Question 1

The price index was 150 in the first year, 160 in the second year, and 165 in the third year. Which of the following statements is correct?

Accepted Answer

A)   The price level was higher in the second year than in the first year, and it was higher in the third year than in the second year.
B)   The inflation rate was positive between the first and second years, and it was positive between the second and third years.
C)   The inflation rate was lower between the second and third years than it was between the first and second years.
D)   All of the above are correct.

Question 2

The nominal interest rate for a consumer loan lasting from 2007 to 2008 is 8.5 percent and the real interest rate is 4.5 percent. If the consumer price index was 200 in 2007, what would the consumer price index value be in 2008?

Accepted Answer

A)   192
B)   208
C)   209
D)   217

Question 3

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.

Question 4

The price index was 150 in the first year, 142.5 in the second year, and 138.2 in the third year. The economy experienced

Accepted Answer

A)   5.0 percent deflation between the first and second years, and 3.0 percent deflation between the second and third years.
B)   7.5 percent deflation between the first and second years, and 4.3 percent deflation between the second and third years.
C)   5.3 percent inflation between the first and second years, and 4.1 percent inflation between the second and third years.
D)   7.5 percent inflation between the first and second years, and 4.3 percent inflation between the second and third years.

Question 5

Which is the most accurate statement about the GDP deflator and the consumer price index?

Accepted Answer

A)   The GDP deflator compares the price of a fixed basket of goods and services to the price of the basket in the base year, whereas the consumer price index compares the price of currently produced goods and services to the price of the same goods and services in the base year.
B)   The consumer price index compares the price of a fixed basket of goods and services to the price of the basket in the base year, whereas the GDP deflator compares the price of currently produced goods and services to the price of the same goods and services in the base year.
C)   Both the GDP deflator and the consumer price index compare the price of a fixed basket of goods and services to the price of the basket in the base year.
D)   Both the GDP deflator and the consumer price index compare the price of currently produced goods and services to the price of the same goods and services in the base year.

Question 6

Table 24-2
The table below pertains to Pieway, an economy in which the typical consumer's basket consists of 15 bushels of peaches and 10 bushels of pecans. 
-Refer to Table 24-2. If 2012 is the base year, then the CPI for 2012 was

Accepted Answer

A)   95.7.
B)   100.0.
C)   90.0.
D)   110.0.

Question 7

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because

Accepted Answer

A)   the CPI is easier to measure.
B)   the CPI is calculated more often than the GDP deflator is.
C)   the CPI better reflects the goods and services bought by consumers.
D)   the GDP deflator cannot be used to gauge inflation.

Question 8

If the real interest rate is 10.3% and the nominal interest rate is 12.6%, what is the inflation rate?

Accepted Answer

The inflat...

Question 9

Table 24-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. 
-Refer to Table 24-12. Suppose Will's 2009 food expenditures in 2011 dollars amount to $5,750. Then the inflation rate for 2011 is about

Accepted Answer

A)   9.08 percent.
B)   9.52 percent.
C)   10.24 percent.
D)   10.78 percent.

Question 10

The real 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 of your bank account today.

Question 11

The CPI is always 1 in the base year.

Accepted Answer

A) True 
 B)False

Question 12

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 t...

Question 13

In 1983, one could buy a model radio-controlled airplane for $11.50 each. Those same planes are available today and the price increased at exactly the rate of inflation. If the CPI today is 220.5 and in 1983 was 105, what is the price of the airplane today?

Accepted Answer

A)   $24.15
B)   $11.50
C)   $5.48
D)   $2.10

Question 14

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 is this situation most relevant?

Accepted Answer

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

Question 15

Table 24-13. Olivia's expenditures on clothing for three consecutive years, along with some values for the CPI, are presented in the table below. 
-Refer to Table 24-13. To the nearest dollar, how much is Olivia's 2010 clothing expenditure in 2011 dollars?

Accepted Answer

A)   $1,683
B)   $1,778
C)   $1,800
D)   $3,600

Question 16

The consumer price index tries to gauge how much incomes must rise to maintain

Accepted Answer

A)   an increasing standard of living.
B)   a constant standard of living.
C)   a decreasing standard of living.
D)   the highest standard of living possible.

Question 17

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 18

Table 24-9
The table below lists the per gallon prices of gas and milk for the months of April, May, and June. Assume that the typical consumer buys 60 gallons of gas and 4 gallons of milk each month, and that April is the base period. 
-Refer to Table 24-9. What is the consumer price index for May?

Accepted Answer

A)   60
B)   132
C)   166
D)   123

Question 19

Consumer spending in what category is the largest component of the CPI?

Accepted Answer

The answer of Consumer spending in what category is the...

Question 20

Table 24-6
The table below pertains to Napandsnack, an economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs. 
-Refer to Table 24-6. The cost of the basket

Accepted Answer

A)   increased from 2009 to 2010 and increased from 2010 to 2011.
B)   increased from 2009 to 2010 and decreased from 2010 to 2011.
C)   decreased from 2009 to 2010 and increased from 2010 to 2011.
D)   decreased from 2009 to 2010 and decreased from 2010 to 2011.

Exam 24: Measuring the Cost of Living

Table 24-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. -Refer to Table 24-12. Suppose Will's 2009 food expenditures in 2011 dollars amount to $5,750. Then the inflation rate for 2011 is about

Correct Answer
verified

The price index was 150 in the first year, 142.5 in the second year, and 138.2 in the third year. The economy experienced

Correct Answer
verified

The consumer price index tries to gauge how much incomes must rise to maintain

Correct Answer
verified

The CPI is always 1 in the base year.

Correct Answer
verified

Table 24-2 The table below pertains to Pieway, an economy in which the typical consumer's basket consists of 15 bushels of peaches and 10 bushels of pecans. -Refer to Table 24-2. If 2012 is the base year, then the CPI for 2012 was

Correct Answer
verified

The nominal interest rate for a consumer loan lasting from 2007 to 2008 is 8.5 percent and the real interest rate is 4.5 percent. If the consumer price index was 200 in 2007, what would the consumer price index value be in 2008?

Correct Answer
verified

If the real interest rate is 10.3% and the nominal interest rate is 12.6%, what is the inflation rate?

Correct Answer
verified
The inflat...
View Answer

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because

Correct Answer
verified

The real interest rate tells you

Correct Answer
verified

Table 24-13. Olivia's expenditures on clothing for three consecutive years, along with some values for the CPI, are presented in the table below. -Refer to Table 24-13. To the nearest dollar, how much is Olivia's 2010 clothing expenditure in 2011 dollars?

Correct Answer
verified

Table 24-6 The table below pertains to Napandsnack, an economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs. -Refer to Table 24-6. The cost of the basket

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 is this situation most relevant?

Correct Answer
verified

Table 24-9 The table below lists the per gallon prices of gas and milk for the months of April, May, and June. Assume that the typical consumer buys 60 gallons of gas and 4 gallons of milk each month, and that April is the base period. -Refer to Table 24-9. What is the consumer price index for May?

Correct Answer
verified

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

Which is the most accurate statement about the GDP deflator and the consumer price index?

Correct Answer
verified

Consumer spending in what category is the largest component of the CPI?

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 t...
View Answer

Economists use the term inflation to describe a situation in which

Correct Answer
verified

The price index was 150 in the first year, 160 in the second year, and 165 in the third year. Which of the following statements is correct?

Correct Answer
verified

In 1983, one could buy a model radio-controlled airplane for $11.50 each. Those same planes are available today and the price increased at exactly the rate of inflation. If the CPI today is 220.5 and in 1983 was 105, what is the price of the airplane today?

Correct Answer
verified

Exam 24: Measuring the Cost of Living

Table 24-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. -Refer to Table 24-12. Suppose Will's 2009 food expenditures in 2011 dollars amount to $5,750. Then the inflation rate for 2011 is about

Correct AnswerverifiedShow Answer

The price index was 150 in the first year, 142.5 in the second year, and 138.2 in the third year. The economy experienced

Correct AnswerverifiedShow Answer

The consumer price index tries to gauge how much incomes must rise to maintain

Correct AnswerverifiedShow Answer

The CPI is always 1 in the base year.

Correct AnswerverifiedShow Answer

Table 24-2 The table below pertains to Pieway, an economy in which the typical consumer's basket consists of 15 bushels of peaches and 10 bushels of pecans. -Refer to Table 24-2. If 2012 is the base year, then the CPI for 2012 was

Correct AnswerverifiedShow Answer

The nominal interest rate for a consumer loan lasting from 2007 to 2008 is 8.5 percent and the real interest rate is 4.5 percent. If the consumer price index was 200 in 2007, what would the consumer price index value be in 2008?

Correct AnswerverifiedShow Answer

If the real interest rate is 10.3% and the nominal interest rate is 12.6%, what is the inflation rate?

Correct AnswerverifiedThe inflat...View AnswerShow Answer

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because

Correct AnswerverifiedShow Answer

The real interest rate tells you

Correct AnswerverifiedShow Answer

Table 24-13. Olivia's expenditures on clothing for three consecutive years, along with some values for the CPI, are presented in the table below. -Refer to Table 24-13. To the nearest dollar, how much is Olivia's 2010 clothing expenditure in 2011 dollars?

Correct AnswerverifiedShow Answer

Table 24-6 The table below pertains to Napandsnack, an economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs. -Refer to Table 24-6. The cost of the basket

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 is this situation most relevant?

Correct AnswerverifiedShow Answer

Table 24-9 The table below lists the per gallon prices of gas and milk for the months of April, May, and June. Assume that the typical consumer buys 60 gallons of gas and 4 gallons of milk each month, and that April is the base period. -Refer to Table 24-9. What is the consumer price index for May?

Correct AnswerverifiedShow Answer

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

Which is the most accurate statement about the GDP deflator and the consumer price index?

Correct AnswerverifiedShow Answer

Consumer spending in what category is the largest component of the CPI?

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 t...View AnswerShow Answer

Economists use the term inflation to describe a situation in which

Correct AnswerverifiedShow Answer

The price index was 150 in the first year, 160 in the second year, and 165 in the third year. Which of the following statements is correct?

Correct AnswerverifiedShow Answer

In 1983, one could buy a model radio-controlled airplane for $11.50 each. Those same planes are available today and the price increased at exactly the rate of inflation. If the CPI today is 220.5 and in 1983 was 105, what is the price of the airplane today?

Correct AnswerverifiedShow Answer

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The inflat...
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a. The expected real interest rate was 4...
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(1) Substitution bias. The CPI ignores t...
View Answer

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