Question 1

The measurement problems in the consumer price index as an indicator of the cost of living are important because

Accepted Answer

A)  even the appearance of high rates of inflation cause voters to become disenchanted.
B)  politicians have manipulated the measurement problems to their advantage.
C)  many government programs use the CPI to adjust for changes in the overall level of prices.
D)  if the price level is overstated, consumers will be taken advantage of by sellers of consumer goods.E) C) and D)
F) B) and C)

Question 2

From 2004 to 2005,the CPI for medical care increased from 260.8 to 272.8.What was the inflation rate for medical care?

Accepted Answer

A)  12 percent
B)  11.1 percent
C)  4.9 percent
D)  4.6 percentE) C) and D)
F) None of the above

Question 3

In an imaginary economy,consumers buy only hot dogs and hamburgers.The fixed basket consists of 10 hot dogs and 6 hamburgers.A hot dog cost $3 in 2006 and $5.40 in 2007.A hamburger cost $5 in 2006 and $6 in 2007.Which of the following statements is correct?

Accepted Answer

A)  When 2006 is chosen as the base year, the consumer price index is 90 in 2007.
B)  When 2006 is chosen as the base year, the inflation rate is 150 percent in 2007.
C)  When 2007 is chosen as the base year, the consumer price index is 100 in 2006.
D)  When 2007 is chosen as the base year, the inflation rate is 50 percent in 2007.E) B) and C)
F) A) and D)

Question 4

Table 24-4
The table below pertains to an economy with only two goods -- books and calculators. The fixed basket consists of 5 books and 10 calculators.
 
-Refer to Table 24-4.Using 2008 as the base year,the consumer price index is

Accepted Answer

A)  52.66 in 2006, 84.25 in 2007, and 106.5 in 2008.
B)  64.52 in 2006, 87.10 in 2007, and 100 in 2008.
C)  52.66 in 2006, 90.89 in 2007, and 100 in 2008.
D)  100 in 2006, 135 in 2007, and 155 in 2008.E) B) and D)
F) A) and B)

Question 5

The U.S.income tax system is completely indexed to the CPI.

Accepted Answer

A) True 
 B)False

Question 6

Scenario 24-1
Grant Smith was a doctor in 1944 and earned $12,000 that year. His daughter, Lisa Smith, is a doctor today and she earned $210,000 in 2005. The price index in 1944 was 17.6 and the price index in 2005 was 184.
-Refer to Scenario 24-1.In real terms,Lisa Smith's income amounts to about what percentage of Grant Smith's income?

Accepted Answer

A)  96 percent
B)  133 percent
C)  167 percent
D)  206 percentE) C) and D)
F) All of the above

Question 7

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 B)
F) A) and C)

Question 8

Ms.Smith borrowed $1,000 from her bank for one year at an interest rate of 10 percent.During that year the price level went up by 15 percent.Which of the following statements is correct?

Accepted Answer

A)  Ms.Smith will repay the bank fewer dollars than she initially borrowed.
B)  Ms.Smith's repayment will give the bank less purchasing power than it originally loaned her.
C)  Ms.Smith's repayment will give the bank greater purchasing power than it originally loaned her.
D)  Ms.Smith's repayment will give the bank the same purchasing power that it originally loaned her.E) B) and C)
F) B) and D)

Question 9

Suppose the CPI was 95 in 1955,and suppose currently the CPI is 475.According to the CPI,$100 today purchases the same amount of goods and services as

Accepted Answer

A)  $20.00 purchased in 1955.
B)  $33.33 purchased in 1955.
C)  $47.50 purchased in 1955.
D)  None of the above is correct.E) All of the above
F) B) and D)

Question 10

Categories of U.S.consumer spending,ranked from largest to smallest,are

Accepted Answer

A)  food and beverages, housing, transportation, and medical care.
B)  medical care, housing, food and beverages, and transportation.
C)  housing, food and beverages, transportation, and medical care.
D)  housing, transportation, food and beverages, and medical care.E) A) and B)
F) None of the above

Question 11

Because the CPI is based on a fixed basket of goods,the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living.This is so because

Accepted Answer

A)  new goods and services are always of higher quality than existing goods and services.
B)  new goods and services cost less than existing goods and services.
C)  new goods and services cost more than existing goods and services.
D)  when a new good is introduced, it gives consumers greater choice, thus reducing the amount they must spend to maintain their standard of living.E) All of the above
F) C) and D)

Question 12

The inflation rate is calculated

Accepted Answer

A)  using the national income accounts.
B)  by adding up the price increases of all goods and services.
C)  by computing a simple average of the price increases for all goods and services.
D)  by determining the percentage increase in the price index from the preceding period.E) None of the above
F) A) and B)

Question 13

Suppose that in 2006,the producer price index increases by 2 percent.As a result,economists most likely will predict that

Accepted Answer

A)  GDP will increase in 2007.
B)  the producer price index will increase by more than 2 percent in 2007.
C)  interest rates will fall in the near future.
D)  the consumer price index will increase in the future.E) A) and C)
F) None of the above

Question 14

By itself,a reduction in the price of large tractors imported into the United States from Russia

Accepted Answer

A)  decreases the GDP deflator and increases the consumer price index.
B)  increases the GDP deflator but leaves the consumer price index unchanged.
C)  increases both the GDP deflator and the consumer price index.
D)  leaves both the GDP deflator and the consumer price index unchanged.E) B) and C)
F) A) and C)

Question 15

In 1931,President Herbert Hoover was paid a salary of $75,000.Government statistics show a consumer price index of 15.2 for 1931 and 195 for 2005.President Hoover's 1931 salary was equivalent to a 2005 salary of about

Accepted Answer

A)  $1,455,995.
B)  $1,254,262.
C)  $1,125,008.
D)  $962,171.E) C) and D)
F) A) and B)

Question 16

Suppose the price of a gallon 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,then people likely will 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 coffee.E) B) and C)
F) A) and D)

Question 17

If the nominal interest rate is 5 percent and the inflation rate is 2 percent,then the real interest rate is 3 percent.

Accepted Answer

A) True 
 B)False

Question 18

If this year the CPI is 125 and last year it was 120,then

Accepted Answer

A)  the cost of the CPI basket of goods and services has increased this year by 4.17 percent.
B)  the price level as measured by the CPI has increased by 4.17 percent.
C)  the inflation rate for this year is 4.17 percent.
D)  All of the above are correct.E) All of the above
F) C) and D)

Question 19

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

Question 20

Which of these changes in the price index produces the greatest rate of inflation: 106 to 112,112 to 118,or 118 to 124?

Accepted Answer

A)  106 to 112
B)  112 to 118
C)  118 to 124
D)  All three changes show the same rate of inflation.E) A) and B)
F) None of the above

Exam 24: Measuring the Cost of Living

The measurement problems in the consumer price index as an indicator of the cost of living are important because

Correct Answer
verified

The inflation rate is calculated

Correct Answer
verified

Because the CPI is based on a fixed basket of goods,the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living.This is so because

Correct Answer
verified

If this year the CPI is 125 and last year it was 120,then

Correct Answer
verified

Correct Answer
verified

In an imaginary economy,consumers buy only hot dogs and hamburgers.The fixed basket consists of 10 hot dogs and 6 hamburgers.A hot dog cost $3 in 2006 and $5.40 in 2007.A hamburger cost $5 in 2006 and $6 in 2007.Which of the following statements is correct?

Correct Answer
verified

Suppose that in 2006,the producer price index increases by 2 percent.As a result,economists most likely will predict that

Correct Answer
verified

Ms.Smith borrowed $1,000 from her bank for one year at an interest rate of 10 percent.During that year the price level went up by 15 percent.Which of the following statements is correct?

Correct Answer
verified

From 2004 to 2005,the CPI for medical care increased from 260.8 to 272.8.What was the inflation rate for medical care?

Correct Answer
verified

By itself,a reduction in the price of large tractors imported into the United States from Russia

Correct Answer
verified

If the nominal interest rate is 5 percent and the inflation rate is 2 percent,then the real interest rate is 3 percent.

Correct Answer
verified

Suppose the price of a gallon 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,then people likely will buy

Correct Answer
verified

Which of these changes in the price index produces the greatest rate of inflation: 106 to 112,112 to 118,or 118 to 124?

Correct Answer
verified

Categories of U.S.consumer spending,ranked from largest to smallest,are

Correct Answer
verified

The U.S.income tax system is completely indexed to the CPI.

Correct Answer
verified

Suppose the CPI was 95 in 1955,and suppose currently the CPI is 475.According to the CPI,$100 today purchases the same amount of goods and services as

Correct Answer
verified

Table 24-4 The table below pertains to an economy with only two goods -- books and calculators. The fixed basket consists of 5 books and 10 calculators. -Refer to Table 24-4.Using 2008 as the base year,the consumer price index is

Correct Answer
verified

Correct Answer
verified

In 1931,President Herbert Hoover was paid a salary of $75,000.Government statistics show a consumer price index of 15.2 for 1931 and 195 for 2005.President Hoover's 1931 salary was equivalent to a 2005 salary of about

Correct Answer
verified

Economists use the term inflation to describe a situation in which

Correct Answer
verified

Exam 24: Measuring the Cost of Living

The measurement problems in the consumer price index as an indicator of the cost of living are important because

Correct AnswerverifiedShow Answer

The inflation rate is calculated

Correct AnswerverifiedShow Answer

Because the CPI is based on a fixed basket of goods,the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living.This is so because

Correct AnswerverifiedShow Answer

If this year the CPI is 125 and last year it was 120,then

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In an imaginary economy,consumers buy only hot dogs and hamburgers.The fixed basket consists of 10 hot dogs and 6 hamburgers.A hot dog cost $3 in 2006 and $5.40 in 2007.A hamburger cost $5 in 2006 and $6 in 2007.Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Suppose that in 2006,the producer price index increases by 2 percent.As a result,economists most likely will predict that

Correct AnswerverifiedShow Answer

Ms.Smith borrowed $1,000 from her bank for one year at an interest rate of 10 percent.During that year the price level went up by 15 percent.Which of the following statements is correct?

Correct AnswerverifiedShow Answer

From 2004 to 2005,the CPI for medical care increased from 260.8 to 272.8.What was the inflation rate for medical care?

Correct AnswerverifiedShow Answer

By itself,a reduction in the price of large tractors imported into the United States from Russia

Correct AnswerverifiedShow Answer

If the nominal interest rate is 5 percent and the inflation rate is 2 percent,then the real interest rate is 3 percent.

Correct AnswerverifiedShow Answer

Suppose the price of a gallon 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,then people likely will buy

Correct AnswerverifiedShow Answer

Which of these changes in the price index produces the greatest rate of inflation: 106 to 112,112 to 118,or 118 to 124?

Correct AnswerverifiedShow Answer

Categories of U.S.consumer spending,ranked from largest to smallest,are

Correct AnswerverifiedShow Answer

The U.S.income tax system is completely indexed to the CPI.

Correct AnswerverifiedShow Answer

Suppose the CPI was 95 in 1955,and suppose currently the CPI is 475.According to the CPI,$100 today purchases the same amount of goods and services as

Correct AnswerverifiedShow Answer

Table 24-4 The table below pertains to an economy with only two goods -- books and calculators. The fixed basket consists of 5 books and 10 calculators. -Refer to Table 24-4.Using 2008 as the base year,the consumer price index is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In 1931,President Herbert Hoover was paid a salary of $75,000.Government statistics show a consumer price index of 15.2 for 1931 and 195 for 2005.President Hoover's 1931 salary was equivalent to a 2005 salary of about

Correct AnswerverifiedShow Answer

Economists use the term inflation to describe a situation in which

Correct AnswerverifiedShow Answer

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