Question 1

Table 24-3
The table below pertains to Iowan, an economy in which the typical consumer's basket consists of 4 pounds of pork and 3 bushels of corn.
 
-Refer to Table 24-3. If 2012 is the base year, then the inflation rate in 2013 was

Accepted Answer

A)   24.7 percent.
B)   54.0 percent.
C)   32.8 percent.
D)   38.0 percent.E) All of the above
F) A) and D)

Question 2

Elizabeth just received her Ph.D. in economics and has two competing job offers. The first is in Washington, D.C. and pays a salary of $200,000. She has a similar job offer in Austin, TX that pays $90,000. Which pair of CPIs would make the two salaries have the same purchasing power?

Accepted Answer

A)   70 in Washington, D.C. and 42 in Austin, TX
B)   140 in Washington, D.C. and 70 in Austin, TX
C)   160 in Washington, D.C. and 72 in Austin, TX
D)   210 in Washington, D.C. and 150 in Austin, TXE) B) and C)
F) A) and D)

Question 3

In a particular economy, the price index was 120 in 2012 and 130 in 2013. Which of the following statements is correct?

Accepted Answer

A)   The economy experienced a rising price level between 2012 and 2013.
B)   The economy experienced a higher inflation rate between 2012 and 2013 than it had experienced between 2011 and 2012.
C)   The inflation rate between 2012 and 2013 was 10 percent.
D)   The base year is 2011.E) None of the above
F) B) and D)

Question 4

Pauline is offered a Job in Minneapolis that pays $80,000. She is offered a similar job in Louisville that pays$71,200. Which pair of CPIs would ensure that the two salaries have the same purchasing power?

Accepted Answer

A)   90 in Minneapolis and 83 in Louisville
B)   90 in Minneapolis and 72 in Louisville
C)   100 in Minneapolis and 89 in Louisville
D)   105 in Minneapolis and 90 in LouisvilleE) C) and D)
F) A) and B) C

Question 5

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 2013 is the base year, then the CPI for 2013 was

Accepted Answer

A)   95.7.
B)   100.0.
C)   90.0.
D)   213.6.E) C) and D)
F) B) and C)

Question 6

If the cost of transportation increases by 20 percent, then, other things the same, the CPI is likely to increase by about

Accepted Answer

A)   0.3 percent.
B)   1.7 percent.
C)   3.4 percent.
D)   10 percent.E) None of the above
F) All of the above

Question 7

Table 24-3
The table below pertains to Iowan, an economy in which the typical consumer's basket consists of 4 pounds of pork and 3 bushels of corn.
 
-Refer to Table 24-3. If 2013 is the base year, then the CPI for 2013 was

Accepted Answer

A)   75.3.
B)   100.0.
C)   116.0.
D)   132.8.E) B) and C)
F) All of the above

Question 8

The steps involved in calculating the consumer price index and the inflation rate, in order, are as follows:

Accepted Answer

A)   Choose a base year, update the basket, find the prices, estimate the basket's cost, compute the index, and compute the inflation rate.
B)   Choose a base year, fix the basket, find the prices, compute the inflation rate, compute the basket's cost, and compute the index.
C)   Fix the basket, find the prices, compute the basket's cost, choose a base year and compute the index, and compute the inflation rate.
D)   Fix the basket, find the prices, compute the inflation rate, compute the basket's cost, and choose a base year and compute the index.E) B) and D)
F) C) and D) C

Question 9

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

Question 10

One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called

Accepted Answer

A)   price-change neglect.
B)   unmeasured quality change.
C)   substitution bias.
D)   relative bias.E) C) and D)
F) A) and D)

Question 11

If the quality of a good improves while its price remains the same, then the value of a dollar

Accepted Answer

A)   rises and the cost of living increases.
B)   rises and the cost of living decreases.
C)   falls and the cost of living increases.
D)   falls and the cost of living decreases.E) All of the above
F) A) and B)

Question 12

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 $7.50 an hour and is scheduled to index their wages today. If the CPI is currently 130 and was 125 a year ago, the firm should increase the hourly wages of its workers by

Accepted Answer

A)   $0.04.
B)   $0.29.
C)   $0.30.
D)   $0.50.E) All of the above
F) None of the above

Question 13

For purposes of calculating the CPI, the transportation category of consumer spending includes the cost of

Accepted Answer

A)   subways.
B)   gasoline.
C)   both subways and gasoline.
D)   neither subways nor gasoline.E) All of the above
F) A) and B)

Question 14

The CPI for 2008 is computed by dividing the price of the basket of goods and services in 2008 by the price of the basket of goods and services in the base year, then multiplying by 100.

Accepted Answer

A) True 
 B)False

Question 15

During a certain year, the consumer price index increased from 120 to 132 and the purchasing power of a person's bank account increased by 4 percent. For that year,

Accepted Answer

A)   the nominal interest rate was 6 percent.
B)   the nominal interest rate was 14 percent.
C)   the inflation rate was 12 percent.
D)   the inflation rate was 9 percent.E) None of the above
F) C) and D)

Question 16

With respect to the consumer price index, which of the following serves as an example of how the substitution bias arises? Between 2010 and 2011, the price of a pound of peanuts

Accepted Answer

A)   rises from $0.80 to $1.00 while the price of a loaf of bread rises from $2.00 to $2.50.
B)   falls from $0.90 to $0.72 while the price of a loaf of bread falls from $2.00 to $1.60.
C)   remains constant, as does the price of a loaf of bread.
D)   None of the above serves as an example of how the substitution bias arises.E) A) and B)
F) All of the above

Question 17

The GDP Deflator reflects

Accepted Answer

A)   the prices of all final goods and services currently produced domestically, as does the CPI.
B)   the price of a fixed basket of goods and services purchased by a typical consumer, as does the CPI.
C)   the prices of all final goods and services currently produced domestically, while the CPI reflects the price of a fixed basket of goods and services purchased by a typical consumer.
D)   the price of a fixed basket of goods and services purchased by a typical consumer, while the CPI reflects the prices of all final goods and services produced domestically.E) A) and B)
F) A) and D)

Question 18

In a simple economy, people consume only 2 goods, food and clothing. The market basket of goods used to compute the CPI consists of 50 units of food and 10 units of clothing.
  
a. What are the percentage increases in the price of food and in the price of clothing?
b. What is the percentage increase in the CPI?
c. Do these price changes affect all consumers to the same extent? Explain.

Accepted Answer

a. The price of food increased by 50 percent [6-4]/4 x 100). The price of clothing increased by 100 percent [20-10]/10 x 100).
b. In 2002, the market basket cost $300 4x50 + 10x10); in 2003, it cost $500 6x50 + 20x10). The percentage increase in the CPI is 66.7 percent [500-300]/300 x 100).
c. Because the price of clothing increased relatively more than the price of food, people who purchase a lot of clothing and little food became worse off relative to people who purchase a lot of food and little clothing.

Question 19

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 2006, then the inflation rate in 2005 was

Accepted Answer

A)   -44.5%.
B)   -30.8%.
C)   7.7%.
D)   12.5%.E) A) and D)
F) A) and C)

Question 20

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. If the nominal interest rate was 8 percent in 2010, then

Accepted Answer

A)   the real interest rate in 2010 was 3 percent.
B)   the real interest rate in 2010 was 4 percent.
C)   Will's 2009 food expenditures in 2010 dollars amount to $5,800.
D)   Will's 2009 food expenditures in 2011 dollars amount to $6,200.E) None of the above
F) B) and D)

Exam 16: Measuring the Cost of Living

Table 24-3 The table below pertains to Iowan, an economy in which the typical consumer's basket consists of 4 pounds of pork and 3 bushels of corn. -Refer to Table 24-3. If 2012 is the base year, then the inflation rate in 2013 was

Correct Answer
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Elizabeth just received her Ph.D. in economics and has two competing job offers. The first is in Washington, D.C. and pays a salary of $200,000. She has a similar job offer in Austin, TX that pays $90,000. Which pair of CPIs would make the two salaries have the same purchasing power?

Correct Answer
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In a particular economy, the price index was 120 in 2012 and 130 in 2013. Which of the following statements is correct?

Correct Answer
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Pauline is offered a Job in Minneapolis that pays $80,000. She is offered a similar job in Louisville that pays$71,200. Which pair of CPIs would ensure that the two salaries have the same purchasing power?

Correct Answer
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C

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 2013 is the base year, then the CPI for 2013 was

Correct Answer
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If the cost of transportation increases by 20 percent, then, other things the same, the CPI is likely to increase by about

Correct Answer
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Table 24-3 The table below pertains to Iowan, an economy in which the typical consumer's basket consists of 4 pounds of pork and 3 bushels of corn. -Refer to Table 24-3. If 2013 is the base year, then the CPI for 2013 was

Correct Answer
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The steps involved in calculating the consumer price index and the inflation rate, in order, are as follows:

Correct Answer
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C

Two alternative measures of the overall level of prices are

Correct Answer
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One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called

Correct Answer
verified

If the quality of a good improves while its price remains the same, then the value of a dollar

Correct Answer
verified

Correct Answer
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For purposes of calculating the CPI, the transportation category of consumer spending includes the cost of

Correct Answer
verified

The CPI for 2008 is computed by dividing the price of the basket of goods and services in 2008 by the price of the basket of goods and services in the base year, then multiplying by 100.

Correct Answer
verified

During a certain year, the consumer price index increased from 120 to 132 and the purchasing power of a person's bank account increased by 4 percent. For that year,

Correct Answer
verified

With respect to the consumer price index, which of the following serves as an example of how the substitution bias arises? Between 2010 and 2011, the price of a pound of peanuts

Correct Answer
verified

The GDP Deflator reflects

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 2006, then the inflation rate in 2005 was

Correct Answer
verified

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. If the nominal interest rate was 8 percent in 2010, then

Correct Answer
verified

Exam 16: Measuring the Cost of Living

Table 24-3 The table below pertains to Iowan, an economy in which the typical consumer's basket consists of 4 pounds of pork and 3 bushels of corn. -Refer to Table 24-3. If 2012 is the base year, then the inflation rate in 2013 was

Correct AnswerverifiedShow Answer

Elizabeth just received her Ph.D. in economics and has two competing job offers. The first is in Washington, D.C. and pays a salary of $200,000. She has a similar job offer in Austin, TX that pays $90,000. Which pair of CPIs would make the two salaries have the same purchasing power?

Correct AnswerverifiedShow Answer

In a particular economy, the price index was 120 in 2012 and 130 in 2013. Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Pauline is offered a Job in Minneapolis that pays $80,000. She is offered a similar job in Louisville that pays$71,200. Which pair of CPIs would ensure that the two salaries have the same purchasing power?

Correct AnswerverifiedC

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 2013 is the base year, then the CPI for 2013 was

Correct AnswerverifiedShow Answer

If the cost of transportation increases by 20 percent, then, other things the same, the CPI is likely to increase by about

Correct AnswerverifiedShow Answer

Table 24-3 The table below pertains to Iowan, an economy in which the typical consumer's basket consists of 4 pounds of pork and 3 bushels of corn. -Refer to Table 24-3. If 2013 is the base year, then the CPI for 2013 was

Correct AnswerverifiedShow Answer

The steps involved in calculating the consumer price index and the inflation rate, in order, are as follows:

Correct AnswerverifiedC

Two alternative measures of the overall level of prices are

Correct AnswerverifiedShow Answer

One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called

Correct AnswerverifiedShow Answer

If the quality of a good improves while its price remains the same, then the value of a dollar

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

For purposes of calculating the CPI, the transportation category of consumer spending includes the cost of

Correct AnswerverifiedShow Answer

The CPI for 2008 is computed by dividing the price of the basket of goods and services in 2008 by the price of the basket of goods and services in the base year, then multiplying by 100.

Correct AnswerverifiedShow Answer

During a certain year, the consumer price index increased from 120 to 132 and the purchasing power of a person's bank account increased by 4 percent. For that year,

Correct AnswerverifiedShow Answer

With respect to the consumer price index, which of the following serves as an example of how the substitution bias arises? Between 2010 and 2011, the price of a pound of peanuts

Correct AnswerverifiedShow Answer

The GDP Deflator reflects

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 2006, then the inflation rate in 2005 was

Correct AnswerverifiedShow Answer

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. If the nominal interest rate was 8 percent in 2010, then

Correct AnswerverifiedShow Answer

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C

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