Question 1

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

Question 2

If the quality of a good improves 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) B) and C)
F) A) and B)

Question 3

Suppose today's CPI is 134.85,and suppose one must spend $580 today to purchase the same basket of goods and services that could be bought for $400 in 1989.Then the CPI in 1989 was

Accepted Answer

A)   24.27.
B)   60.68.
C)   93.00.
D)   195.53.E) A) and B)
F) A) and C)

Question 4

Which of the following is not correct?

Accepted Answer

A)   The U.S.economy has never experienced deflation.
B)   Since 1965,the U.S.nominal interest rate has exceeded the U.S.real interest rate.
C)   Since 1965,the U.S.economy has experienced rising consumer prices every year.
D)   During deflation,the real interest rate exceeds the nominal interest rate.E) All of the above
F) A) and B)

Question 5

By not taking into account the possibility of consumer substitution,the CPI

Accepted Answer

A)   understates the cost of living.
B)   overstates the cost of living.
C)   may overstate or understate the cost of living,depending on how quickly prices rise.
D)   may overstate or understate the cost of living,regardless of how quickly prices rise.E) A) and B)
F) A) and D)

Question 6

The inflation rate is the absolute change in the price level from the previous period.

Accepted Answer

A) True 
 B)False

Question 7

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent.A year later,Bob withdraws his $105.If deflation was 7 percent during the year the money was deposited,then Bob's purchasing power has increased by 12 percent.

Accepted Answer

A) True 
 B)False

Question 8

Inflation can be measured using either the GDP deflator or the consumer price index.

Accepted Answer

A) True 
 B)False

Question 9

When the quality of a good deteriorates 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) B) and C)
F) A) and D)

Question 10

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent.A year later,Bob withdraws his $105.If deflation was 5 percent during the year the money was deposited,then Bob's purchasing power has not changed.

Accepted Answer

A) True 
 B)False

Question 11

In general,if a consumer good is produced domestically and consumed domestically,an increase in its price will have which of the following effects?

Accepted Answer

A)   The consumer price index will increase relatively more than will the GDP deflator.
B)   The consumer price index and the GDP deflator will increase by the same amount.
C)   The consumer price index will increase relatively less than will the GDP deflator.
D)   One cannot generalize about the increase in the consumer price index relative to the increase in the GDP deflator.E) None of the above
F) All of the above

Question 12

If the CPI was 104 in 1967 and is 390 today,then $10 in 1967 purchased the same amount of goods and services as

Accepted Answer

A)   $2.67 purchases today.
B)   $37.50 purchases today.
C)   $39.00 purchases today.
D)   $104.00 purchases today.E) All of the above
F) C) and D)

Question 13

The primary purpose of measuring the overall level of prices in the economy is to

Accepted Answer

A)   allow for the measurement of GDP.
B)   allow consumers to know what kinds of prices to expect in the future.
C)   allow for the comparison of dollar figures from different points in time.
D)   allow for the comparison of dollar figures from the same point in time.E) C) and D)
F) A) and B)

Question 14

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) A) and B)
F) A) and C)

Question 15

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) C) and D)

Question 16

For an imaginary economy,the value of the consumer price index was 140 in 2006 and 149.10 in 2007.The economy's inflation rate for 2007 was

Accepted Answer

A)   6.1 percent.
B)   6.5 percent.
C)   9.1 percent.
D)   49.1 percent.E) A) and D)
F) B) and C)

Question 17

In 1970,Professor Plum earned $12,000;in 1980,he earned $24,000;and in 1990,he earned $36,000.If the CPI was 40 in 1970,60 in 1980,and 100 in 1990,then in real terms,Professor Plum's salary was highest in

Accepted Answer

A)   1980 and lowest in 1970.
B)   1980 and lowest in 1990.
C)   1990 and lowest in 1970.
D)   1990 and lowest in 1980.E) A) and B)
F) A) and C)

Question 18

The GDP Deflator reflects

Accepted Answer

A)   the prices of all final goods and services currently produced domestically,as does the CPI.
B)   the price of a fixed basket of goods and services purchased by a typical consumer,as does the CPI.
C)   the prices of all final goods and services currently produced domestically,while the CPI reflects the price of a fixed basket of goods and services purchased by a typical consumer.
D)   the price of a fixed basket of goods and services purchased by a typical consumer,while the CPI reflects the prices of all final goods and services produced domestically.E) A) and C)
F) All of the above

Question 19

Which is likely to have the larger effect on the CPI,a 2 percent increase in the price of food or a 3 percent increase in the price of diamond rings? Explain.

Accepted Answer

The 2 percent increase in the ...

Question 20

Economists use the term inflation to describe a situation in which

Accepted Answer

A)   some prices are rising faster than others.
B)   the economy's overall price level is rising.
C)   the economy's overall price level is high,but not necessarily rising.
D)   the economy's overall output of goods and services is rising faster than the economy's overall price level.E) A) and C)
F) None of the above

Exam 24: Measuring the Cost of Living

In 1970,Professor Plum earned $12,000;in 1980,he earned $24,000;and in 1990,he earned $36,000.If the CPI was 40 in 1970,60 in 1980,and 100 in 1990,then in real terms,Professor Plum's salary was highest in

Correct AnswerverifiedShow Answer

If the CPI was 104 in 1967 and is 390 today,then $10 in 1967 purchased the same amount of goods and services as

Correct AnswerverifiedShow Answer

Suppose today's CPI is 134.85,and suppose one must spend $580 today to purchase the same basket of goods and services that could be bought for $400 in 1989.Then the CPI in 1989 was

Correct AnswerverifiedShow Answer

Inflation can be measured using either the GDP deflator or the consumer price index.

Correct AnswerverifiedShow Answer

The primary purpose of measuring the overall level of prices in the economy is to

Correct AnswerverifiedShow Answer

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent.A year later,Bob withdraws his $105.If deflation was 7 percent during the year the money was deposited,then Bob's purchasing power has increased by 12 percent.

Correct AnswerverifiedShow 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

In general,if a consumer good is produced domestically and consumed domestically,an increase in its price will have which of the following effects?

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 GDP Deflator reflects

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

For an imaginary economy,the value of the consumer price index was 140 in 2006 and 149.10 in 2007.The economy's inflation rate for 2007 was

Correct AnswerverifiedShow Answer

Which is likely to have the larger effect on the CPI,a 2 percent increase in the price of food or a 3 percent increase in the price of diamond rings? Explain.

Correct AnswerverifiedThe 2 percent increase in the ...View AnswerShow Answer

By not taking into account the possibility of consumer substitution,the CPI

Correct AnswerverifiedShow Answer

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent.A year later,Bob withdraws his $105.If deflation was 5 percent during the year the money was deposited,then Bob's purchasing power has not changed.

Correct AnswerverifiedShow Answer

The inflation rate is the absolute change in the price level from the previous period.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Economists use the term inflation to describe a situation in which

Correct AnswerverifiedShow Answer

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The 2 percent increase in the ...
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