Question 1

Food,health and personal care,and clothing and footwear account for over 50 percent of the goods and services in the CPI basket of goods.

Accepted Answer

A) True 
 B)False

Question 2

How is the inflation rate calculated?

Accepted Answer

A)   by surveying consumer spending
B)   by adding up the price increases of all goods and services
C)   by computing a simple average of the price increase in all goods and services
D)   by determining the percentage increase in the price index from the preceding periodE) C) and D)
F) B) and C)

Question 3

If the nominal interest rate is 5 percent and the rate of inflation is 10 percent,what is the real interest rate?

Accepted Answer

A)   -5 percent
B)   -2 percent
C)   2 percent
D)   5 percentE) A) and B)
F) A) and C)

Question 4

Consumers begin purchasing houses incorporating steel studs instead of wooden studs after the price of lumber increases.Which problem in the construction of the CPI does this situation best represent?

Accepted Answer

A)   substitution bias
B)   introduction of new goods
C)   unmeasured quality change
D)   income biasE) None of the above
F) B) and C)

Question 5

In 1972 in Kelowna,BC,one could buy model rocket engines for $1.50.If those same engines cost $3.00 today,which set of CPIs represents the same purchasing power for the cost in 1972 and the cost today?

Accepted Answer

A)   60 in 1972 and 100 today
B)   60 in 1972 and 110 today
C)   60 in 1972 and 120 today
D)   60 in 1972 and 130 todayE) C) and D)
F) None of the above

Question 6

What happened in the early 2000s?

Accepted Answer

A)   Real interest rates were high,and nominal interest rates were low.
B)   Real interest rates were low,and nominal interest rates were high.
C)   Both real interest rates and nominal interest rates were high.
D)   Both real interest rates and nominal interest rates were low.E) None of the above
F) B) and D)

Question 7

What is by far the largest category of goods and services in the CPI basket?

Accepted Answer

A)   shelter
B)   recreation,education,and reading
C)   transportation
D)   foodE) All of the above
F) B) and C)

Question 8

Suppose that the CPI is currently 600 and was 100 in 1969.Then,according to the CPI,$300 today purchases the same amount of goods and services as what amount in 1969?

Accepted Answer

A)   $25
B)   $40
C)   $50
D)   $400E) None of the above
F) A) and D)

Question 9

Which statement best describes 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) A) and B)
F) A) and C)

Question 10

What is an important difference between the GDP deflator and the consumer price index?

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 some 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 final goods and services bought by consumers.
D)   The GDP deflator reflects the prices of all goods and services bought by producers and consumers,whereas the consumer price index reflects the prices of final goods and services bought by consumers.E) All of the above
F) None of the above

Question 11

Jake loaned Elwood $6000 for one year at a nominal interest rate of 12 percent.After Elwood repaid the loan in full,Jake complained that he could buy 5 percent fewer goods with the money Elwood gave him than he could before he loaned Elwood the $6000.What was the rate of inflation during the year?

Accepted Answer

A)   2.5 percent
B)   7.0 percent
C)   8.0 percent
D)   17.0 percentE) A) and B)
F) None of the above

Question 12

Which statement best describes the evolution of the GDP deflator and the consumer price index over the past decades?

Accepted Answer

A)   In the late 1970s,the late 1980s,and the early 1990s,the GDP deflator showed high rates of inflation while the consumer price index showed low rates of inflation.
B)   In the late 1970s,both the GDP deflator and the consumer price index showed high rates of inflation,and in the late 1980s and the early 1990s,both measures showed low inflation.
C)   In the late 1970s,both the GDP deflator and the consumer price index showed low rates of inflation,and in the late 1980s and the early 1990s,both measures showed high rates of inflation.
D)   In the late 1970s,the late 1980s,and the early 1990s,both the GDP deflator and the consumer price index showed high rates of inflation.E) B) and D)
F) A) and D)

Question 13

For any given year,what is the CPI?

Accepted Answer

A)   the price of the basket of goods and services in the given year divided by the price of the basket in the base year,then multiplied by 100
B)   the price of the basket of goods and services in the given year divided by the price of the basket in the previous year,then multiplied by 100
C)   the price of the basket of goods and services in the base year divided by the price of the basket in the given year,then multiplied by 100
D)   the price of the basket of goods and services in the previous year divided by the price of the basket in the given year,then multiplied by 100E) A) and B)
F) A) and C)

Question 14

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 15

Suppose the price of a litre of milk rises from $1 to $1.25 and the price of a T-shirt rises from $8 to $10.If the CPI rises from 150 to 175,what will people likely buy?

Accepted Answer

A)   more milk and more T-shirts
B)   more milk and fewer T-shirts
C)   less milk and more T-shirts
D)   less milk and fewer T-shirtsE) B) and C)
F) A) and D)

Question 16

For the average Canadian consumer,what percentage of total consumption does shelter and food expenditures make up,respectively?

Accepted Answer

A)   26.8,16.4
B)   16.1,27.5
C)   19.3,16.1
D)   16.1,19.3E) B) and D)
F) A) and D)

Question 17

If the cost of health and personal care increases by 20 percent,then,other things the same,how much is the CPI likely to increase?

Accepted Answer

A)   by about 1 percent
B)   by about 2 percent
C)   by about 3 percent
D)   by about 4 percentE) C) and D)
F) B) and D)

Question 18

If the price index in the first year was 90,in the second year was 100,and in the third year was 95,what did the economy experience?

Accepted Answer

A)   10 percent inflation between the first and second years and 5 percent inflation between the second and third years
B)   10 percent inflation between the first and second years and 5 percent deflation between the second and third years
C)   11 percent inflation between the first and second years and 5 percent inflation between the second and third years
D)   11 percent inflation between the first and second years and 5 percent deflation between the second and third yearsE) C) and D)
F) B) and C)

Question 19

Scenario 6-1
Grant Smith was a doctor.In 1944,he made $12,000.His daughter,Lisa Smith,is also a doctor.Last year she made $275,000.The price index in 1944 was 17.6 and the price index last year was 200.
-Refer to the Scenario 6-1.What is Grant's 1944 income in last year's dollars?

Accepted Answer

A)   $19,128
B)   $21,240
C)   $120,682
D)   $136,363E) A) and D)
F) A) and C)

Question 20

Suppose the price of a carton of ice cream rises from $4 to $5 and the price of coffee rises from $2 to $2.50.If the CPI rises from 150 to 200,what will people likely buy?

Accepted Answer

A)   more ice cream and more coffee
B)   more ice cream and less coffee
C)   less ice cream and more coffee
D)   less ice cream and less coffeeE) A) and D)
F) None of the above

Exam 6: Measuring the Cost of Living

Food,health and personal care,and clothing and footwear account for over 50 percent of the goods and services in the CPI basket of goods.

Correct AnswerverifiedShow Answer

In 1972 in Kelowna,BC,one could buy model rocket engines for $1.50.If those same engines cost $3.00 today,which set of CPIs represents the same purchasing power for the cost in 1972 and the cost today?

Correct AnswerverifiedShow Answer

Consumers begin purchasing houses incorporating steel studs instead of wooden studs after the price of lumber increases.Which problem in the construction of the CPI does this situation best represent?

Correct AnswerverifiedShow Answer

Which statement best describes the evolution of the GDP deflator and the consumer price index over the past decades?

Correct AnswerverifiedShow Answer

If the cost of health and personal care increases by 20 percent,then,other things the same,how much is the CPI likely to increase?

Correct AnswerverifiedShow Answer

What is an important difference between the GDP deflator and the consumer price index?

Correct AnswerverifiedShow Answer

What happened in the early 2000s?

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

Suppose the price of a litre of milk rises from $1 to $1.25 and the price of a T-shirt rises from $8 to $10.If the CPI rises from 150 to 175,what will people likely buy?

Correct AnswerverifiedShow Answer

Jake loaned Elwood $6000 for one year at a nominal interest rate of 12 percent.After Elwood repaid the loan in full,Jake complained that he could buy 5 percent fewer goods with the money Elwood gave him than he could before he loaned Elwood the $6000.What was the rate of inflation during the year?

Correct AnswerverifiedShow Answer

Suppose the price of a carton of ice cream rises from $4 to $5 and the price of coffee rises from $2 to $2.50.If the CPI rises from 150 to 200,what will people likely buy?

Correct AnswerverifiedShow Answer

How is the inflation rate calculated?

Correct AnswerverifiedShow Answer

Which statement best describes the relationship between inflation and interest rates?

Correct AnswerverifiedShow Answer

If the price index in the first year was 90,in the second year was 100,and in the third year was 95,what did the economy experience?

Correct AnswerverifiedShow Answer

If the nominal interest rate is 5 percent and the rate of inflation is 10 percent,what is the real interest rate?

Correct AnswerverifiedShow Answer

For any given year,what is the CPI?

Correct AnswerverifiedShow Answer

What is by far the largest category of goods and services in the CPI basket?

Correct AnswerverifiedShow Answer

Suppose that the CPI is currently 600 and was 100 in 1969.Then,according to the CPI,$300 today purchases the same amount of goods and services as what amount in 1969?

Correct AnswerverifiedShow Answer

For the average Canadian consumer,what percentage of total consumption does shelter and food expenditures make up,respectively?

Correct AnswerverifiedShow Answer

Scenario 6-1 Grant Smith was a doctor.In 1944,he made $12,000.His daughter,Lisa Smith,is also a doctor.Last year she made $275,000.The price index in 1944 was 17.6 and the price index last year was 200. -Refer to the Scenario 6-1.What is Grant's 1944 income in last year's dollars?

Correct AnswerverifiedShow Answer

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