Question 1

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 2

The content of the basket of goods and services used to compute the CPI changes every month.

Accepted Answer

A) True 
 B)False

Question 3

Suppose the quality of beef changes over time, but the quality change goes unmeasured for the purpose of computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality change be least severe?

Accepted Answer

A)  The quality of beef deteriorates and beef becomes more expensive relative to other goods.
B)  The quality of beef deteriorates and beef becomes less expensive relative to other goods.
C)  The quality of beef improves and beef becomes more expensive relative to other goods.
D)  The quality of beef improves and the price of beef relative to other prices remains unchanged.E) A) and C)
F) None of the above

Question 4

A decrease in the price of domestically produced nuclear reactors will be reflected in

Accepted Answer

A)  both the GDP deflator and the consumer price index.
B)  neither the GDP deflator nor the consumer price index.
C)  the GDP deflator but not in the consumer price index.
D)  the consumer price index but not in the GDP deflator.E) A) and B)
F) A) and C)

Question 5

In 1970, Professor Plum earned $12,000; in 1980, he earned $24,000; and in 1990, he earned $36,000. If the CPI was 40 in 1970, 60 in 1980, and 100 in 1990, then in real terms, Professor Plum's salary was highest in

Accepted Answer

A)  1980 and lowest in 1970.
B)  1980 and lowest in 1990.
C)  1990 and lowest in 1970.
D)  1990 and lowest in 1980.E) A) and B)
F) C) and D)

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

To which of the problems in the construction of the CPI is the creation of the mobile phone most relevant?

Accepted Answer

A)  substitution bias
B)  introduction of new goods
C)  unmeasured quality change
D)  income biasE) None of the above
F) A) and B)

Question 8

Table 24-5
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 24-5. The cost of the basket

Accepted Answer

A)  decreased by $2 from 2004 to 2005.
B)  increased by $3 from 2004 to 2005.
C)  increased by $7 from 2004 to 2005.
D)  increased by $10 from 2004 to 2005.E) B) and C)
F) A) and D)

Question 9

When the relative price of a good decreases, consumers respond by buying

Accepted Answer

A)  a larger quantity of that good and a larger quantity of substitutes for that good.
B)  a larger quantity of that good and a smaller quantity of substitutes for that good.
C)  a smaller quantity of that good and a larger quantity of substitutes for that good.
D)  a smaller quantity of that good and a smaller quantity of substitutes for that good.E) A) and D)
F) A) and C)

Question 10

For purposes of calculating the CPI, the food & beverages category of consumer spending includes the cost of

Accepted Answer

A)  food away from home.
B)  alcoholic beverages.
C)  both food away from home and alcoholic beverages.
D)  neither food away from home nor alcoholic beverages because these are included in the recreation category of consumer spending.E) B) and C)
F) None of the above

Question 11

From 2009 to 2010, the CPI for education increased from 279.3 to 281.8. What was the inflation rate for education between 2009 and 2010?

Accepted Answer

A)  0.9%
B)  9.0%
C)  2.5%
D)  90%E) None of the above
F) A) and D)

Question 12

Table 24-5
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 24-5. If the base year is 2004, then the CPI

Accepted Answer

A)  increased from 2004 to 2005 and increased from 2005 to 2006.
B)  increased from 2004 to 2005 and decreased from 2005 to 2006.
C)  decreased from 2004 to 2005 and increased from 2005 to 2006.
D)  decreased from 2004 to 2005 and decreased from 2005 to 2006.E) C) and D)
F) A) and C)

Question 13

For an imaginary economy, the value of the consumer price index was 140 in 2013, and the inflation rate was 5.0 percent between 2013 and 2014. The consumer price index in 2014 was

Accepted Answer

A)  145.0.
B)  147.0.
C)  135.0.
D)  133.3.E) None of the above
F) A) and B)

Question 14

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) A) and D)
F) None of the above

Question 15

When we express Babe Ruth's 1931 salary in today's dollars and compare his salary to those of current New York Yankee players, we find that the current median salary of today's Yankees is

Accepted Answer

A)  about three quarters of Ruth's salary.
B)  about the same as Ruth's salary.
C)  about twice Ruth's salary.
D)  more than four times Ruth's salary.E) None of the above
F) A) and C)

Question 16

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 17

In calculating the CPI, a fixed basket of goods and services is used. The quantities of the goods and services in the fixed basket are determined by

Accepted Answer

A)  surveying consumers.
B)  surveying sellers of the goods and services.
C)  working backward from the rate of inflation to arrive at imputed values for those quantities.
D)  arbitrary choices made by federal government employees.E) A) and C)
F) A) and B)

Question 18

If the nominal interest rate is 8 percent and the real interest rate is 5.5 percent, then the inflation rate is

Accepted Answer

A)  -2.5 percent.
B)  0.45 percent.
C)  2.5 percent.
D)  13.5 percent.E) B) and D)
F) A) and C)

Question 19

Table 24-15
​
The following table shows the prices of good X and good Y for 2013-2015. In addition, assume the basket of goods used to compute the Consumer Price Index consists of 3 units of good X and 4 units of good Y.
​  ​
-Refer to Table 24-15. If the base year is 2015, the value of the Consumer Price Index in 2013 is​

Accepted Answer

A)  ​41.7.
B)  ​70.8.
C)  ​86.0.
D)  ​141.2.E) B) and C)
F) A) and D)

Question 20

Suppose you know the value of the consumer price index (CPI)  in year 1 as well as the inflation rate in year 2. Which of the following equations is valid for the CPI in year 2?

Accepted Answer

A)  CPI in year 2 = 
B)  CPI in year 2 = 
C)  CPI in year 2 = 
D)  CPI in year 2 = E) A) and C)
F) A) and B)

Exam 24: Measuring the Cost of Living

In calculating the CPI, a fixed basket of goods and services is used. The quantities of the goods and services in the fixed basket are determined by

Correct Answer
verified

The content of the basket of goods and services used to compute the CPI changes every month.

Correct Answer
verified

Table 24-5 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 24-5. The cost of the basket

Correct Answer
verified

Suppose you know the value of the consumer price index (CPI) in year 1 as well as the inflation rate in year 2. Which of the following equations is valid for the CPI in year 2?

Correct Answer
verified

For purposes of calculating the CPI, the food & beverages category of consumer spending includes the cost of

Correct Answer
verified

For an imaginary economy, the value of the consumer price index was 140 in 2013, and the inflation rate was 5.0 percent between 2013 and 2014. The consumer price index in 2014 was

Correct Answer
verified

In 1970, Professor Plum earned $12,000; in 1980, he earned $24,000; and in 1990, he earned $36,000. If the CPI was 40 in 1970, 60 in 1980, and 100 in 1990, then in real terms, Professor Plum's salary was highest in

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 24-5 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 24-5. If the base year is 2004, then the CPI

Correct Answer
verified

Correct Answer
verified

A decrease in the price of domestically produced nuclear reactors will be reflected in

Correct Answer
verified

To which of the problems in the construction of the CPI is the creation of the mobile phone most relevant?

Correct Answer
verified

When we express Babe Ruth's 1931 salary in today's dollars and compare his salary to those of current New York Yankee players, we find that the current median salary of today's Yankees is

Correct Answer
verified

Suppose the quality of beef changes over time, but the quality change goes unmeasured for the purpose of computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality change be least severe?

Correct Answer
verified

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

When the relative price of a good decreases, consumers respond by buying

Correct Answer
verified

If the nominal interest rate is 8 percent and the real interest rate is 5.5 percent, then the inflation rate is

Correct Answer
verified

From 2009 to 2010, the CPI for education increased from 279.3 to 281.8. What was the inflation rate for education between 2009 and 2010?

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

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

Exam 24: Measuring the Cost of Living

In calculating the CPI, a fixed basket of goods and services is used. The quantities of the goods and services in the fixed basket are determined by

Correct AnswerverifiedShow Answer

The content of the basket of goods and services used to compute the CPI changes every month.

Correct AnswerverifiedShow Answer

Table 24-5 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 24-5. The cost of the basket

Correct AnswerverifiedShow Answer

Suppose you know the value of the consumer price index (CPI) in year 1 as well as the inflation rate in year 2. Which of the following equations is valid for the CPI in year 2?

Correct AnswerverifiedShow Answer

For purposes of calculating the CPI, the food & beverages category of consumer spending includes the cost of

Correct AnswerverifiedShow Answer

For an imaginary economy, the value of the consumer price index was 140 in 2013, and the inflation rate was 5.0 percent between 2013 and 2014. The consumer price index in 2014 was

Correct AnswerverifiedShow Answer

In 1970, Professor Plum earned $12,000; in 1980, he earned $24,000; and in 1990, he earned $36,000. If the CPI was 40 in 1970, 60 in 1980, and 100 in 1990, then in real terms, Professor Plum's salary was highest in

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 24-5 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 24-5. If the base year is 2004, then the CPI

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A decrease in the price of domestically produced nuclear reactors will be reflected in

Correct AnswerverifiedShow Answer

To which of the problems in the construction of the CPI is the creation of the mobile phone most relevant?

Correct AnswerverifiedShow Answer

When we express Babe Ruth's 1931 salary in today's dollars and compare his salary to those of current New York Yankee players, we find that the current median salary of today's Yankees is

Correct AnswerverifiedShow Answer

Suppose the quality of beef changes over time, but the quality change goes unmeasured for the purpose of computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality change be least severe?

Correct AnswerverifiedShow Answer

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

When the relative price of a good decreases, consumers respond by buying

Correct AnswerverifiedShow Answer

If the nominal interest rate is 8 percent and the real interest rate is 5.5 percent, then the inflation rate is

Correct AnswerverifiedShow Answer

From 2009 to 2010, the CPI for education increased from 279.3 to 281.8. What was the inflation rate for education between 2009 and 2010?

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

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

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

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