Question 1

Which of the following is not a widely acknowledged problem with using the CPI as a measure of the cost of living?

Accepted Answer

A)  substitution bias
B)  introduction of new goods
C)  unmeasured quality change
D)  unmeasured price changeE) All of the above
F) B) and D)

Question 2

With respect to the consumer price index,the substitution bias arises because

Accepted Answer

A)  prices of goods and services do not change in the same proportion from year to year.
B)  consumers are slow to adjust their buying patterns from year to year in response to price changes.
C)  consumers are eager to buy new products as they are introduced,despite their lack of full information about the quality of those products until they buy and use them.
D)  All of the above are correct.E) B) and D)
F) None of the above

Question 3

The three problems with using the consumer price index as a measure of the cost of living are

Accepted Answer

A)  widely acknowledged and easy to solve.
B)  widely acknowledged and difficult to solve.
C)  nearly unacknowledged and easy to solve.
D)  nearly unacknowledged and difficult to solve.E) None of the above
F) A) and B)

Question 4

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.E) None of the above
F) B) and C)

Question 5

If the cost of medical care increases by 40 percent,then,other things the same,the CPI is likely to increase by about

Accepted Answer

A)  0.9 percent.
B)  3.2 percent.
C)  8.0 percent.
D)  40 percent.E) None of the above
F) A) and B)

Question 6

Samantha goes to the grocery store to make her monthly purchase of ginger ale.As she enters the soft drink section,she notices that the price of ginger ale has increased 15 percent,so she decides to buy some peppermint tea instead.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 effectE) B) and D)
F) B) and C)

Question 7

If the consumer price index was 100 in the base year and 106 in the following year,then the inflation rate was

Accepted Answer

A)  1.06 percent.
B)  6 percent.
C)  10.6 percent.
D)  106 percent.E) B) and D)
F) A) and B)

Question 8

Michelle bought word-processing software in 2009 for $75.Michelle's cousin,Barry,bought an upgrade of the same software in 2010 for $75.To which problem in the construction of the CPI is this situation most relevant?

Accepted Answer

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

Question 9

For any given year,the CPI is the price of the basket of goods and services in the

Accepted Answer

A)  given year divided by the price of the basket in the base year,then multiplied by 100.
B)  given year divided by the price of the basket in the previous year,then multiplied by 100.
C)  base year divided by the price of the basket in the given year,then multiplied by 100.
D)  previous year divided by the price of the basket in the given year,then multiplied by 100.E) B) and C)
F) All of the above

Question 10

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.E) All of the above
F) None of the above

Question 11

In which of the following cases would there be an effect on the value of the U.S.consumer price index,but not on the value of the U.S.GDP deflator?

Accepted Answer

A)  All of the truck tires that are produced by a certain company in South Korea are sold to the U.S.military,and the price of these tires decreases.
B)  All of the truck tires that are produced by a certain company in California are sold to the U.S.military,and the price of these tires decreases.
C)  Most of the bananas that are produced by a certain company in Honduras end up in U.S.grocery stores,and the price of these bananas increases.
D)  Most of the earth-moving machines that are produced by a certain company in Illinois are exported to other countries,and the price of these machines increases.E) A) and D)
F) B) and D)

Question 12

The relative importance of housing in the breakdown of consumer spending is

Accepted Answer

A)  42 percent.
B)  15 percent.
C)  6 percent.
D)  4 percent.E) A) and C)
F) B) and C)

Question 13

The producer price index measures the cost of a basket of goods and services

Accepted Answer

A)  typically produced in the economy.
B)  produced for a typical consumer.
C)  sold by producers.
D)  bought by firms.E) None of the above
F) A) and C)

Question 14

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) B) and D)
F) A) and D)

Question 15

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year.In 2012,the basket's cost was $77;in 2013,the basket's cost was $82;and in 2014,the basket's cost was $90.The value of the CPI in 2014 was

Accepted Answer

A)  109.8 and the inflation rate was 9.8%.
B)  109.8 and the inflation rate was 16.9%.
C)  116.9 and the inflation rate was 9.8%.
D)  116.9 and the inflation rate was 16.9%.E) A) and D)
F) C) and D)

Exam 11: Measuring the Cost of Living: The Consumer Price Index

For any given year,the CPI is the price of the basket of goods and services in the

Correct Answer
verified

The three problems with using the consumer price index as a measure of the cost of living are

Correct Answer
verified

Which of the following is not a widely acknowledged problem with using the CPI as a measure of the cost of living?

Correct Answer
verified

The relative importance of housing in the breakdown of consumer spending is

Correct Answer
verified

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year.In 2012,the basket's cost was $77;in 2013,the basket's cost was $82;and in 2014,the basket's cost was $90.The value of the CPI in 2014 was

Correct Answer
verified

The producer price index measures the cost of a basket of goods and services

Correct Answer
verified

Correct Answer
verified

The CPI differs from the GDP deflator in that

Correct Answer
verified

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

Correct Answer
verified

The consumer price index is subject to substitution bias because

Correct Answer
verified

With respect to the consumer price index,the substitution bias arises because

Correct Answer
verified

If the cost of medical care increases by 40 percent,then,other things the same,the CPI is likely to increase by about

Correct Answer
verified

If the consumer price index was 100 in the base year and 106 in the following year,then the inflation rate was

Correct Answer
verified

Michelle bought word-processing software in 2009 for $75.Michelle's cousin,Barry,bought an upgrade of the same software in 2010 for $75.To which problem in the construction of the CPI is this situation most relevant?

Correct Answer
verified

In which of the following cases would there be an effect on the value of the U.S.consumer price index,but not on the value of the U.S.GDP deflator?

Correct Answer
verified

Exam 11: Measuring the Cost of Living: The Consumer Price Index

For any given year,the CPI is the price of the basket of goods and services in the

Correct AnswerverifiedShow Answer

The three problems with using the consumer price index as a measure of the cost of living are

Correct AnswerverifiedShow Answer

Which of the following is not a widely acknowledged problem with using the CPI as a measure of the cost of living?

Correct AnswerverifiedShow Answer

The relative importance of housing in the breakdown of consumer spending is

Correct AnswerverifiedShow Answer

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year.In 2012,the basket's cost was $77;in 2013,the basket's cost was $82;and in 2014,the basket's cost was $90.The value of the CPI in 2014 was

Correct AnswerverifiedShow Answer

The producer price index measures the cost of a basket of goods and services

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The CPI differs from the GDP deflator in that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The consumer price index is subject to substitution bias because

Correct AnswerverifiedShow Answer

With respect to the consumer price index,the substitution bias arises because

Correct AnswerverifiedShow Answer

If the cost of medical care increases by 40 percent,then,other things the same,the CPI is likely to increase by about

Correct AnswerverifiedShow Answer

If the consumer price index was 100 in the base year and 106 in the following year,then the inflation rate was

Correct AnswerverifiedShow Answer

Michelle bought word-processing software in 2009 for $75.Michelle's cousin,Barry,bought an upgrade of the same software in 2010 for $75.To which problem in the construction of the CPI is this situation most relevant?

Correct AnswerverifiedShow Answer

In which of the following cases would there be an effect on the value of the U.S.consumer price index,but not on the value of the U.S.GDP deflator?

Correct AnswerverifiedShow Answer

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