Question 1

Table 24-2.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 24-2.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)   $3,600E) B) and C)
F) A) and D)

Question 2

For an imaginary economy,the consumer price index was 62.50 in 2004,100.00 in 2005,and 160.00 in 2006.Which of the following statements is correct?

Accepted Answer

A)   If the basket of goods that is used to calculate the CPI cost $80 in 2004,then that basket of goods cost $128 in 2005.
B)   If the basket of goods that is used to calculate the CPI cost $90 in 2005,then that basket of goods cost $150 in 2006.
C)   The overall level of prices increased by 97.5 percent between 2004 and 2006.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 3

If the cost of apparel increases by 50 percent,then,other things the same,the CPI is likely to increase by about

Accepted Answer

A)   0.5 percent.
B)   2.0 percent.
C)   3.0 percent.
D)   11.8 percent.E) B) and C)
F) All of the above

Question 4

The introduction of a new good

Accepted Answer

A)   increases the cost of maintaining the same level of economic well-being.
B)   decreases the cost of maintaining the same level of economic well-being.
C)   has no impact on the cost of maintaining the same level of economic well-being.
D)   may increase or decrease the cost of maintaining the same level of economic well-being,depending on how expensive the new good is.E) C) and D)
F) B) and C)

Question 5

Which entity within the U.S.government is responsible for computing and reporting the CPI?

Accepted Answer

A)   the Department of Commerce
B)   the Department of Labor
C)   the General Accounting Office
D)   the Council of Economic AdvisersE) A) and B)
F) B) and D)

Question 6

Rosa deposits $100 in a bank account that pays an annual interest rate of 20 percent.A year later,after Rosa has accumulated $20 in interest,she withdraws her $120.Rosa's purchasing power

Accepted Answer

A)   did not change if the inflation rate was 20 percent.
B)   decreased if the inflation rate was -5 percent.
C)   increased if the inflation rate was 22 percent.
D)   More than one of the above is correct.E) A) and C)
F) All of the above

Question 7

For an imaginary economy,the consumer price index was 115.00 in 2004,126.50 in 2005,and 136.62 in 2006.Which of the following statements is correct?

Accepted Answer

A)   For this economy,the base year must be 2004.
B)   If the basket of goods that is used to calculate the CPI cost $75.00 in the base year,then that basket of goods cost $115.00 in 2004.
C)   This economy's rate of inflation for 2006 is 10.12 percent.
D)   None of the above is correct.E) A) and B)
F) A) and C)

Question 8

The U.S.income tax system is completely indexed for inflation.

Accepted Answer

A) True 
 B)False

Question 9

By not taking into account the possibility of consumer substitution,the CPI

Accepted Answer

A)   understates the cost of living.
B)   overstates the cost of living.
C)   may overstate or understate the cost of living,depending on how quickly prices rise.
D)   may overstate or understate the cost of living,regardless of how quickly prices rise.E) All of the above
F) B) and C)

Question 10

Assume that consumers consider rice and potatoes to be substitutes,so that when the price of rice rises,consumers purchase less rice and more potatoes.When the CPI is computed following the increase in the price of rice,it takes into account

Accepted Answer

A)   the increase in the price of rice.
B)   the decrease in the quantity of rice purchased and the increase in the quantity of potatoes purchased.
C)   Both (a) and (b) are correct.
D)   None of the above is correct.E) B) and D)
F) B) and C)

Question 11

Janelle earned a salary of $40,000 in 1996 and $65,000 in 2006.The consumer price index was 160 in 1996 and 266 in 2006.Janelle's 1996 salary in 2006 dollars is

Accepted Answer

A)   $24,060.15.
B)   $42,400.00.
C)   $43,655.17.
D)   $66,500.00.E) A) and D)
F) A) and C)

Question 12

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 13

In the late 1970s,U.S.nominal interest rates were high and real interest rates were low,but in the late 1990s,U.S.nominal interest rates were low and real interest rates were high.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is the most accurate statement?

Accepted Answer

A)   In the 1970s,the late 1980s,1990s,and 2000s,the GDP deflator and the CPI both showed high rates of inflation.
B)   In the 1970s,both the GDP deflator and the consumer price index showed high rates of inflation,and in the late 1980s,1990s,and 2000s,both measures showed low rates of inflation.
C)   In the 1970s,both the GDP deflator and the consumer price index showed low rates of inflation,and in the late 1980s,1990s,and 2000s,both measures showed high rates of inflation.
D)   In the 1970s,the late 1980s,1990s,and 2000s,the GDP deflator and the CPI both showed low rates of inflation.E) None of the above
F) B) and D)

Question 15

If the consumer price index was 100 in the base year and 107 in the following year,then the inflation rate was

Accepted Answer

A)   1.07 percent.
B)   7 percent.
C)   10.7 percent.
D)   107 percent.E) A) and B)
F) B) and D)

Question 16

In the basket of goods that is used to compute the consumer price index,the three largest categories of consumer spending are

Accepted Answer

A)   housing,transportation,and recreation.
B)   housing,transportation,and food & beverages.
C)   housing,food & beverages,and education & communication.
D)   housing,medical care,and education & communication.E) C) and D)
F) A) and B)

Question 17

Two alternative measures of the overall level of prices are

Accepted Answer

A)   the inflation rate and the consumer price index.
B)   the inflation rate and the GDP deflator.
C)   the GDP deflator and the consumer price index.
D)   the cost of living index and nominal GDP.E) None of the above
F) A) and D)

Question 18

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 19

If the nominal interest rate is 8.3% and the inflation rate is 4.4%,what is the real interest rate?

Accepted Answer

The real i...

Question 20

Iggie took a university teaching job as an assistant professor in 1974 at a salary of $10,000.By 2003,she had been promoted to full professor,with a salary of $50,000.If the price index was 50 in 1974 and 180 in 2003,then what is Iggie's 1974 salary in 2003 dollars?

Accepted Answer

A)   $2,777.78
B)   $18,000
C)   $26,000
D)   $36,000E) None of the above
F) All of the above

Exam 24: Measuring the Cost of Living

Rosa deposits $100 in a bank account that pays an annual interest rate of 20 percent.A year later,after Rosa has accumulated $20 in interest,she withdraws her $120.Rosa's purchasing power

Correct AnswerverifiedShow Answer

For an imaginary economy,the consumer price index was 115.00 in 2004,126.50 in 2005,and 136.62 in 2006.Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Two alternative measures of the overall level of prices are

Correct AnswerverifiedShow Answer

If the nominal interest rate is 8.3% and the inflation rate is 4.4%,what is the real interest rate?

Correct AnswerverifiedThe real i...View AnswerShow Answer

Assume that consumers consider rice and potatoes to be substitutes,so that when the price of rice rises,consumers purchase less rice and more potatoes.When the CPI is computed following the increase in the price of rice,it takes into account

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

Table 24-2.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 24-2.To the nearest dollar,how much is Olivia's 2010 clothing expenditure in 2011 dollars?

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

For an imaginary economy,the consumer price index was 62.50 in 2004,100.00 in 2005,and 160.00 in 2006.Which of the following statements is correct?

Correct AnswerverifiedShow Answer

In the late 1970s,U.S.nominal interest rates were high and real interest rates were low,but in the late 1990s,U.S.nominal interest rates were low and real interest rates were high.

Correct AnswerverifiedShow Answer

If the cost of apparel increases by 50 percent,then,other things the same,the CPI is likely to increase by about

Correct AnswerverifiedShow Answer

By not taking into account the possibility of consumer substitution,the CPI

Correct AnswerverifiedShow Answer

Which entity within the U.S.government is responsible for computing and reporting the CPI?

Correct AnswerverifiedShow Answer

Which of the following is the most accurate statement?

Correct AnswerverifiedShow Answer

The U.S.income tax system is completely indexed for inflation.

Correct AnswerverifiedShow Answer

Janelle earned a salary of $40,000 in 1996 and $65,000 in 2006.The consumer price index was 160 in 1996 and 266 in 2006.Janelle's 1996 salary in 2006 dollars is

Correct AnswerverifiedShow Answer

The introduction of a new good

Correct AnswerverifiedShow Answer

Iggie took a university teaching job as an assistant professor in 1974 at a salary of $10,000.By 2003,she had been promoted to full professor,with a salary of $50,000.If the price index was 50 in 1974 and 180 in 2003,then what is Iggie's 1974 salary in 2003 dollars?

Correct AnswerverifiedShow Answer

If the consumer price index was 100 in the base year and 107 in the following year,then the inflation rate was

Correct AnswerverifiedShow Answer

In the basket of goods that is used to compute the consumer price index,the three largest categories of consumer spending are

Correct AnswerverifiedShow Answer

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The real i...
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The 2 percent increase in the ...
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