Question 1

Two alternative measures of the overall level of prices are

Accepted Answer

A)   the inflation rate and the consumer price index.
B)   the inflation rate and the GDP deflator.
C)   the GDP deflator and the consumer price index.
D)   the cost of living index and nominal GDP.E) None of the above
F) B) and C)

Question 2

Elizabeth just received her Ph.D.in economics and has two competing job offers.The first is in Washington,D.C.and pays a salary of $200,000.She has a similar job offer in Austin,TX that pays $90,000.Which pair of CPIs would make the two salaries have the same purchasing power?

Accepted Answer

A)   70 in Washington,D.C.and 42 in Austin,TX
B)   140 in Washington,D.C.and 70 in Austin,TX
C)   160 in Washington,D.C.and 72 in Austin,TX
D)   210 in Washington,D.C.and 150 in Austin,TXE) B) and D)
F) A) and C)

Question 3

Scenario 16-4
Quinn has job offers in Wrexington and across the country in Charlieville.The Wrexington job would pay a salary of $50,000 per year,and the Charlieville job would pay a salary of $40,000 per year.The CPI in Wrexington is 150,and the CPI in Charlieville is 90.
-Refer to Scenario 16-4.The Wrexington salary in Charlieville dollars is

Accepted Answer

A)   $30,000.00.
B)   $33,333.33.
C)   $45,000.00
D)   $83,333.33.E) C) and D)
F) A) and C)

Question 4

If the current year CPI is 90,then the price level has decreased 10 percent since the base year.

Accepted Answer

A) True 
 B)False

Question 5

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

Question 6

Corey deposits $1,000 in a savings account that pays an annual interest rate of 5 percent.Over the course of a year,the inflation rate is 1.7 percent.At the end of the year,Corey has

Accepted Answer

A)   $17 more in his account,and his purchasing power has increased by $10.
B)   $30 more in his account,and his purchasing power has increased by $50.
C)   $40 more in his account,and his purchasing power has increased by $33.
D)   $50 more in his account,and his purchasing power has increased by $33.E) B) and D)
F) A) and B)

Question 7

Which of the following statements is correct about the relationship between inflation and interest rates?

Accepted Answer

A)   There is no relationship between inflation and interest rates.
B)   The interest rate is determined by the rate of inflation.
C)   In order to fully understand inflation,we need to know how to correct for the effects of interest rates.
D)   In order to fully understand interest rates,we need to know how to correct for the effects of inflation.E) C) and D)
F) All of the above

Question 8

If the nominal interest rate is 1.5 percent and the rate of inflation is -0.5 percent,then the real interest rate is

Accepted Answer

A)   -4 percent.
B)   -2 percent.
C)   1 percent.
D)   2 percent.E) None of the above
F) B) and D)

Question 9

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 10

In an imaginary economy,consumers buy only hot dogs and hamburgers.The fixed basket consists of 10 hot dogs and 6 hamburgers.A hot dog cost $3 in 2006 and $5.40 in 2007.A hamburger cost $5 in 2006 and $6 in 2007.Which of the following statements is correct?

Accepted Answer

A)   When 2006 is chosen as the base year,the consumer price index is 90 in 2007.
B)   When 2006 is chosen as the base year,the inflation rate is 150 percent in 2007.
C)   When 2007 is chosen as the base year,the consumer price index is 100 in 2006.
D)   When 2007 is chosen as the base year,the inflation rate is 50 percent in 2007.E) B) and C)
F) A) and D)

Question 11

One problem with the consumer price index stems from the fact that,over time,consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive.This problem is called

Accepted Answer

A)   price-change neglect.
B)   unmeasured quality change.
C)   substitution bias.
D)   relative bias.E) A) and B)
F) All of the above

Question 12

Substitution bias causes the CPI to understate the increase in the cost of living from one year to the next.

Accepted Answer

A) True 
 B)False

Question 13

Which is the most accurate statement about the GDP deflator and the consumer price index?

Accepted Answer

A)   The GDP deflator compares the price of a fixed basket of goods and services to the price of the basket in the base year,whereas the consumer price index compares the price of currently produced goods and services to the price of the same goods and services in the base year.
B)   The consumer price index compares the price of a fixed basket of goods and services to the price of the basket in the base year,whereas the GDP deflator compares the price of currently produced goods and services to the price of the same goods and services in the base year.
C)   Both the GDP deflator and the consumer price index compare the price of a fixed basket of goods and services to the price of the basket in the base year.
D)   Both the GDP deflator and the consumer price index compare the price of currently produced goods and services to the price of the same goods and services in the base year.E) B) and D)
F) All of the above

Question 14

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent.A year later,Bob withdraws his $105.If inflation was 5 percent during the year the money was deposited,then Bob's purchasing power has not changed.

Accepted Answer

A) True 
 B)False

Question 15

For the purpose of calculating the consumer price index,the basket of goods

Accepted Answer

A)   is kept the same from year to year so that the effects of price changes are isolated from the effect of any quantity changes that might be occurring at the same time.
B)   is kept the same from year to year; otherwise,the value of the index would remain constant from year to year.
C)   varies from year to year; otherwise,the value of the index would remain constant from year to year.
D)   varies from year to year so that consumers' buying patterns are updated in a timely fashion.E) B) and C)
F) A) and B)

Question 16

Which of the following is correct?

Accepted Answer

A)   Nominal and real interest rates always move together.
B)   Nominal and real interest rates never move together.
C)   Nominal and real interest rates do not always move together.
D)   Nominal and real interest rates always move in opposite directions.E) B) and C)
F) A) and D)

Question 17

Table 16-3
The table below pertains to Studious,an economy in which the typical consumer's basket consists of 5 books and 10 calculators.
 
-Refer to Table 16-3.If 2007 is the base year,then the consumer price index was

Accepted Answer

A)   74.1 in 2006,100 in 2007,and 114.8 in 2008.
B)   74.1 in 2006,270 in 2007,and 310 in 2008.
C)   200 in 2006,100 in 2007,and 114.8 in 2008.
D)   200 in 2006,270 in 2007,and 310 in 2008.E) A) and C)
F) A) and B)

Question 18

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

Question 19

Table 16-5
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 16-5.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 D)
F) None of the above

Question 20

In 1972,one could buy a bag of chips,a pound of hamburger,a package of buns,and a small bag of charcoal for about $2.50.If the same goods today cost $6.00,then which pair of CPIs would make the cost in today's dollars the same for both years?

Accepted Answer

A)   60 in 1972 and 150 today
B)   65 in 1972 and 156 today
C)   75 in 1972 and 160 today
D)   90 in 1972 and 145.8 todayE) All of the above
F) C) and D)

Exam 16: Measuring the Cost of Living

Substitution bias causes the CPI to understate the increase in the cost of living from one year to the next.

Correct Answer
verified

Which is the most accurate statement about the GDP deflator and the consumer price index?

Correct Answer
verified

Corey deposits $1,000 in a savings account that pays an annual interest rate of 5 percent.Over the course of a year,the inflation rate is 1.7 percent.At the end of the year,Corey has

Correct Answer
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Which of the following statements is correct about the relationship between inflation and interest rates?

Correct Answer
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Which of the following is correct?

Correct Answer
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One problem with the consumer price index stems from the fact that,over time,consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive.This problem is called

Correct Answer
verified

Two alternative measures of the overall level of prices are

Correct Answer
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If the nominal interest rate is 1.5 percent and the rate of inflation is -0.5 percent,then the real interest rate is

Correct Answer
verified

Correct Answer
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If the current year CPI is 90,then the price level has decreased 10 percent since the base year.

Correct Answer
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Table 16-5 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 16-5.If the base year is 2010,then the economy's inflation rate in 2010 was

Correct Answer
verified

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 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

Table 16-3 The table below pertains to Studious,an economy in which the typical consumer's basket consists of 5 books and 10 calculators. -Refer to Table 16-3.If 2007 is the base year,then the consumer price index was

Correct Answer
verified

In 1972,one could buy a bag of chips,a pound of hamburger,a package of buns,and a small bag of charcoal for about $2.50.If the same goods today cost $6.00,then which pair of CPIs would make the cost in today's dollars the same for both years?

Correct Answer
verified

In an imaginary economy,consumers buy only hot dogs and hamburgers.The fixed basket consists of 10 hot dogs and 6 hamburgers.A hot dog cost $3 in 2006 and $5.40 in 2007.A hamburger cost $5 in 2006 and $6 in 2007.Which of the following statements is correct?

Correct Answer
verified

For the purpose of calculating the consumer price index,the basket of goods

Correct Answer
verified

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

Correct Answer
verified

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent.A year later,Bob withdraws his $105.If inflation was 5 percent during the year the money was deposited,then Bob's purchasing power has not changed.

Correct Answer
verified

Elizabeth just received her Ph.D.in economics and has two competing job offers.The first is in Washington,D.C.and pays a salary of $200,000.She has a similar job offer in Austin,TX that pays $90,000.Which pair of CPIs would make the two salaries have the same purchasing power?

Correct Answer
verified

Exam 16: Measuring the Cost of Living

Substitution bias causes the CPI to understate the increase in the cost of living from one year to the next.

Correct AnswerverifiedShow Answer

Which is the most accurate statement about the GDP deflator and the consumer price index?

Correct AnswerverifiedShow Answer

Corey deposits $1,000 in a savings account that pays an annual interest rate of 5 percent.Over the course of a year,the inflation rate is 1.7 percent.At the end of the year,Corey has

Correct AnswerverifiedShow Answer

Which of the following statements is correct about the relationship between inflation and interest rates?

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

One problem with the consumer price index stems from the fact that,over time,consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive.This problem is called

Correct AnswerverifiedShow Answer

Two alternative measures of the overall level of prices are

Correct AnswerverifiedShow Answer

If the nominal interest rate is 1.5 percent and the rate of inflation is -0.5 percent,then the real interest rate is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the current year CPI is 90,then the price level has decreased 10 percent since the base year.

Correct AnswerverifiedShow Answer

Table 16-5 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 16-5.If the base year is 2010,then the economy's inflation rate in 2010 was

Correct AnswerverifiedShow 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

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

Table 16-3 The table below pertains to Studious,an economy in which the typical consumer's basket consists of 5 books and 10 calculators. -Refer to Table 16-3.If 2007 is the base year,then the consumer price index was

Correct AnswerverifiedShow Answer

In 1972,one could buy a bag of chips,a pound of hamburger,a package of buns,and a small bag of charcoal for about $2.50.If the same goods today cost $6.00,then which pair of CPIs would make the cost in today's dollars the same for both years?

Correct AnswerverifiedShow Answer

In an imaginary economy,consumers buy only hot dogs and hamburgers.The fixed basket consists of 10 hot dogs and 6 hamburgers.A hot dog cost $3 in 2006 and $5.40 in 2007.A hamburger cost $5 in 2006 and $6 in 2007.Which of the following statements is correct?

Correct AnswerverifiedShow Answer

For the purpose of calculating the consumer price index,the basket of goods

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

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent.A year later,Bob withdraws his $105.If inflation was 5 percent during the year the money was deposited,then Bob's purchasing power has not changed.

Correct AnswerverifiedShow Answer

Elizabeth just received her Ph.D.in economics and has two competing job offers.The first is in Washington,D.C.and pays a salary of $200,000.She has a similar job offer in Austin,TX that pays $90,000.Which pair of CPIs would make the two salaries have the same purchasing power?

Correct AnswerverifiedShow Answer

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