Question 1

You know that a candy bar cost five cents in 1962.You also know the CPI for 1962 and the CPI for today.Which of the following would you use to compute the price of the candy bar in today's prices?

Accepted Answer

A)   five cents(1962 CPI / today's CPI) 
B)   five cents((today's CPI - 1962 CPI) /1962 CPI) 
C)   five cents(today's CPI / 1962 CPI) 
D)   five centstoday's CPI - five cents1962 CPI.

Question 2

Scenario 24-3
Grant Gant was a doctor in 1944 and earned $12,000 that year.His daughter,Gretta Gant,is a doctor today and she earned $210,000 in 2005.The price index was 17.6 in 1944 and 184 in 2005.
-Refer to Scenario 24-3.In real terms,Grant Gant's income amounts to about what percentage of Gretta Gant's income?

Accepted Answer

A)   5.71 percent
B)   9.6 percent
C)   59.7 percent
D)   67.4 percent

Question 3

Indexation refers to

Accepted Answer

A)   a process of adjusting the nominal interest rate so that it is equal to the real interest rate.
B)   using a law or contract to automatically correct a dollar amount for the effects of inflation.
C)   using a price index to deflate dollar values.
D)   an adjustment made by the Bureau of Labor Statistics to the CPI so that the index is in line with the GDP deflator.

Question 4

The real interest rate measures the change in dollar amounts.

Accepted Answer

A) True 
 B)False

Question 5

The CPI is a measure of the overall cost of the goods and services bought by a typical consumer.

Accepted Answer

A) True 
 B)False

Question 6

If the nominal interest rate is 4 percent and the real interest rate is -2.5 percent,then the inflation rate is

Accepted Answer

A)   -6.5 percent.
B)   -1.5 percent.
C)   1.5 percent.
D)   6.5 percent.

Question 7

The goal of the consumer price index is to measure changes in the

Accepted Answer

A)   costs of production.
B)   cost of living.
C)   relative prices of consumer goods.
D)   production of consumer goods.

Question 8

Suppose that over the past year,the real interest rate was 5 percent and the inflation rate was 3 percent.It follows that

Accepted Answer

A)   the dollar value of savings increased at 5 percent,and the purchasing power of savings increased at 2 percent.
B)   the dollar value of savings increased at 5 percent,and the purchasing power of savings increased at 8 percent.
C)   the dollar value of savings increased at 8 percent,and the purchasing power of savings increased at 2 percent.
D)   the dollar value of savings increased at 8 percent,and the purchasing power of savings increased at 5 percent.

Question 9

The price index was 110 in the first year,100 in the second year,and 96 in the third year.The economy experienced

Accepted Answer

A)   9.1 percent deflation between the first and second years,and 4 percent deflation between the second and third years.
B)   9.1 percent deflation between the first and second years,and 4.2 percent deflation between the second and third years.
C)   10 percent deflation between the first and second years,and 4 percent deflation between the second and third years.
D)   10 percent deflation between the first and second years,and 4.2 percent deflation between the second and third years.

Question 10

If the real interest rate is 5 percent and the inflation rate is 2 percent,then the nominal interest rate is 7 percent.

Accepted Answer

A) True 
 B)False

Question 11

Table 24-2
The table below pertains to Iowan,an economy in which the typical consumer's basket consists of 3 pounds of pork and 4 bushels of corn.
 
-Refer to Table 24-2.The cost of the basket in 2008 was

Accepted Answer

A)   $108.
B)   $147.
C)   $160.
D)   $224.

Question 12

When some dollar amount is automatically corrected for inflation by law or contract,the amount is said to be indexed for inflation.

Accepted Answer

A) True 
 B)False

Question 13

Scenario 24-4
Quinn has job offers in Wrexington and across the country in Charlieville.The Wrexington job would pay a salary of $50,000 per year,and the Charlieville job would pay a salary of $40,000 per year.The CPI in Wrexington is 150,and the CPI in Charlieville is 90.
-Refer to Scenario 24-4.If Quinn only cares about maximizing her purchasing power,then she should

Accepted Answer

A)   take the Charlieville job.
B)   take the Wrexington job.
C)   take either job because they both have the same purchasing power.
D)   The answer cannot be determined from the information given because a salary is not the same as purchasing power.

Question 14

When the price of Italian wine rises,this change is reflected in the U.S.CPI but not in the U.S.GDP deflator.

Accepted Answer

A) True 
 B)False

Question 15

Table 24-1
The table below pertains to Pieway,an economy in which the typical consumer's basket consists of 10 bushels of peaches and 15 bushels of pecans.
 
-Refer to Table 24-1.If 2005 is the base year,then the inflation rate in 2006 was

Accepted Answer

A)   16.7 percent.
B)   20 percent.
C)   40 percent.
D)   44.1 percent.

Question 16

Suppose a basket of goods and services has been selected to calculate the CPI and 2002 has been chosen as the base year.In 2002,the basket's cost was $75.00;in 2004,the basket's cost was $79.50;and in 2006,the basket's cost was $85.86.The value of the CPI was

Accepted Answer

A)   100 in 2002.
B)   106 in 2004.
C)   114.48 in 2006.
D)   All of the above are correct.

Question 17

The CPI is a measure of the overall cost of the goods and services bought by

Accepted Answer

A)   a typical consumer,and the CPI is computed and reported by the Department of the Treasury.
B)   typical consumers and typical business firms,and the CPI is computed and reported by the Department of the Treasury.
C)   a typical consumer,and the CPI is computed and reported by the Bureau of Labor Statistics.
D)   typical consumers and typical business firms,and the CPI is computed and reported by the Bureau of Labor Statistics.

Question 18

The inflation rate is calculated

Accepted Answer

A)   by determining the change in the price index from the preceding period.
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.

Question 19

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.

Question 20

Substitution bias causes the CPI to understate the increase in the cost of living from one year to the next.

Accepted Answer

A) True 
 B)False

Exam 24: Measuring the Cost of Living

Table 24-2 The table below pertains to Iowan,an economy in which the typical consumer's basket consists of 3 pounds of pork and 4 bushels of corn. -Refer to Table 24-2.The cost of the basket in 2008 was

Correct Answer
verified

The CPI is a measure of the overall cost of the goods and services bought by

Correct Answer
verified

You know that a candy bar cost five cents in 1962.You also know the CPI for 1962 and the CPI for today.Which of the following would you use to compute the price of the candy bar in today's prices?

Correct Answer
verified

Substitution bias causes the CPI to understate the increase in the cost of living from one year to the next.

Correct Answer
verified

Correct Answer
verified

When the price of Italian wine rises,this change is reflected in the U.S.CPI but not in the U.S.GDP deflator.

Correct Answer
verified

Indexation refers to

Correct Answer
verified

Suppose a basket of goods and services has been selected to calculate the CPI and 2002 has been chosen as the base year.In 2002,the basket's cost was $75.00;in 2004,the basket's cost was $79.50;and in 2006,the basket's cost was $85.86.The value of the CPI was

Correct Answer
verified

If the real interest rate is 5 percent and the inflation rate is 2 percent,then the nominal interest rate is 7 percent.

Correct Answer
verified

The CPI differs from the GDP deflator in that

Correct Answer
verified

The goal of the consumer price index is to measure changes in the

Correct Answer
verified

When some dollar amount is automatically corrected for inflation by law or contract,the amount is said to be indexed for inflation.

Correct Answer
verified

Correct Answer
verified

If the nominal interest rate is 4 percent and the real interest rate is -2.5 percent,then the inflation rate is

Correct Answer
verified

The price index was 110 in the first year,100 in the second year,and 96 in the third year.The economy experienced

Correct Answer
verified

Table 24-1 The table below pertains to Pieway,an economy in which the typical consumer's basket consists of 10 bushels of peaches and 15 bushels of pecans. -Refer to Table 24-1.If 2005 is the base year,then the inflation rate in 2006 was

Correct Answer
verified

The inflation rate is calculated

Correct Answer
verified

The real interest rate measures the change in dollar amounts.

Correct Answer
verified

Suppose that over the past year,the real interest rate was 5 percent and the inflation rate was 3 percent.It follows that

Correct Answer
verified

The CPI is a measure of the overall cost of the goods and services bought by a typical consumer.

Correct Answer
verified

Exam 24: Measuring the Cost of Living

Table 24-2 The table below pertains to Iowan,an economy in which the typical consumer's basket consists of 3 pounds of pork and 4 bushels of corn. -Refer to Table 24-2.The cost of the basket in 2008 was

Correct AnswerverifiedShow Answer

The CPI is a measure of the overall cost of the goods and services bought by

Correct AnswerverifiedShow Answer

You know that a candy bar cost five cents in 1962.You also know the CPI for 1962 and the CPI for today.Which of the following would you use to compute the price of the candy bar in today's prices?

Correct AnswerverifiedShow Answer

Substitution bias causes the CPI to understate the increase in the cost of living from one year to the next.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When the price of Italian wine rises,this change is reflected in the U.S.CPI but not in the U.S.GDP deflator.

Correct AnswerverifiedShow Answer

Indexation refers to

Correct AnswerverifiedShow Answer

Suppose a basket of goods and services has been selected to calculate the CPI and 2002 has been chosen as the base year.In 2002,the basket's cost was $75.00;in 2004,the basket's cost was $79.50;and in 2006,the basket's cost was $85.86.The value of the CPI was

Correct AnswerverifiedShow Answer

If the real interest rate is 5 percent and the inflation rate is 2 percent,then the nominal interest rate is 7 percent.

Correct AnswerverifiedShow Answer

The CPI differs from the GDP deflator in that

Correct AnswerverifiedShow Answer

The goal of the consumer price index is to measure changes in the

Correct AnswerverifiedShow Answer

When some dollar amount is automatically corrected for inflation by law or contract,the amount is said to be indexed for inflation.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the nominal interest rate is 4 percent and the real interest rate is -2.5 percent,then the inflation rate is

Correct AnswerverifiedShow Answer

The price index was 110 in the first year,100 in the second year,and 96 in the third year.The economy experienced

Correct AnswerverifiedShow Answer

Table 24-1 The table below pertains to Pieway,an economy in which the typical consumer's basket consists of 10 bushels of peaches and 15 bushels of pecans. -Refer to Table 24-1.If 2005 is the base year,then the inflation rate in 2006 was

Correct AnswerverifiedShow Answer

The inflation rate is calculated

Correct AnswerverifiedShow Answer

The real interest rate measures the change in dollar amounts.

Correct AnswerverifiedShow Answer

Suppose that over the past year,the real interest rate was 5 percent and the inflation rate was 3 percent.It follows that

Correct AnswerverifiedShow Answer

The CPI is a measure of the overall cost of the goods and services bought by a typical consumer.

Correct AnswerverifiedShow Answer

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