Question 1

If the quality of a good deteriorates while its price remains the same,then the value of a dollar

Accepted Answer

A)   rises and the cost of living increases.
B)   rises and the cost of living decreases.
C)   falls and the cost of living increases.
D)   falls and the cost of living decreases.E) A) and B)
F) B) and C)

Question 2

The inflation rate reported in the news is usually calculated from the GDP deflator rather than the consumer price index.

Accepted Answer

A) True 
 B)False

Question 3

The Bureau of Labor Statistics determines which prices are most important to the typical consumer by surveying consumers.

Accepted Answer

A) True 
 B)False

Question 4

Suppose the quality of beef changes over time,but the quality change goes unmeasured for the purpose of computing the consumer price index.In which of the following instances would the bias resulting from the unmeasured quality change be least severe?

Accepted Answer

A)   The quality of beef deteriorates and beef becomes more expensive relative to other goods.
B)   The quality of beef deteriorates and beef becomes less expensive relative to other goods.
C)   The quality of beef improves and beef becomes more expensive relative to other goods.
D)   The quality of beef improves and the price of beef relative to other prices remains unchanged.E) All of the above
F) A) and B)

Question 5

In 1983,one could buy a model radio-controlled airplane for $11.50 each.Those same planes are available today and the price increased at exactly the rate of inflation.If the CPI today is 220.5 and in 1983 was 105,what is the price of the airplane today?

Accepted Answer

A)   $24.15
B)   $11.50
C)   $5.48
D)   $2.10E) B) and C)
F) A) and B)

Question 6

In computing the consumer price index,a base year is chosen.Which of the following statements about the base year is correct?

Accepted Answer

A)   The base year is always the first year among the years for which computations are being made.
B)   It is necessary to designate a base year only in the simplest case of two goods; in more realistic cases,it is not necessary to designate a base year.
C)   The value of the consumer price index is always 100 in the base year.
D)   The base year is always the year in which the cost of the basket was highest among the years for which computations are being made.E) A) and B)
F) All of the above

Question 7

When the consumer price index rises,the typical family

Accepted Answer

A)   has to spend more dollars to maintain the same standard of living.
B)   can spend fewer dollars to maintain the same standard of living.
C)   finds that its standard of living is not affected.
D)   can offset the effects of rising prices by saving more.E) A) and B)
F) A) and C)

Question 8

In 1974,one could buy a theater for $1.25.Today the same theater ticket costs $6.50.Which pair of CPIs would imply that the cost in today's dollars was the same for both tickets?

Accepted Answer

A)   60 in 1964 and 390 today
B)   75 in 1964 and 390 today
C)   80 in 1964 and 404 today
D)   95 in 1964 and 475 todayE) B) and C)
F) A) and D)

Question 9

In the basket of goods that is used to compute the consumer price index,the three largest categories of consumer spending are

Accepted Answer

A)   housing,transportation,and recreation.
B)   housing,transportation,and food & beverages.
C)   housing,food & beverages,and education & communication.
D)   housing,medical care,and education & communication.E) A) and B)
F) A) and C)

Question 10

If the current year CPI is 140,then the price level has increased 40 percent since the base year.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is not correct?

Accepted Answer

A)   The consumer price index gives economists a way of turning dollar figures into meaningful measures of purchasing power.
B)   The consumer price index is used to monitor changes in the cost of living over time.
C)   The consumer price index is used by economists to measure the inflation rate.
D)   The consumer price index is used to measure the quantity of goods and services that the economy is producing.E) B) and C)
F) A) and B)

Question 12

If the CPI was 108.00 in 1942 and is 336.96 today,then $10 in 1942 purchased the same amount of goods and services as

Accepted Answer

A)   $2.57 purchases today.
B)   $28.89 purchases today.
C)   $31.20 purchases today.
D)   $38.89 purchases today.E) All of the above
F) None of the above

Question 13

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

Accepted Answer

A)   education & communication
B)   apparel
C)   medical care
D)   recreationE) All of the above
F) A) and C)

Question 14

When ranking movies by nominal box office receipts,what important fact is overlooked?

Accepted Answer

A)   More people go to movies now than in the past.
B)   There are no good substitutes for movies currently.
C)   Prices,including those for movie tickets,have been rising over time.
D)   Movies and DVD are complements.E) A) and B)
F) C) and D)

Question 15

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) None of the above
F) A) and D)

Question 16

When the consumer price index falls,the typical family has to spend fewer dollars to maintain the same standard of living.

Accepted Answer

A) True 
 B)False

Question 17

A decrease in the price of domestically produced industrial robots will be reflected in

Accepted Answer

A)   both the GDP deflator and the consumer price index.
B)   neither the GDP deflator nor the consumer price index.
C)   the GDP deflator but not in the consumer price index.
D)   the consumer price index but not in the GDP deflator.E) All of the above
F) C) and D)

Question 18

Categories of U.S.consumer spending,ranked from largest to smallest,are

Accepted Answer

A)   housing,food & beverages,education & communication,and transportation.
B)   education & communication,housing,food & beverages,and transportation.
C)   food & beverages,housing,transportation,and medical care.
D)   housing,transportation,food & beverages,and medical care.E) A) and D)
F) A) and C)

Question 19

Suppose the price of a six-pack of cola rises from $3 to $3.75 and the price of a pack of mints rises from $1.25 to $1.75.If the CPI rises from 140 to 182,then people likely will buy

Accepted Answer

A)   more cola and more mints.
B)   more cola and fewer mints.
C)   less cola and more mints.
D)   less cola and fewer mints.E) B) and C)
F) A) and B)

Question 20

Persistent increases in the overall level of prices have been the norm.

Accepted Answer

A) True 
 B)False

Exam 16: Measuring the Cost of Living

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

Correct AnswerverifiedShow Answer

If the current year CPI is 140,then the price level has increased 40 percent since the base year.

Correct AnswerverifiedShow Answer

Categories of U.S.consumer spending,ranked from largest to smallest,are

Correct AnswerverifiedShow Answer

In 1983,one could buy a model radio-controlled airplane for $11.50 each.Those same planes are available today and the price increased at exactly the rate of inflation.If the CPI today is 220.5 and in 1983 was 105,what is the price of the airplane today?

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 smallest?

Correct AnswerverifiedShow Answer

When ranking movies by nominal box office receipts,what important fact is overlooked?

Correct AnswerverifiedShow Answer

If the quality of a good deteriorates while its price remains the same,then the value of a dollar

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

Suppose the price of a six-pack of cola rises from $3 to $3.75 and the price of a pack of mints rises from $1.25 to $1.75.If the CPI rises from 140 to 182,then people likely will buy

Correct AnswerverifiedShow Answer

In the basket of goods that is used to compute the consumer price index,the three largest categories of consumer spending are

Correct AnswerverifiedShow Answer

Persistent increases in the overall level of prices have been the norm.

Correct AnswerverifiedShow Answer

When the consumer price index rises,the typical family

Correct AnswerverifiedShow Answer

A decrease in the price of domestically produced industrial robots will be reflected in

Correct AnswerverifiedShow Answer

When the consumer price index falls,the typical family has to spend fewer dollars to maintain the same standard of living.

Correct AnswerverifiedShow Answer

In 1974,one could buy a theater for $1.25.Today the same theater ticket costs $6.50.Which pair of CPIs would imply that the cost in today's dollars was the same for both tickets?

Correct AnswerverifiedShow Answer

If the CPI was 108.00 in 1942 and is 336.96 today,then $10 in 1942 purchased the same amount of goods and services as

Correct AnswerverifiedShow Answer

Suppose the quality of beef changes over time,but the quality change goes unmeasured for the purpose of computing the consumer price index.In which of the following instances would the bias resulting from the unmeasured quality change be least severe?

Correct AnswerverifiedShow Answer

The inflation rate reported in the news is usually calculated from the GDP deflator rather than the consumer price index.

Correct AnswerverifiedShow Answer

The Bureau of Labor Statistics determines which prices are most important to the typical consumer by surveying consumers.

Correct AnswerverifiedShow Answer

In computing the consumer price index,a base year is chosen.Which of the following statements about the base year is correct?

Correct AnswerverifiedShow Answer

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