Question 1

Which item would receive the least weight in the CPI?

Accepted Answer

A)   Brooms
B)   Cars
C)   Televisions
D)   Car tyresE) A) and B)
F) A) and C)

Question 2

Why will individual shoppers face different inflation rates?

Accepted Answer

The CPI uses a basket of goods and servi...

Question 3

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 4

When the inflation rate ends up being lower than expected,

Accepted Answer

A)   Everyone benefits because money is cheaper.
B)   Everyone benefits because prices do not increase.
C)   Lenders of fixed rate mortgages generally benefit because they will make higher profits than they had calculated.
D)   Borrowers with fixed rate loans will benefit because their purchasing power will not decline as much.E) A) and D)
F) A) and C)

Question 5

The "base year" in a price index is the benchmark year against which other years are compared.

Accepted Answer

A) True 
 B)False

Question 6

If inflation is 8 per cent and the real interest rate is 3 per cent, then the nominal interest rate must be

Accepted Answer

A)   3/8 per cent.
B)   -5 per cent.
C)   5 per cent.
D)   11 per cent.
E)   24 per cent.F) A) and D)
G) A) and E)

Question 7

If the CPI has a value of 115 today and the base year is 2014, then consumer prices have

Accepted Answer

A)   Increased by 15 per cent since the base year.
B)   Increased by 1.5 per cent since the base year.
C)   More than doubled since the base year.
D)   Declined 15 per cent since the base year.E) A) and D)
F) B) and C)

Question 8

Suppose your income rises from €19,000 to €31,000 while the CPI rises from 122 to 169. Your standard of living has likely

Accepted Answer

A)   Fallen.
B)   You can't tell without knowing the base year.
C)   Risen.
D)   Stayed the same.E) All of the above
F) B) and C)

Question 9

Which of the following answers would accurately describe the bias in the CPI resulting from the fact that oil prices suddenly increase?

Accepted Answer

A)   The CPI would underestimate the cost of living.
B)   The CPI would overestimate the cost of living.
C)   The CPI would not be biased as a result of a sudden rise in oil prices.
D)   The CPI could overestimate or underestimate the cost of living, depending upon the quantity of oil purchased in that year.E) A) and B)
F) B) and D)

Question 10

If borrowers and lenders agree on a nominal interest rate and inflation turns out to be less than they had expected,

Accepted Answer

A)   Neither borrowers nor lenders will gain because the nominal interest rate has been fixed by contract.
B)   The interest rate will rise
C)   Borrowers will gain at the expense of lenders.
D)   Lenders will gain at the expense of borrowers.E) A) and B)
F) All of the above

Question 11

The CPI will be most influenced by a 10 per cent increase in the price of which of the following consumption categories?

Accepted Answer

A)   Clothing and footwear. See Table 21.2 in the textbook.
B)   Household goods. See Table 21.2 in the textbook.
C)   Alcohol. See Table 21.2 in the textbook.
D)   Food. See Table 21.2 in the textbook.
E)   All of these answers would produce the same impact. See Table 21.2 in the textbook.F) A) and B)
G) A) and C) D

Question 12

If the price of the market basket of goods in a country for the base year of 2013 was €20,000 and the price of the same basket had risen to €22,000 by 2014, the CPI for 2014.

Accepted Answer

A)   Cannot be calculated.
B)   Is €12,000.
C)   Is 200.
D)   Is 110.E) All of the above
F) A) and B) D

Question 13

If the Consumer Prices Index (CPI) rises at 5 per cent per year, then every individual in the country needs exactly a 5 per cent increase in their income for their standard of living to remain constant.

Accepted Answer

A) True 
 B)False

Question 14

The "basket" on which the CPI is based is composed of

Accepted Answer

A)   Consumer production.
B)   Products purchased by the typical consumer.
C)   Raw materials purchased by firms.
D)   Total current production.
E)   A selection of consumer goods typically purchased over the last 30 years.F) A) and E)
G) C) and E)

Question 15

The GDP deflator differs from the CPI because the GDP deflator includes goods a country __________, while the CPI includes goods the country __________.

Accepted Answer

A)   Imports; exports
B)   Exports; imports
C)   Buys; sells
D)   Consumes; producesE) A) and B)
F) A) and C) B

Question 16

The table shows the prices and the quantities consumed in Carnivore Country. The base year is 2013. This means that 2013 is the year the typical basket was determined so the quantities consumed in 2013 are the only quantities needed to calculate the CPI in each year. ?
  Table  Year  Price of  beef  Quantity of  beef  Price of  pork  Quantity of  pork 2013€2.00100€1.0010020142.50900.9012020152.751051.00130\begin{array}{l}	ext { Table }\\begin{array}{|c|c|c|c|c|}\hline 	ext { Year } & \begin{array}{c}	ext { Price of } \	ext { beef }\end{array} & \begin{array}{c}	ext { Quantity of } \	ext { beef }\end{array} & \begin{array}{c}	ext { Price of } \	ext { pork }\end{array} & \begin{array}{c}	ext { Quantity of } \	ext { pork }\end{array} \\hline 2013 & € 2.00 & 100 & € 1.00 & 100 \\hline 2014 & 2.50 & 90 & 0.90 & 120 \\hline 2015 & 2.75 & 105 & 1.00 & 130 \\hline\end{array}\end{array} Table  Year 201320142015​ Price of  beef ​€2.002.502.75​ Quantity of  beef ​10090105​ Price of  pork ​€1.000.901.00​ Quantity of  pork ​100120130​​​ 
Refer to the table above. What are the values of the CPI in 2013, 2014, and 2015, respectively?

Accepted Answer

A)   83.5, 94.2, 100
B)   100, 113.3, 125
C)   None of these answers
D)   100, 111, 139.6
E)   100, 109.2, 116 F) D) and E)
G) C) and E)

Question 17

When borrowing money to purchase a car, Roberto has the choice between a fixed nominal interest rate and adjustable nominal interest rate loan. Typically the adjustable rate loans start with a lower rate than the fixed rate loan. Given that, Roberto would probably want to borrow money at the higher fixed rate when he expects the

Accepted Answer

A)   Inflation rate to rise.
B)   Inflation rate to fall.
C)   Inflation rate to remain unchanged.
D)   Government to take action to lower the inflation rate in the near future.E) B) and D)
F) All of the above

Question 18

An increase in the price of imported cameras is captured by the Consumer Prices Index (CPI) but not by the GDP deflator.

Accepted Answer

A) True 
 B)False

Question 19

The CPI is used to

Accepted Answer

A)   Monitor changes in the level of wholesale prices in the economy.
B)   Monitor changes in the cost of living over time.
C)   Monitor changes in the level of real GDP over time.
D)   Monitor changes in the stock market.E) None of the above
F) A) and D)

Question 20

Substitution bias

Accepted Answer

A)   Is one factor that causes the CPI to underestimate the inflation rate?
B)   Is caused by the poor quality of many imported products.
C)   Is one of the primary causes of inflation?
D)   Involves consumer behaviour that helps explain why the CPI overestimates the inflation rate.E) A) and C)
F) A) and B)

Exam 21: Measuring the Cost of Living

Which item would receive the least weight in the CPI?

Correct Answer
verified

Why will individual shoppers face different inflation rates?

Correct Answer
verified
The CPI uses a basket of goods and servi...
View Answer

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

When the inflation rate ends up being lower than expected,

Correct Answer
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The "base year" in a price index is the benchmark year against which other years are compared.

Correct Answer
verified

If inflation is 8 per cent and the real interest rate is 3 per cent, then the nominal interest rate must be

Correct Answer
verified

If the CPI has a value of 115 today and the base year is 2014, then consumer prices have

Correct Answer
verified

Suppose your income rises from €19,000 to €31,000 while the CPI rises from 122 to 169. Your standard of living has likely

Correct Answer
verified

Which of the following answers would accurately describe the bias in the CPI resulting from the fact that oil prices suddenly increase?

Correct Answer
verified

If borrowers and lenders agree on a nominal interest rate and inflation turns out to be less than they had expected,

Correct Answer
verified

The CPI will be most influenced by a 10 per cent increase in the price of which of the following consumption categories?

Correct Answer
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D

If the price of the market basket of goods in a country for the base year of 2013 was €20,000 and the price of the same basket had risen to €22,000 by 2014, the CPI for 2014.

Correct Answer
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D

If the Consumer Prices Index (CPI) rises at 5 per cent per year, then every individual in the country needs exactly a 5 per cent increase in their income for their standard of living to remain constant.

Correct Answer
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The "basket" on which the CPI is based is composed of

Correct Answer
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The GDP deflator differs from the CPI because the GDP deflator includes goods a country , while the CPI includes goods the country .

Correct Answer
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B

Correct Answer
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Correct Answer
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An increase in the price of imported cameras is captured by the Consumer Prices Index (CPI) but not by the GDP deflator.

Correct Answer
verified

The CPI is used to

Correct Answer
verified

Substitution bias

Correct Answer
verified

Exam 21: Measuring the Cost of Living

Which item would receive the least weight in the CPI?

Correct AnswerverifiedShow Answer

Why will individual shoppers face different inflation rates?

Correct AnswerverifiedThe CPI uses a basket of goods and servi...View AnswerShow 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

When the inflation rate ends up being lower than expected,

Correct AnswerverifiedShow Answer

The "base year" in a price index is the benchmark year against which other years are compared.

Correct AnswerverifiedShow Answer

If inflation is 8 per cent and the real interest rate is 3 per cent, then the nominal interest rate must be

Correct AnswerverifiedShow Answer

If the CPI has a value of 115 today and the base year is 2014, then consumer prices have

Correct AnswerverifiedShow Answer

Suppose your income rises from €19,000 to €31,000 while the CPI rises from 122 to 169. Your standard of living has likely

Correct AnswerverifiedShow Answer

Which of the following answers would accurately describe the bias in the CPI resulting from the fact that oil prices suddenly increase?

Correct AnswerverifiedShow Answer

If borrowers and lenders agree on a nominal interest rate and inflation turns out to be less than they had expected,

Correct AnswerverifiedShow Answer

The CPI will be most influenced by a 10 per cent increase in the price of which of the following consumption categories?

Correct AnswerverifiedD

If the price of the market basket of goods in a country for the base year of 2013 was €20,000 and the price of the same basket had risen to €22,000 by 2014, the CPI for 2014.

Correct AnswerverifiedD

If the Consumer Prices Index (CPI) rises at 5 per cent per year, then every individual in the country needs exactly a 5 per cent increase in their income for their standard of living to remain constant.

Correct AnswerverifiedShow Answer

The "basket" on which the CPI is based is composed of

Correct AnswerverifiedShow Answer

The GDP deflator differs from the CPI because the GDP deflator includes goods a country __________, while the CPI includes goods the country __________.

Correct AnswerverifiedB

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An increase in the price of imported cameras is captured by the Consumer Prices Index (CPI) but not by the GDP deflator.

Correct AnswerverifiedShow Answer

The CPI is used to

Correct AnswerverifiedShow Answer

Substitution bias

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
The CPI uses a basket of goods and servi...
View Answer

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

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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D

Correct Answer
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D

Correct Answer
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Correct Answer
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The GDP deflator differs from the CPI because the GDP deflator includes goods a country , while the CPI includes goods the country .

Correct Answer
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B

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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