Question 1

Babe Ruth,the famous baseball player,earned $80,000 in 1931.Today,the best baseball players can earn more than 400 times as much as Babe Ruth earned in 1931.However,prices have also risen since 1931.We can conclude that

Accepted Answer

A)   the best baseball players today are about 400 times better off than Babe Ruth was in 1931.
B)   because prices have also risen,the standard of living of baseball stars hasn't changed since 1931.
C)   one cannot make judgments about changes in the standard of living based on changes in prices and changes in incomes.
D)   one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931.

Question 2

Table 16-12.Will's expenditures on food for three consecutive years,along with other values,are presented in the table below.
 
-Refer to Table 16-12.Suppose Will's 2010 food expenditures in 2011 dollars amount to $6,235.Then x,the consumer price index for 2011,has a value of

Accepted Answer

A)   171.2.
B)   175.0.
C)   177.5.
D)   180.6.

Question 3

Suppose that in 2010,the producer price index increases by 1.5 percent.As a result,economists most likely will predict that

Accepted Answer

A)   GDP will increase in 2011.
B)   the producer price index will increase by more than 1.5 percent in 2011.
C)   interest rates will decrease in the future.
D)   the consumer price index will increase in the future.

Question 4

The market basket used to calculate the CPI in Aquilonia is 4 loaves of bread,6 gallons of milk,2 shirts,and 2 pairs of pants.In 2005,bread cost $1.00 per loaf,milk cost $1.50 per gallon,shirts cost $6.00 each,and pants cost $10.00 per pair.In 2006,bread cost $1.50 per loaf,milk cost $2.00 per gallon,shirts cost $7.00 each,and pants cost $12.00 per pair.Using 2005 as the base year,what was Aquilonia's inflation rate in 2006?

Accepted Answer

A)   4 percent
B)   11 percent
C)   19.6 percent
D)   24.4 percent

Question 5

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.

Question 6

The consumer price index is used to monitor changes in an economy's production of goods and services over time.

Accepted Answer

A) True 
 B)False

Question 7

The CPI differs from the GDP deflator in that

Accepted Answer

A)   the CPI is an inflation index,while the GDP deflator is a price 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 GDP deflator but not in the CPI.
D)   increases in the prices of domestically produced goods that are sold to the U.S.government show up in the GDP deflator but not in the CPI.

Question 8

The consumer price index is subject to substitution bias because

Accepted Answer

A)   some pairs of goods are complements rather than substitutes.
B)   some goods are inferior rather than normal.
C)   the law of demand applies to most,if not all,goods.
D)   the index does not take into account the likelihood that consumers substitute newly-introduced goods for more-established goods.

Question 9

The economy's inflation rate is the

Accepted Answer

A)   price level in the current period.
B)   change in the price level from the previous period.
C)   change in the gross domestic product from the previous period.
D)   percentage change in the price level from the previous period.

Question 10

Table 16-4
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 16-4.The cost of the basket in 2006 was

Accepted Answer

A)   $9.
B)   $130.
C)   $140.
D)   $270.

Question 11

The CPI and the GDP deflator

Accepted Answer

A)   generally move together.
B)   generally show different patterns of movement.
C)   always show identical changes.
D)   always show different patterns of movement.

Question 12

An important difference between the GDP deflator and the consumer price index is that

Accepted Answer

A)   the GDP deflator reflects the prices of goods and services bought by producers,whereas the consumer price index reflects the prices of goods and services bought by consumers.
B)   the GDP deflator reflects the prices of all final goods and services produced domestically,whereas the consumer price index reflects the prices of goods and services bought by consumers.
C)   the GDP deflator reflects the prices of all final goods and services produced by a nation's citizens,whereas the consumer price index reflects the prices of all final goods and services bought by consumers.
D)   the GDP deflator reflects the prices of all final goods and services bought by producers and consumers,whereas the consumer price index reflects the prices of all final goods and services bought by consumers.

Question 13

If the CPI today is 120 and the CPI five years ago was 80,then something that cost $1 five years ago would cost $1.50 in today's prices.

Accepted Answer

A) True 
 B)False

Question 14

Consternation Corporation has an agreement with its workers to index completely the wage of its employees using the CPI.Consternation Corporation currently pays its production line workers $8.00 an hour and is scheduled to index their wages today.If the CPI is currently 160 and was 128 a year ago,the firm should increase the hourly wages of its workers by

Accepted Answer

A)   $0.25.
B)   $1.60.
C)   $2.00.
D)   $2.56.

Question 15

If the nominal interest rate is 7.5 percent and the rate of inflation is -2.5 percent,then the real interest rate is

Accepted Answer

A)   -10 percent.
B)   -5 percent.
C)   5 percent.
D)   10 percent.

Question 16

The price of DVD players increases dramatically,causing a 1 percent increase in the CPI.The price increase will most likely cause the GDP deflator to increase by

Accepted Answer

A)   more than 1 percent.
B)   less than 1 percent.
C)   1 percent.
D)   None of the above is correct; this particular price increase will not affect the GDP deflator.

Question 17

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 18

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 19

In the basket of goods that is used to compute the consumer price index,which of the following categories of consumer spending is the largest?

Accepted Answer

A)   education & communication
B)   food & beverages
C)   medical care
D)   recreation

Question 20

Jake loaned Elwood $5,000 for one year at a nominal interest rate of 10 percent.After Elwood repaid the loan in full,Jake complained that he could buy 4 percent fewer goods with the money Elwood gave him than he could before he loaned Elwood the $5,000.From this,we can conclude that the rate of inflation during the year was

Accepted Answer

A)   -4 percent.
B)   4 percent.
C)   6 percent.
D)   14 percent.

Exam 16: Measuring the Cost of Living

In the basket of goods that is used to compute the consumer price index,which of the following categories of consumer spending is the largest?

Correct Answer
verified

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 Answer
verified
The 2 percent increase in the ...
View Answer

Correct Answer
verified

If the CPI today is 120 and the CPI five years ago was 80,then something that cost $1 five years ago would cost $1.50 in today's prices.

Correct Answer
verified

Suppose that in 2010,the producer price index increases by 1.5 percent.As a result,economists most likely will predict that

Correct Answer
verified

Correct Answer
verified

If the nominal interest rate is 7.5 percent and the rate of inflation is -2.5 percent,then the real interest rate is

Correct Answer
verified

Correct Answer
verified

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 Answer
verified

The price of DVD players increases dramatically,causing a 1 percent increase in the CPI.The price increase will most likely cause the GDP deflator to increase by

Correct Answer
verified

An important difference between the GDP deflator and the consumer price index is that

Correct Answer
verified

Babe Ruth,the famous baseball player,earned $80,000 in 1931.Today,the best baseball players can earn more than 400 times as much as Babe Ruth earned in 1931.However,prices have also risen since 1931.We can conclude that

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

Table 16-4 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 16-4.The cost of the basket in 2006 was

Correct Answer
verified

The CPI and the GDP deflator

Correct Answer
verified

The economy's inflation rate is the

Correct Answer
verified

The CPI differs from the GDP deflator in that

Correct Answer
verified

The consumer price index is subject to substitution bias because

Correct Answer
verified

Table 16-12.Will's expenditures on food for three consecutive years,along with other values,are presented in the table below. -Refer to Table 16-12.Suppose Will's 2010 food expenditures in 2011 dollars amount to $6,235.Then x,the consumer price index for 2011,has a value of

Correct Answer
verified

The consumer price index is used to monitor changes in an economy's production of goods and services over time.

Correct Answer
verified

Exam 16: Measuring the Cost of Living

In the basket of goods that is used to compute the consumer price index,which of the following categories of consumer spending is the largest?

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

Correct AnswerverifiedShow Answer

If the CPI today is 120 and the CPI five years ago was 80,then something that cost $1 five years ago would cost $1.50 in today's prices.

Correct AnswerverifiedShow Answer

Suppose that in 2010,the producer price index increases by 1.5 percent.As a result,economists most likely will predict that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the nominal interest rate is 7.5 percent and the rate of inflation is -2.5 percent,then the real interest rate is

Correct AnswerverifiedShow Answer

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

The price of DVD players increases dramatically,causing a 1 percent increase in the CPI.The price increase will most likely cause the GDP deflator to increase by

Correct AnswerverifiedShow Answer

An important difference between the GDP deflator and the consumer price index is that

Correct AnswerverifiedShow Answer

Babe Ruth,the famous baseball player,earned $80,000 in 1931.Today,the best baseball players can earn more than 400 times as much as Babe Ruth earned in 1931.However,prices have also risen since 1931.We can conclude that

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

Table 16-4 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 16-4.The cost of the basket in 2006 was

Correct AnswerverifiedShow Answer

The CPI and the GDP deflator

Correct AnswerverifiedShow Answer

The economy's inflation rate is the

Correct AnswerverifiedShow Answer

The CPI differs from the GDP deflator in that

Correct AnswerverifiedShow Answer

The consumer price index is subject to substitution bias because

Correct AnswerverifiedShow Answer

Table 16-12.Will's expenditures on food for three consecutive years,along with other values,are presented in the table below. -Refer to Table 16-12.Suppose Will's 2010 food expenditures in 2011 dollars amount to $6,235.Then x,the consumer price index for 2011,has a value of

Correct AnswerverifiedShow Answer

The consumer price index is used to monitor changes in an economy's production of goods and services over time.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
The 2 percent increase in the ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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