Question 1

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 2

If the price of beef rises and consumers buy more chicken and less beef, what kind of bias does the consumer price index exhibit?

Accepted Answer

The answer of If the price of beef rises and...

Question 3

Which of the following is not correct?

Accepted Answer

A)   If the inflation rate exceeds the nominal interest rate, then the purchasing power of an interest-earning deposit falls over time.
B)   If there is deflation, then the purchasing power of an interest-earning deposit rises by more than the nominal interest rate over time.
C)   The higher the rate of inflation, the smaller the increase in the purchasing power of an interest-earning deposit.
D)   The purchasing power of an interest-earning deposit can increase or decrease over time, but it cannot stay the same.E) A) and D)
F) B) and D)

Question 4

The CPI differs from the GDP deflator in that

Accepted Answer

A)   the CPI is a price index, while the GDP deflator is an inflation index.
B)   substitution bias is not a problem with the CPI, but it is a problem with the GDP deflator.
C)   increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the CPI but not in the GDP deflator.
D)   increases in the prices of domestically produced goods that are sold to the U.S. government show up in the CPI but not in the GDP deflator.E) A) and B)
F) B) and D)

Question 5

Table 24-7. The table below applies to an economy with only two goods - hamburgers and hot dogs. The fixed basket consists of 4 hamburgers and 8 hot dogs.
 
-Refer to Table 24-7. Between 2009 and 2011, the cost of living increased by

Accepted Answer

A)   6 percent.
B)   19 percent.
C)   14 percent.
D)   17 percent.E) C) and D)
F) All of the above

Question 6

Table 24-5
The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys.
 
-Refer to Table 24-5. If the base year is 2004, then the CPI in 2004 was

Accepted Answer

A)   0.
B)   1.
C)   80.
D)   100.E) C) and D)
F) B) and D)

Question 7

The CPI for 2008 is computed by dividing the price of the basket of goods and services in 2008 by the price of the basket of goods and services in the base year, then multiplying by 100.

Accepted Answer

A) True 
 B)False

Question 8

In the late 1970s, U.S. nominal interest rates were high and real interest rates were low, but in the late 1990s, U.S. nominal interest rates were low and real interest rates were high.

Accepted Answer

A) True 
 B)False

Question 9

The relative importance of housing in the breakdown of consumer spending is

Accepted Answer

A)   41 percent.
B)   15 percent.
C)   6 percent.
D)   4 percent.E) C) and D)
F) B) and C)

Question 10

For an imaginary economy, the value of the consumer price index was 140 in 2013 and 146.5 in 2014. The economy's inflation rate for 2014 was

Accepted Answer

A)   4.6 percent.
B)   6.5 percent.
C)   4.4 percent.
D)   46.5 percent.E) A) and B)
F) None of the above

Question 11

Janelle earned a salary of $62,000 in 2004 and $80,000 in 2014. The consumer price index was 126 in 2004 and 170 in 2014. Janelle's 2004 salary in 2014 dollars is

Accepted Answer

A)   $45,953.
B)   $89,280.
C)   $107,953.
D)   $83,651.E) B) and C)
F) A) and B)

Question 12

Which of the following changes in the price index produces the greatest rate of inflation: 100 to 110, 150 to 165, or 180 to 198?

Accepted Answer

A)   100 to 110
B)   150 to 165
C)   180 to 198
D)   All of these changes produce the same rate of inflation.E) A) and D)
F) C) and D)

Question 13

An increase in the price of imported coffee shows up

Accepted Answer

A)   in the consumer price index and in the GDP deflator.
B)   in the consumer price index, but not in the GDP deflator.
C)   in the GDP deflator, but not in the consumer price index.
D)   in neither the consumer price index nor in the GDP deflator.E) A) and C)
F) B) and C)

Question 14

In 1979 and 1980,

Accepted Answer

A)   the U.S. inflation rate as measured by the GDP deflator was higher than that measured by the CPI, and the difference was explained by rapidly rising prices of goods exported by the U.S.
B)   the U.S. inflation rate as measured by the CPI was higher than that measured by the GDP deflator, and the difference was explained by rapidly rising prices of goods exported by the U.S.
C)   the U.S. inflation rate as measured by the GDP deflator was higher than that measured by the CPI, and the difference was explained by rapidly rising oil prices.
D)   the U.S. inflation rate as measured by the CPI was higher than that measured by the GDP deflator, and the difference was explained by rapidly rising oil prices.E) A) and C)
F) A) and B)

Question 15

Corey deposits $1,000 in a savings account that pays an annual interest rate of 5 percent. Over the course of a year, the inflation rate is 1.7 percent. At the end of the year, Corey has

Accepted Answer

A)   $17 more in his account, and his purchasing power has increased by $10.
B)   $30 more in his account, and his purchasing power has increased by $50.
C)   $40 more in his account, and his purchasing power has increased by $33.
D)   $50 more in his account, and his purchasing power has increased by $33.E) B) and D)
F) B) and C)

Question 16

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 17

Table 24-4
The table below pertains to Studious, an economy in which the typical consumer's basket consists of 5 books and 10 calculators.
 
-Refer to Table 24-4. If 2012 is the base year, then the consumer price index was

Accepted Answer

A)   100 in 2012, 123.8 in 2013, and 133.3 in 2014.
B)   100 in 2012, 124.2 in 2013, and 133.3 in 2014.
C)   210 in 2012, 260 in 2013, and 280 in 2014.
D)   100 in 2012, 150 in 2013, and 170 in 2014.E) None of the above
F) B) and C)

Question 18

The Bureau of Labor Statistics surveys consumers to determine a fixed basket of goods.

Accepted Answer

A) True 
 B)False

Question 19

Suppose you know the value of the consumer price index CPI)  in year 2 as well as the inflation rate in year 2. Which of the following equations is valid for the CPI in year 1?

Accepted Answer

A)   CPI in year 1 = 
B)   CPI in year 1 = 
C)   CPI in year 1 = 
D)   CPI in year 1 = E) A) and B)
F) All of the above

Question 20

One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI

Accepted Answer

A)   fails to account for consumer spending on housing.
B)   accounts only for consumer spending on food, clothing, and energy.
C)   fails to account for the fact that consumers spend larger percentages of their incomes on some goods and smaller percentages of their incomes on other goods.
D)   fails to account for the introduction of new goods.E) A) and B)
F) C) and D)

Exam 6: Measuring the Cost of Living

In 1979 and 1980,

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The Bureau of Labor Statistics surveys consumers to determine a fixed basket of goods.

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If the price of beef rises and consumers buy more chicken and less beef, what kind of bias does the consumer price index exhibit?

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For an imaginary economy, the value of the consumer price index was 140 in 2013 and 146.5 in 2014. The economy's inflation rate for 2014 was

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Suppose you know the value of the consumer price index CPI) in year 2 as well as the inflation rate in year 2. Which of the following equations is valid for the CPI in year 1?

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One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI

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The CPI for 2008 is computed by dividing the price of the basket of goods and services in 2008 by the price of the basket of goods and services in the base year, then multiplying by 100.

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Corey deposits $1,000 in a savings account that pays an annual interest rate of 5 percent. Over the course of a year, the inflation rate is 1.7 percent. At the end of the year, Corey has

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The relative importance of housing in the breakdown of consumer spending is

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An increase in the price of imported coffee shows up

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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.

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The CPI differs from the GDP deflator in that

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Table 24-4 The table below pertains to Studious, an economy in which the typical consumer's basket consists of 5 books and 10 calculators. -Refer to Table 24-4. If 2012 is the base year, then the consumer price index was

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Janelle earned a salary of $62,000 in 2004 and $80,000 in 2014. The consumer price index was 126 in 2004 and 170 in 2014. Janelle's 2004 salary in 2014 dollars is

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Which of the following changes in the price index produces the greatest rate of inflation: 100 to 110, 150 to 165, or 180 to 198?

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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.

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Which of the following is not correct?

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In the late 1970s, U.S. nominal interest rates were high and real interest rates were low, but in the late 1990s, U.S. nominal interest rates were low and real interest rates were high.

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Table 24-5 The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. -Refer to Table 24-5. If the base year is 2004, then the CPI in 2004 was

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Table 24-7. The table below applies to an economy with only two goods - hamburgers and hot dogs. The fixed basket consists of 4 hamburgers and 8 hot dogs. -Refer to Table 24-7. Between 2009 and 2011, the cost of living increased by

Correct AnswerverifiedShow Answer

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