Question 1

For some racquet sports there have been increases in the size of the racquets;also,the methods and materials used for making racquets have improved.To which problem in the construction of the CPI are these facts most relevant?

Accepted Answer

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

Question 2

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 2006 as the base year,the inflation rate is

Accepted Answer

A)  13.3 percent for 2007 and 14.8 percent for 2008.
B)  35 percent for 2007 and 14.8 percent for 2008.
C)  35 percent for 2007 and 55 percent for 2008.
D)  135 percent for 2007 and 155 percent for 2008.

Question 3

If the price index was 90 in year 1,100 in year 2,and 95 in year 3,then the economy experienced

Accepted Answer

A)  10 percent inflation between years 1 and 2 ,and 5 percent inflation between years 2 and 3.
B)  10 percent inflation between years 1 and 2, and 5 percent deflation between years 2 and 3.
C)  11.1 percent inflation between years 1 and 2, and 5 percent inflation between years 2 and 3.
D)  11.1 percent inflation between years 1 and 2, and 5 percent deflation between years 2 and 3.

Question 4

If this year the CPI is 110 and last year it was 100,then

Accepted Answer

A)  the cost of the CPI basket of goods and services has increased this year by 110 percent.
B)  the price level as measured by the CPI has increased by 10 percent.
C)  the inflation rate for this year has increased by 10 percent over last year's inflation rate.
D)  All of the above are correct.

Question 5

By far the largest category of goods and services in the CPI basket is

Accepted Answer

A)  housing.
B)  transportation.
C)  food and apparel.
D)  food and beverages.

Question 6

Jay and Joyce meet George,the banker,to work out the details of a mortgage.They all expect that inflation will be 2 percent over the term of the loan,and they agree on a nominal interest rate of 6 percent.As it turns out,the inflation rate is 5 percent over the term of the loan.
a.What was the expected real interest rate?
b.What was the actual real interest rate?
c.Who benefited and who lost because of the unexpected inflation?

Accepted Answer

a. The expected real interest rate was 4...

Question 7

Suppose the CPI today is 120 and five years ago it was 80.Then in today's prices something that cost $1 five years ago now costs $1.50.

Accepted Answer

A) True 
 B)False

Question 8

Of Social Security benefits and federal income tax brackets,which is indexed?

Accepted Answer

A)  Both are indexed.
B)  Only Social Security benefits are indexed.
C)  Only federal income tax brackets are indexed.
D)  Neither is indexed.

Question 9

Mavis Corporation has an agreement with its workers to index completely the wage of its employees to the CPI.Mavis currently pays its production line workers $7.50 an hour and is scheduled to index their wages today.If the CPI is currently about 130 and was 120 a year ago,Mavis should increase the hourly wages of its workers by about

Accepted Answer

A)  $0.075.
B)  $0.10.
C)  $0.58.
D)  $0.63.

Question 10

The nominal interest rate tells you

Accepted Answer

A)  how fast the number of dollars in your bank account rises over time.
B)  how fast the purchasing power of your bank account rises over time.
C)  the number of dollars in your bank account today.
D)  the purchasing power in your bank account today.

Question 11

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 2006 as the base year,the consumer price index is

Accepted Answer

A)  100 in 2006, 135 in 2007, and 155 in 2008.
B)  100 in 2006, 270 in 2007, and 310 in 2008.
C)  200 in 2006, 270 in 2007, and 310 in 2008.
D)  200 in 2006, 540 in 2007, and 620 in 2008.

Question 12

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 13

Compute how much each of the following items is worth in terms of today's dollars using 177 as the price index for today.
a.In 1926 the CPI was 17.7 and the price of a movie ticket was $0.25.
b.In 1932 the CPI was 13.1 and a cook earned $15.00 a week.
c.In 1943 the CPI was 17.4 and a gallon of gas cost $0.19.

Accepted Answer

a. The movie ticket is worth $.25 × 177/...

Question 14

List the three major problems in using the CPI as a measure of the cost of living.

Accepted Answer

(1)Substitution bias.The CPI ignores the...

Question 15

Table 24-2
 
-Refer to Table 24-2.Suppose the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn.What is the inflation rate for 2006 if the base year is 2005?

Accepted Answer

A)  21.33 percent
B)  25.00 percent
C)  28.89 percent
D)  36.11 percent

Question 16

Which of these events would cause the consumer price index to overstate the increase in the cost of living?

Accepted Answer

A)  Carmakers benefit from a new technology that allows them to sell higher-quality cars to consumers with no increase in price.
B)  Energy prices decrease, and consumers respond by buying more gas and electricity.
C)  A new good is introduced that renders cellular telephones inferior and obsolete.
D)  All of the above are correct.

Question 17

Babe Ruth's 1931 salary was $80,000.Government statistics show a consumer price index of 15.2 for 1931 and 195 for 2005.Ruth's 1931 salary was equivalent to a 2005 salary of about

Accepted Answer

A)  $536,000.
B)  $828,000.
C)  $1,026,000.
D)  $1,216,000.

Question 18

In Japan in 2000,nominal interest rates were 1.5 percent and the inflation rate was -0.5 percent.The real interest rate was

Accepted Answer

A)  -2 percent.
B)  -1 percent.
C)  1 percent.
D)  2 percent.

Question 19

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.

Question 20

To which of the problems in the construction of the CPI is the invention of pocket-sized computers most relevant?

Accepted Answer

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

Exam 24: Measuring the Cost of Living

Correct Answer
verified
a. The movie ticket is worth $.25 × 177/...
View Answer

Table 24-2 -Refer to Table 24-2.Suppose the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn.What is the inflation rate for 2006 if the base year is 2005?

Correct Answer
verified

List the three major problems in using the CPI as a measure of the cost of living.

Correct Answer
verified
(1)Substitution bias.The CPI ignores the...
View Answer

Of Social Security benefits and federal income tax brackets,which is indexed?

Correct Answer
verified

Which of these events would cause the consumer price index to overstate the increase in the cost of living?

Correct Answer
verified

Suppose the CPI today is 120 and five years ago it was 80.Then in today's prices something that cost $1 five years ago now costs $1.50.

Correct Answer
verified

Correct Answer
verified
a. The expected real interest rate was 4...
View Answer

Correct Answer
verified

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

Correct Answer
verified

If this year the CPI is 110 and last year it was 100,then

Correct Answer
verified

In Japan in 2000,nominal interest rates were 1.5 percent and the inflation rate was -0.5 percent.The real interest rate was

Correct Answer
verified

If the price index was 90 in year 1,100 in year 2,and 95 in year 3,then the economy experienced

Correct Answer
verified

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.

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 2006 as the base year,the consumer price index is

Correct Answer
verified

Babe Ruth's 1931 salary was $80,000.Government statistics show a consumer price index of 15.2 for 1931 and 195 for 2005.Ruth's 1931 salary was equivalent to a 2005 salary of about

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 2006 as the base year,the inflation rate is

Correct Answer
verified

To which of the problems in the construction of the CPI is the invention of pocket-sized computers most relevant?

Correct Answer
verified

For some racquet sports there have been increases in the size of the racquets;also,the methods and materials used for making racquets have improved.To which problem in the construction of the CPI are these facts most relevant?

Correct Answer
verified

By far the largest category of goods and services in the CPI basket is

Correct Answer
verified

The nominal interest rate tells you

Correct Answer
verified

Exam 24: Measuring the Cost of Living

Correct Answerverifieda. The movie ticket is worth $.25 × 177/...View AnswerShow Answer

Table 24-2 -Refer to Table 24-2.Suppose the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn.What is the inflation rate for 2006 if the base year is 2005?

Correct AnswerverifiedShow Answer

List the three major problems in using the CPI as a measure of the cost of living.

Correct Answerverified(1)Substitution bias.The CPI ignores the...View AnswerShow Answer

Of Social Security benefits and federal income tax brackets,which is indexed?

Correct AnswerverifiedShow Answer

Which of these events would cause the consumer price index to overstate the increase in the cost of living?

Correct AnswerverifiedShow Answer

Suppose the CPI today is 120 and five years ago it was 80.Then in today's prices something that cost $1 five years ago now costs $1.50.

Correct AnswerverifiedShow Answer

Correct Answerverifieda. The expected real interest rate was 4...View AnswerShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If this year the CPI is 110 and last year it was 100,then

Correct AnswerverifiedShow Answer

In Japan in 2000,nominal interest rates were 1.5 percent and the inflation rate was -0.5 percent.The real interest rate was

Correct AnswerverifiedShow Answer

If the price index was 90 in year 1,100 in year 2,and 95 in year 3,then the economy experienced

Correct AnswerverifiedShow Answer

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.

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 2006 as the base year,the consumer price index is

Correct AnswerverifiedShow Answer

Babe Ruth's 1931 salary was $80,000.Government statistics show a consumer price index of 15.2 for 1931 and 195 for 2005.Ruth's 1931 salary was equivalent to a 2005 salary of about

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 2006 as the base year,the inflation rate is

Correct AnswerverifiedShow Answer

To which of the problems in the construction of the CPI is the invention of pocket-sized computers most relevant?

Correct AnswerverifiedShow Answer

For some racquet sports there have been increases in the size of the racquets;also,the methods and materials used for making racquets have improved.To which problem in the construction of the CPI are these facts most relevant?

Correct AnswerverifiedShow Answer

By far the largest category of goods and services in the CPI basket is

Correct AnswerverifiedShow Answer

The nominal interest rate tells you

Correct AnswerverifiedShow Answer

Correct Answer
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a. The movie ticket is worth $.25 × 177/...
View Answer

Correct Answer
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Correct Answer
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(1)Substitution bias.The CPI ignores the...
View Answer

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Correct Answer
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Correct Answer
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a. The expected real interest rate was 4...
View Answer

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