Question 1

When converted to U.S. dollars, the cost of a Big Mac in Oslo, Norway is $5.67, but the same burger costs $5.09 in the United States. What does this indicate?

Accepted Answer

A)   Norway must have tariffs on the trade of Big Macs.
B)   Purchasing power parity does not hold in this situation.
C)   Purchasing power parity holds in this situation.
D)   Big Macs are not an example of a non-tradable good.E) A) and B)
F) None of the above

Question 2

Comparing the cost of the same basket of goods in different locations:

Accepted Answer

A)   is especially important for non-tradable goods.
B)   helps economists track changes in output.
C)   shows where purchasing power parity does not hold.
D)   compares the quality of goods across countries.E) All of the above
F) None of the above

Question 3

Headline inflation can be _______ volatile than core inflation, and it represents a _______ complete picture of inflation.

Accepted Answer

A)   more; less
B)   more; more
C)   less; less
D)   less; moreE) A) and D)
F) B) and C)

Question 4

Which index is used for international price comparisons?

Accepted Answer

A)   World Bank's International Comparison Program index
B)   World Bank's World Price Index
C)   United Nations' World Consumer Price Index
D)   World Trade Federation's International Price IndexE) None of the above
F) A) and B)

Question 5

The consumer price index (CPI) :

Accepted Answer

A)   measures the increase in the cost of the market basket relative to the cost in a given base year.
B)   is always 100 in the final year of measurement.
C)   helps us understand why current production compares with the cost of living at some time in the past.
D)   is a perfect measure of how prices change for all goods and services in the economy.E) All of the above
F) B) and D)

Question 6

Core inflation measures price changes:

Accepted Answer

A)   for the entire market basket of the average urban consumer.
B)   using the producer price index.
C)   for the entire market basket, but with food and energy costs taken out of the basket.
D)   using the retail price index.E) B) and C)
F) A) and D)

Question 7

The GDP deflator:

Accepted Answer

A)   measures price changes for everything produced in the country.
B)   may include goods produced abroad.
C)   uses a market basket to track price changes.
D)   is measured in the same way as the PPI.E) B) and C)
F) None of the above

Question 8

Product innovation:

Accepted Answer

A)   presents a problem when calculating the CPI because the market basket is fixed.
B)   causes the basket of goods used to calculate CPI to be updated immediately.
C)   causes the CPI to be overestimated, because it makes goods more expensive.
D)   isn't factored into the CPI at all.E) None of the above
F) C) and D)

Question 9

The table shown displays yearly salaries and the CPI across five decades.  Suppose your father tells you he earned a yearly salary of $45,000 in 1980. This salary figure is the:

Accepted Answer

A)   nominal value of his salary in 1980.
B)   real value of his salary in 1980.
C)   value of his 1980 salary adjusted to 2009 dollars.
D)   value of his 1980 salary adjusted for inflation.E) A) and D)
F) A) and C)

Question 10

A price index:

Accepted Answer

A)   measures how much the cost of a market basket has risen or fallen relative to the cost of the same market basket in a base time period.
B)   summarizes the changes in the cost of living for only rural consumers.
C)   allows us to see clearly the daily changes in the cost of a market basket.
D)   is generally only used for consumer goods and services.E) A) and C)
F) C) and D)

Question 11

A market basket:

Accepted Answer

A)   tracks how changing prices affect consumers.
B)   tracks all the goods and services produced in an economy.
C)   tracks the changes in price of items at the grocery store.
D)   only tracks the changing prices of imports in an economy.E) None of the above
F) A) and C)

Question 12

Assume a market basket includes three avocados, two loaves of bread, two dozen eggs, and a seasoning packet.  According to the table shown, what is the change in the price level between the base year and the current year?

Accepted Answer

A)   2.0 percent
B)   2.2 percent
C)   2.4 percent
D)   2.6 percentE) A) and B)
F) All of the above

Question 13

The table shown displays the price-level adjustments for Australia, China, and Mexico as compared to the United States.  Someone who makes $40,000 in the United States would need to earn _______ in Mexico to maintain the same standard of living.

Accepted Answer

A)   $60,606
B)   $26,400
C)   $40,000
D)   $13,600E) B) and C)
F) None of the above

Question 14

Because Social Security payments are indexed, Congress:

Accepted Answer

A)   no longer needs to vote to maintain their real value.
B)   has to vote on the amount of increase in payments every year.
C)   can let their nominal value decrease.
D)   can easily allocate social security money to other parts of the budget.E) A) and D)
F) A) and C)

Question 15

The real value of any variable is its nominal value:

Accepted Answer

A)   adjusted for inflation.
B)   holding the base constant.
C)   adjusted for income.
D)   holding the basket constant.E) All of the above
F) A) and B)

Question 16

Which of the following is a non-tradable good?

Accepted Answer

A)   A brightly painted toy from China
B)   A dish of poutine (fries with gravy and cheese curds)  from Canada
C)   A pair of handmade leather shoes from Italy
D)   A brand new laptop available for purchase in OhioE) C) and D)
F) A) and B)

Question 17

A market basket:

Accepted Answer

A)   is related to how firms make purchasing decisions.
B)   includes specific goods and services in fixed quantities that roughly correspond to a typical consumer's spending.
C)   includes housing, food, and clothing, but does not include transportation.
D)   is what an economist creates in order to understand the purchasing trends of households and firms.E) A) and B)
F) A) and C)

Question 18

When Social Security checks were first issued, the nominal amount:

Accepted Answer

A)   stayed the same for the life of the payments.
B)   increased by 5 percent every 3 months.
C)   increased by 10 percent every 3 years.
D)   stayed 3 percent above the poverty level for all recipients.E) B) and C)
F) All of the above

Question 19

Non-tradables are goods or services that:

Accepted Answer

A)   cannot be taken from place to place very easily or at all.
B)   are culturally specific and not typically traded for that reason.
C)   cannot legally cross a country's borders.
D)   are not traded on financial markets.E) A) and B)
F) A) and C)

Question 20

Assume a market basket includes three avocados, two loaves of bread, two dozen eggs, and a seasoning packet.  According to the table shown, what is the change in the price level between the base year and the current year?

Accepted Answer

A)   4.1 percent
B)   4.3 percent
C)   4.5 percent
D)   4.7 percentE) B) and C)
F) None of the above

Exam 8: Thecost of Living

Assume a market basket includes three avocados, two loaves of bread, two dozen eggs, and a seasoning packet. According to the table shown, what is the change in the price level between the base year and the current year?

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When converted to U.S. dollars, the cost of a Big Mac in Oslo, Norway is $5.67, but the same burger costs $5.09 in the United States. What does this indicate?

Correct AnswerverifiedShow Answer

Assume a market basket includes three avocados, two loaves of bread, two dozen eggs, and a seasoning packet. According to the table shown, what is the change in the price level between the base year and the current year?

Correct AnswerverifiedShow Answer

The table shown displays yearly salaries and the CPI across five decades. Suppose your father tells you he earned a yearly salary of $45,000 in 1980. This salary figure is the:

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Product innovation:

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Which index is used for international price comparisons?

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A market basket:

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Non-tradables are goods or services that:

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The consumer price index (CPI) :

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Core inflation measures price changes:

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A price index:

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Which of the following is a non-tradable good?

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Comparing the cost of the same basket of goods in different locations:

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The real value of any variable is its nominal value:

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The table shown displays the price-level adjustments for Australia, China, and Mexico as compared to the United States. Someone who makes $40,000 in the United States would need to earn _______ in Mexico to maintain the same standard of living.

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A market basket:

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Because Social Security payments are indexed, Congress:

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Headline inflation can be _______ volatile than core inflation, and it represents a _______ complete picture of inflation.

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The GDP deflator:

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When Social Security checks were first issued, the nominal amount:

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Headline inflation can be _ volatile than core inflation, and it represents a _ complete picture of inflation.

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