Question 1

Harry spent $39,000 in 2009 and $42,000 in 2014 on goods and services. The consumer price index was 220 for 2009 and 231 for 2014. Harry's 2009 spending in 2014 dollars is about

Accepted Answer

A)   $43,290.
B)   $37,143.
C)   $40,950.
D)   $40,857.E) None of the above
F) All of the above

Question 2

Suppose the CPI was 56 in 1967, and suppose one must spend $349 today to obtain the same basket of goods and services that could be bought for $100 in 1967. Then today's CPI is

Accepted Answer

A)   223.7.
B)   195.0.
C)   623.2.
D)   195.4.E) C) and D)
F) B) and C)

Question 3

Because the consumer price index reflects the goods and services bought by consumers better than the GDP deflator does, it is the more common gauge of inflation.

Accepted Answer

A) True 
 B)False

Question 4

In 1949, Sycamore, Illinois built a hospital for about $500,000. In 1987, the county restored the courthouse for about $1.7 million. A price index for nonresidential construction was 24 in 1949, 108 in 1987, and 126.5 in 2000. According to these numbers, the hospital cost about

Accepted Answer

A)   $2.1 million in 2000 dollars, which is less than the cost of the courthouse restoration in 2000 dollars.
B)   $2.1 million in 2000 dollars, which is more than the cost of the courthouse restoration in 2000 dollars.
C)   $2.6 million in 2000 dollars, which is less than the cost of the courthouse restoration in 2000 dollars.
D)   $2.6 million in 2000 dollars, which is more than the cost of the courthouse restoration in 2000 dollars.E) B) and D)
F) A) and D)

Question 5

A COLA automatically raises the wage when the CPI rises.

Accepted Answer

A) True 
 B)False

Question 6

If the consumer price index was 96 in 2012, 100 in 2013, and 102 in 2014, then the base year must be

Accepted Answer

A)   2012.
B)   2013.
C)   2014.
D)   The base year cannot be determined from the given information.E) B) and C)
F) A) and B)

Question 7

If the price of domestically produced power tools increases, then

Accepted Answer

A)   the consumer price index and the GDP deflator will both increase.
B)   the consumer price index will increase, and the GDP deflator will be unaffected.
C)   the consumer price index will be unaffected, and the GDP deflator will increase.
D)   the consumer price index and the GDP deflator will both be unaffected.E) B) and C)
F) All of the above

Question 8

Archie has a savings account at a bank. If he earns 6 percent interest on his account and if there is deflation, then his purchasing power rises by more than 6 percent over the course of a year.

Accepted Answer

A) True 
 B)False

Question 9

John just graduated law school and has two competing job offers. The first is in Phoenix and pays a salary of $150,000. He has a similar job offer in Cleveland that pays $90,000. Which pair of CPIs would make the two salaries have the same purchasing power?

Accepted Answer

A)   70 in Phoenix and 42 in Cleveland
B)   68 in Phoenix and 34 in Cleveland
C)   42 in Phoenix and 70 in Cleveland
D)   34 in Phoenix and 68 in ClevelandE) A) and D)
F) A) and C)

Question 10

When the quality of a good improves while its price remains the same, the purchasing power of the dollar

Accepted Answer

A)   increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for.
B)   increases, so the CPI understates the change in the cost of living if the quality change is not accounted for.
C)   decreases, so the CPI overstates the change in the cost of living if the quality change is not accounted for.
D)   decreases, so the CPI understates the change in the cost of living if the quality change is not accounted for.E) None of the above
F) A) and D)

Question 11

In the United States, real interest rates were

Accepted Answer

A)   high in the 1970s and 1990s.
B)   low in the 1970s and 1990s.
C)   high in the 1970s and low in the 1990s.
D)   low in the 1970s and high in the 1990s.E) B) and C)
F) A) and B)

Question 12

Suppose OPEC succeeds in raising world oil prices by 300 percent. This price increase causes inventors to look at alternative sources of fuel for internal-combustion engines. A hydrogen-powered engine is developed which is cheaper to operate than gasoline engines. Which problems in the construction of the CPI does this situation represent?

Accepted Answer

A)   substitution bias and introduction of new goods
B)   introduction of new goods and unmeasured quality change
C)   substitution bias and unmeasured quality change
D)   income bias and substitution biasE) A) and B)
F) A) and C)

Question 13

The Bureau of Labor Statistics does not try to account for quality changes in the goods and services in the basket used to compute the CPI.

Accepted Answer

A) True 
 B)False

Question 14

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

Question 15

Table 24-1
The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year.
 
-Refer to Table 24-1. What belongs in space A?

Accepted Answer

A)   14
B)   150
C)   144
D)   154E) A) and C)
F) A) and B)

Question 16

When we are calculating the consumer price index and the inflation rate for a certain year,

Accepted Answer

A)   the value of the consumer price index may depend on the choice of a base year, but the inflation rate does not depend on the choice of a base year.
B)   the inflation rate may depend on the choice of a base year, but the value of the consumer price index does not depend on the choice of a base year.
C)   both the value of the consumer price index and the inflation rate may depend on the choice of a base year.
D)   neither the value of the consumer price index nor the inflation rate depends on the choice of a base year.E) A) and B)
F) A) and C)

Question 17

When computing the cost of the basket of goods and services purchased by a typical consumer, which of the following changes from year to year?

Accepted Answer

A)   the quantities of the goods and services purchased
B)   the prices of the goods and services
C)   the goods and services making up the basket
D)   All of the above are correct.E) A) and D)
F) B) and C)

Question 18

Price changes from year to year are not proportional, and consumers respond to these changes by altering their spending patterns. The problem this creates for inflation calculations is called

Accepted Answer

A)   deflation.
B)   inflation.
C)   unmeasured quality change.
D)   substitution bias.E) None of the above
F) A) and C)

Question 19

Table 24-13. Olivia's expenditures on clothing for three consecutive years, along with some values for the CPI, are presented in the table below.
 
-Refer to Table 24-13. To the nearest dollar, how much is Olivia's 2010 clothing expenditure in 2011 dollars?

Accepted Answer

A)   $1,683
B)   $1,778
C)   $1,800
D)   $3,600E) C) and D)
F) B) and D)

Question 20

For purposes of calculating the CPI, the apparel category of consumer spending includes the cost of

Accepted Answer

A)   clothing, but not footwear or jewelry.
B)   clothing and footwear, but not jewelry.
C)   clothing and jewelry, but not footwear.
D)   clothing, footwear, and jewelry.E) None of the above
F) A) and D)

Exam 16: Measuring the Cost of Living

Table 24-1 The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year. -Refer to Table 24-1. What belongs in space A?

Correct Answer
verified

In 1949, Sycamore, Illinois built a hospital for about $500,000. In 1987, the county restored the courthouse for about $1.7 million. A price index for nonresidential construction was 24 in 1949, 108 in 1987, and 126.5 in 2000. According to these numbers, the hospital cost about

Correct Answer
verified

Harry spent $39,000 in 2009 and $42,000 in 2014 on goods and services. The consumer price index was 220 for 2009 and 231 for 2014. Harry's 2009 spending in 2014 dollars is about

Correct Answer
verified

John just graduated law school and has two competing job offers. The first is in Phoenix and pays a salary of $150,000. He has a similar job offer in Cleveland that pays $90,000. Which pair of CPIs would make the two salaries have the same purchasing power?

Correct Answer
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If the price of domestically produced power tools increases, then

Correct Answer
verified

When computing the cost of the basket of goods and services purchased by a typical consumer, which of the following changes from year to year?

Correct Answer
verified

In the United States, real interest rates were

Correct Answer
verified

Archie has a savings account at a bank. If he earns 6 percent interest on his account and if there is deflation, then his purchasing power rises by more than 6 percent over the course of a year.

Correct Answer
verified

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 Answer
verified

When we are calculating the consumer price index and the inflation rate for a certain year,

Correct Answer
verified

Table 24-13. Olivia's expenditures on clothing for three consecutive years, along with some values for the CPI, are presented in the table below. -Refer to Table 24-13. To the nearest dollar, how much is Olivia's 2010 clothing expenditure in 2011 dollars?

Correct Answer
verified

For purposes of calculating the CPI, the apparel category of consumer spending includes the cost of

Correct Answer
verified

Price changes from year to year are not proportional, and consumers respond to these changes by altering their spending patterns. The problem this creates for inflation calculations is called

Correct Answer
verified

Suppose the CPI was 56 in 1967, and suppose one must spend $349 today to obtain the same basket of goods and services that could be bought for $100 in 1967. Then today's CPI is

Correct Answer
verified

If the consumer price index was 96 in 2012, 100 in 2013, and 102 in 2014, then the base year must be

Correct Answer
verified

Correct Answer
verified

A COLA automatically raises the wage when the CPI rises.

Correct Answer
verified

When the quality of a good improves while its price remains the same, the purchasing power of the dollar

Correct Answer
verified

The Bureau of Labor Statistics does not try to account for quality changes in the goods and services in the basket used to compute the CPI.

Correct Answer
verified

Because the consumer price index reflects the goods and services bought by consumers better than the GDP deflator does, it is the more common gauge of inflation.

Correct Answer
verified

Exam 16: Measuring the Cost of Living

Table 24-1 The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year. -Refer to Table 24-1. What belongs in space A?

Correct AnswerverifiedShow Answer

In 1949, Sycamore, Illinois built a hospital for about $500,000. In 1987, the county restored the courthouse for about $1.7 million. A price index for nonresidential construction was 24 in 1949, 108 in 1987, and 126.5 in 2000. According to these numbers, the hospital cost about

Correct AnswerverifiedShow Answer

Harry spent $39,000 in 2009 and $42,000 in 2014 on goods and services. The consumer price index was 220 for 2009 and 231 for 2014. Harry's 2009 spending in 2014 dollars is about

Correct AnswerverifiedShow Answer

John just graduated law school and has two competing job offers. The first is in Phoenix and pays a salary of $150,000. He has a similar job offer in Cleveland that pays $90,000. Which pair of CPIs would make the two salaries have the same purchasing power?

Correct AnswerverifiedShow Answer

If the price of domestically produced power tools increases, then

Correct AnswerverifiedShow Answer

When computing the cost of the basket of goods and services purchased by a typical consumer, which of the following changes from year to year?

Correct AnswerverifiedShow Answer

In the United States, real interest rates were

Correct AnswerverifiedShow Answer

Archie has a savings account at a bank. If he earns 6 percent interest on his account and if there is deflation, then his purchasing power rises by more than 6 percent over the course of a year.

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 we are calculating the consumer price index and the inflation rate for a certain year,

Correct AnswerverifiedShow Answer

Table 24-13. Olivia's expenditures on clothing for three consecutive years, along with some values for the CPI, are presented in the table below. -Refer to Table 24-13. To the nearest dollar, how much is Olivia's 2010 clothing expenditure in 2011 dollars?

Correct AnswerverifiedShow Answer

For purposes of calculating the CPI, the apparel category of consumer spending includes the cost of

Correct AnswerverifiedShow Answer

Price changes from year to year are not proportional, and consumers respond to these changes by altering their spending patterns. The problem this creates for inflation calculations is called

Correct AnswerverifiedShow Answer

Suppose the CPI was 56 in 1967, and suppose one must spend $349 today to obtain the same basket of goods and services that could be bought for $100 in 1967. Then today's CPI is

Correct AnswerverifiedShow Answer

If the consumer price index was 96 in 2012, 100 in 2013, and 102 in 2014, then the base year must be

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A COLA automatically raises the wage when the CPI rises.

Correct AnswerverifiedShow Answer

When the quality of a good improves while its price remains the same, the purchasing power of the dollar

Correct AnswerverifiedShow Answer

The Bureau of Labor Statistics does not try to account for quality changes in the goods and services in the basket used to compute the CPI.

Correct AnswerverifiedShow Answer

Because the consumer price index reflects the goods and services bought by consumers better than the GDP deflator does, it is the more common gauge of inflation.

Correct AnswerverifiedShow Answer

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