Question 1

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

Question 2

If the nominal interest rate is 8 percent and the real interest rate is 5.5 percent,then the inflation rate is

Accepted Answer

A)  -2.5 percent.
B)  0.45 percent.
C)  2.5 percent.
D)  13.5 percent.E) A) and B)
F) A) and C)

Question 3

What basket of goods and services is used to construct the CPI?

Accepted Answer

A)  a random sample of all goods and services produced in the economy
B)  the goods and services that are typically bought by consumers as determined by government surveys
C)  only food,clothing,transportation,entertainment,and education
D)  the least expensive and the most expensive goods and services in each major category of consumer expendituresE) None of the above
F) A) and B)

Question 4

The group of goods and services used to compute the GDP deflator changes automatically over time,but the group of goods and services used to compute the CPI does not.

Accepted Answer

A) True 
 B)False

Question 5

Compute how much each of the following items is worth in terms of today's dollars using 177 as the price index for today.
a.In 1926,the CPI was 17.7 and the price of a movie ticket was $0.25.
b.In 1932,the CPI was 13.1 and a cook earned $15.00 a week.
c.In 1943,the CPI was 17.4 and a gallon of gas cost $0.19.

Accepted Answer

a.
The movie ticket is worth $.25

177...

Question 6

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) None of the above
F) All of the above

Question 7

Assume that consumers consider rice and potatoes to be substitutes,so that when the price of rice rises,consumers purchase less rice and more potatoes.When the CPI is computed following the increase in the price of rice,it takes into account

Accepted Answer

A)  the increase in the price of rice.
B)  the decrease in the quantity of rice purchased and the increase in the quantity of potatoes purchased.
C)  Both (a) and (b) are correct.
D)  None of the above is correct.E) None of the above
F) A) and D)

Question 8

Suppose that over the past year,the real interest rate was 5 percent and the inflation rate was 3 percent.It follows that

Accepted Answer

A)  the value of savings increased at 5 percent,and the purchasing power of savings increased at 2 percent.
B)  the value of savings increased at 5 percent,and the purchasing power of savings increased at 8 percent.
C)  the value of savings increased at 8 percent,and the purchasing power of savings increased at 2 percent.
D)  the value of savings increased at 8 percent,and the purchasing power of savings increased at 5 percent.E) B) and D)
F) None of the above

Question 9

The real interest rate tells you how fast the purchasing power of your bank account rises over time.

Accepted Answer

A) True 
 B)False

Question 10

Suppose the CPI was 108 in 1967,and suppose one must spend 936 dollars today to obtain the same basket of goods and services that could be bought for 200 dollars in 1967.Then today's CPI is

Accepted Answer

A)  116.67.
B)  131.08.
C)  397.44.
D)  505.44.E) A) and C)
F) B) and C)

Question 11

The producer price index measures the cost of a basket of goods and services

Accepted Answer

A)  typically produced in the economy.
B)  produced for a typical consumer.
C)  sold by producers.
D)  bought by firms.E) None of the above
F) A) and C)

Question 12

Which of the following statements is true?

Accepted Answer

A)  Even if we know the values of the consumer price index for the years 2009 and 2010,we cannot calculate the inflation rate for 2010 if we do not know which year is the base year.
B)  If we know the base year is 1990,and if we know the value of the consumer price index for the year 2010,then we have all the information we need to calculate the inflation rate for 2010.
C)  If we know the base year is 2000,and if we know the value of the consumer price index for the year 1995,then we have all the information we need to calculate the inflation rate for 1995.
D)  If we know the base year is 2000,and if we know the value of the consumer price index for the year 1995,then we have all the information we need to calculate the percentage change in the cost of living between 1995 and 2000.E) A) and C)
F) None of the above

Question 13

Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?

Accepted Answer

A)  The real interest rate is the nominal interest rate times the rate of inflation.
B)  The real interest rate is the nominal interest rate minus the rate of inflation.
C)  The real interest rate is the nominal interest rate plus the rate of inflation.
D)  The real interest rate is the nominal interest rate divided by the rate of inflation.E) A) and B)
F) C) and D)

Question 14

Suppose that in 2010,the producer price index increases by 1.5 percent.As a result,economists most likely will predict that

Accepted Answer

A)  GDP will increase in 2011.
B)  the producer price index will increase by more than 1.5 percent in 2011.
C)  interest rates will decrease in the future.
D)  the consumer price index will increase in the future.E) C) and D)
F) A) and B)

Question 15

The content of the basket of goods and services used to compute the CPI changes every month.

Accepted Answer

A) True 
 B)False

Question 16

The consumer price index was 225 in 2006 and 234 in 2007.The nominal interest rate during this period was 6.5 percent.What was the real interest rate during this period?

Accepted Answer

A)  2.5 percent
B)  4.0 percent
C)  6.76 percent
D)  10.5 percentE) A) and B)
F) C) and D)

Question 17

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

Question 18

When some dollar amount is automatically corrected for inflation by law or contract,the amount is said to be indexed for inflation.

Accepted Answer

A) True 
 B)False

Question 19

Why does the GDP deflator give a different rate of inflation than the CPI?

Accepted Answer

The GDP deflator and the CPI differ in t...

Question 20

The steps involved in calculating the consumer price index and the inflation rate,in order,are as follows:

Accepted Answer

A)  Choose a base year,update the basket,find the prices,estimate the basket's cost,compute the index,and compute the inflation rate.
B)  Choose a base year,fix the basket,find the prices,compute the inflation rate,compute the basket's cost,and compute the index.
C)  Fix the basket,find the prices,compute the basket's cost,choose a base year and compute the index,and compute the inflation rate.
D)  Fix the basket,find the prices,compute the inflation rate,compute the basket's cost,and choose a base year and compute the index.E) B) and C)
F) A) and D)

Exam 24: Measuring the Cost of Living

Suppose the CPI was 108 in 1967,and suppose one must spend 936 dollars today to obtain the same basket of goods and services that could be bought for 200 dollars in 1967.Then today's CPI is

Correct Answer
verified

When some dollar amount is automatically corrected for inflation by law or contract,the amount is said to be indexed for inflation.

Correct Answer
verified

Why does the GDP deflator give a different rate of inflation than the CPI?

Correct Answer
verified
The GDP deflator and the CPI differ in t...
View Answer

The real interest rate tells you how fast the purchasing power of your bank account rises over time.

Correct Answer
verified

What basket of goods and services is used to construct the CPI?

Correct Answer
verified

Which of the following statements is true?

Correct Answer
verified

Assume that consumers consider rice and potatoes to be substitutes,so that when the price of rice rises,consumers purchase less rice and more potatoes.When the CPI is computed following the increase in the price of rice,it takes into account

Correct Answer
verified

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 Answer
verified

The consumer price index was 225 in 2006 and 234 in 2007.The nominal interest rate during this period was 6.5 percent.What was the real interest rate during this period?

Correct Answer
verified

The group of goods and services used to compute the GDP deflator changes automatically over time,but the group of goods and services used to compute the CPI does not.

Correct Answer
verified

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

Correct Answer
verified

The steps involved in calculating the consumer price index and the inflation rate,in order,are as follows:

Correct Answer
verified

The content of the basket of goods and services used to compute the CPI changes every month.

Correct Answer
verified

The producer price index measures the cost of a basket of goods and services

Correct Answer
verified

If the nominal interest rate is 8 percent and the real interest rate is 5.5 percent,then the inflation rate is

Correct Answer
verified

Correct Answer
verified
a.
The movie ticket is worth $.25
177...
View 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 Answer
verified

Suppose that over the past year,the real interest rate was 5 percent and the inflation rate was 3 percent.It follows that

Correct Answer
verified

Suppose that in 2010,the producer price index increases by 1.5 percent.As a result,economists most likely will predict that

Correct Answer
verified

Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?

Correct Answer
verified

Exam 24: Measuring the Cost of Living

Suppose the CPI was 108 in 1967,and suppose one must spend 936 dollars today to obtain the same basket of goods and services that could be bought for 200 dollars in 1967.Then today's CPI is

Correct AnswerverifiedShow Answer

When some dollar amount is automatically corrected for inflation by law or contract,the amount is said to be indexed for inflation.

Correct AnswerverifiedShow Answer

Why does the GDP deflator give a different rate of inflation than the CPI?

Correct AnswerverifiedThe GDP deflator and the CPI differ in t...View AnswerShow Answer

The real interest rate tells you how fast the purchasing power of your bank account rises over time.

Correct AnswerverifiedShow Answer

What basket of goods and services is used to construct the CPI?

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

Assume that consumers consider rice and potatoes to be substitutes,so that when the price of rice rises,consumers purchase less rice and more potatoes.When the CPI is computed following the increase in the price of rice,it takes into account

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 consumer price index was 225 in 2006 and 234 in 2007.The nominal interest rate during this period was 6.5 percent.What was the real interest rate during this period?

Correct AnswerverifiedShow Answer

The group of goods and services used to compute the GDP deflator changes automatically over time,but the group of goods and services used to compute the CPI does not.

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

The steps involved in calculating the consumer price index and the inflation rate,in order,are as follows:

Correct AnswerverifiedShow Answer

The content of the basket of goods and services used to compute the CPI changes every month.

Correct AnswerverifiedShow Answer

The producer price index measures the cost of a basket of goods and services

Correct AnswerverifiedShow Answer

If the nominal interest rate is 8 percent and the real interest rate is 5.5 percent,then the inflation rate is

Correct AnswerverifiedShow Answer

Correct Answerverifieda.The movie ticket is worth $.25 177...View AnswerShow 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

Suppose that over the past year,the real interest rate was 5 percent and the inflation rate was 3 percent.It follows that

Correct AnswerverifiedShow Answer

Suppose that in 2010,the producer price index increases by 1.5 percent.As a result,economists most likely will predict that

Correct AnswerverifiedShow Answer

Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?

Correct AnswerverifiedShow Answer

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The GDP deflator and the CPI differ in t...
View Answer

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a.
The movie ticket is worth $.25
177...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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