earned a salary of $50,000 in 2001 and $70,000 in 2006. The consumer price index was 177 in 2001 and 265.5 in 2006. Henri's 2001 salary in 2006 dollars is

Accepted Answer

A)   $25,000.00.
B)   $33,333.33.
C)   $44,250.00
D)   $75,000.00.E) A) and B)
F) A) and C)

Question 20

Which entity within the U.S. government is responsible for computing and reporting the CPI?

Accepted Answer

A)   the Department of Commerce
B)   the Department of Labor
C)   the General Accounting Office
D)   the Council of Economic AdvisersE) None of the above
F) All of the above

Exam 6: Measuring the Cost of Living

Henri earned a salary of $50,000 in 2001 and $70,000 in 2006. The consumer price index was 177 in 2001 and 265.5 in 2006. Henri's 2001 salary in 2006 dollars is

Correct Answer
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Correct Answer
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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 Answer
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To which of the problems in the construction of the CPI is the creation of the mobile phone most relevant?

Correct Answer
verified

If the cost of housing increases by 10 percent, then, other things the same, the CPI is likely to increase by about

Correct Answer
verified

When looking at a graph of nominal and real interest rates you notice the graph for nominal rates and the graph for real rates cross each other many times. From this you conclude

Correct Answer
verified

The price index was 120 in 2006 and 127.2 in 2007. What was the inflation rate?

Correct Answer
verified

The price index that measures the cost of a basket of goods and services bought by firms is called the

Correct Answer
verified

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

Correct Answer
verified

Table 6-5 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 6-5. The cost of the basket

Correct Answer
verified

In the late 1970s, U.S. nominal interest rates were high and real interest rates were low, but in the late 1990s, U.S. nominal interest rates were low and real interest rates were high.

Correct Answer
verified

The price index was 110 in the first year, 100 in the second year, and 96 in the third year. The economy experienced

Correct Answer
verified

With respect to the consumer price index, which of the following does not serve as an example of how the substitution bias arises? Between 2010 and 2011, the price of a pound of peanuts

Correct Answer
verified

Which entity within the U.S. government is responsible for computing and reporting the CPI?

Correct Answer
verified

Table 6-5 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 6-5. If the base year is 2009, then the economy's inflation rate in 2010 is

Correct Answer
verified

Table 6-4 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 6-4. If the base year is 2004, then the inflation rate in 2006 was

Correct Answer
verified

The CPI differs from the GDP deflator in that

Correct Answer
verified

An important difference between the GDP deflator and the consumer price index is that

Correct Answer
verified

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 Answer
verified

Henry Ford paid his workers $5 a day in 1914, when the CPI was 10. Today, with the price index at 177, the $5 a day is worth $88.50.

Correct Answer
verified

Exam 6: Measuring the Cost of Living

Henri earned a salary of $50,000 in 2001 and $70,000 in 2006. The consumer price index was 177 in 2001 and 265.5 in 2006. Henri's 2001 salary in 2006 dollars is

Correct AnswerverifiedShow Answer

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

To which of the problems in the construction of the CPI is the creation of the mobile phone most relevant?

Correct AnswerverifiedShow Answer

If the cost of housing increases by 10 percent, then, other things the same, the CPI is likely to increase by about

Correct AnswerverifiedShow Answer

When looking at a graph of nominal and real interest rates you notice the graph for nominal rates and the graph for real rates cross each other many times. From this you conclude

Correct AnswerverifiedShow Answer

The price index was 120 in 2006 and 127.2 in 2007. What was the inflation rate?

Correct AnswerverifiedShow Answer

The price index that measures the cost of a basket of goods and services bought by firms is called the

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 largest?

Correct AnswerverifiedShow Answer

Table 6-5 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 6-5. The cost of the basket

Correct AnswerverifiedShow Answer

In the late 1970s, U.S. nominal interest rates were high and real interest rates were low, but in the late 1990s, U.S. nominal interest rates were low and real interest rates were high.

Correct AnswerverifiedShow Answer

The price index was 110 in the first year, 100 in the second year, and 96 in the third year. The economy experienced

Correct AnswerverifiedShow Answer

With respect to the consumer price index, which of the following does not serve as an example of how the substitution bias arises? Between 2010 and 2011, the price of a pound of peanuts

Correct AnswerverifiedShow Answer

Which entity within the U.S. government is responsible for computing and reporting the CPI?

Correct AnswerverifiedShow Answer

Table 6-5 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 6-5. If the base year is 2009, then the economy's inflation rate in 2010 is

Correct AnswerverifiedShow Answer

Table 6-4 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 6-4. If the base year is 2004, then the inflation rate in 2006 was

Correct AnswerverifiedShow Answer

The CPI differs from the GDP deflator in that

Correct AnswerverifiedShow Answer

An important difference between the GDP deflator and the consumer price index is that

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

Henry Ford paid his workers $5 a day in 1914, when the CPI was 10. Today, with the price index at 177, the $5 a day is worth $88.50.

Correct AnswerverifiedShow Answer

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