Question 1

Table 16-3
The table below pertains to Studious,an economy in which the typical consumer's basket consists of 5 books and 10 calculators.
 
-Refer to Table 16-3.The cost of the basket

Accepted Answer

A)   increased from 2006 to 2007 and increased from 2007 to 2008.
B)   increased from 2006 to 2007 and decreased from 2007 to 2008.
C)   decreased from 2006 to 2007 and increased from 2007 to 2008.
D)   decreased from 2006 to 2007 and decreased from 2007 to 2008.E) C) and D)
F) A) and D)

Question 2

You know that a candy bar cost five cents in 1962.You also know the CPI for 1962 and the CPI for today.Which of the following would you use to compute the price of the candy bar in today's prices?

Accepted Answer

A)   five cents(1962 CPI / today's CPI) 
B)   five cents((today's CPI - 1962 CPI) /1962 CPI) 
C)   five cents(today's CPI / 1962 CPI) 
D)   five centstoday's CPI - five cents1962 CPI.E) None of the above
F) B) and D)

Question 3

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

Question 4

Suppose that the prices of dairy products have risen relatively less than prices in general over the last several years.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 biasE) None of the above
F) A) and C)

Question 5

Economists use the term inflation to describe a situation in which the economy's overall price level is rising.

Accepted Answer

A) True 
 B)False

Question 6

Table 16-6.The table below applies to an economy with only two goods - hamburgers and hot dogs.The fixed basket consists of 4 hamburgers and 8 hot dogs.
 
-Refer to Table 16-6.Between 2010 and 2011,the cost of living increased by

Accepted Answer

A)   5.30 percent.
B)   6.36 percent.
C)   7.78 percent.
D)   We need to know the base year in order to answer this question.E) B) and C)
F) A) and B)

Question 7

An increase in the price of imported coffee shows up

Accepted Answer

A)   in the consumer price index and in the GDP deflator.
B)   in the consumer price index,but not in the GDP deflator.
C)   in the GDP deflator,but not in the consumer price index.
D)   in neither the consumer price index nor in the GDP deflator.E) None of the above
F) A) and B)

Question 8

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) B) and C)
F) A) and C)

Question 9

If the nominal interest rate is 4 percent and the real interest rate is -2.5 percent,then the inflation rate is

Accepted Answer

A)   -6.5 percent.
B)   -1.5 percent.
C)   1.5 percent.
D)   6.5 percent.E) A) and B)
F) None of the above

Question 10

To calculate the CPI,the Bureau of Labor Statistics uses

Accepted Answer

A)   the prices of all goods and services produced domestically.
B)   the prices of all final goods and services.
C)   the prices of all consumer goods.
D)   the prices of some consumer goods.E) A) and D)
F) None of the above

Question 11

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) All of the above
F) C) and D)

Question 12

Scenario 16-3
Sue Holloway was an accountant in 1944 and earned $12,000 that year.Her son,Josh Holloway,is an accountant today and he earned $210,000 in 2008.The price index was 17.6 in 1944 and 184 in 2008.
-Refer to Scenario 16-3.In real terms,Josh Holloway's income amounts to about what percentage of Sue Holloway's income?

Accepted Answer

A)   67 percent
B)   167 percent
C)   1045 percent
D)   1750 percentE) A) and D)
F) B) and C)

Question 13

The second largest category,by relative importance,in the CPI calculation is

Accepted Answer

A)   housing.
B)   apparel.
C)   transportation.
D)   medical care.E) All of the above
F) A) and D)

Question 14

As long as prices are rising over time,then

Accepted Answer

A)   the nominal interest rate exceeds the real interest rate.
B)   the real interest rate exceeds the nominal interest rate.
C)   the real interest rate is positive.
D)   the nominal interest rate is a better indicator than the real interest rate of how fast the purchasing power of your bank account is changing over time.E) B) and C)
F) A) and C)

Question 15

Social Security payments are indexed for inflation using the CPI.A recent newspaper editorial claimed that Social Security recipients are harmed by years of low inflation because they do not receive as large an increase in their payments as they do in years of high inflation.Which of the following statements is correct?

Accepted Answer

A)   The newspaper editorial is correct under all circumstances.
B)   The newspaper editorial is correct if the market basket consumed by Social Security recipients is the same as the market basket used to compute the CPI.
C)   The newspaper editorial could be correct if the prices of the goods consumed by Social Security recipients change at a different rate than the prices of the goods in the market basket used to compute the CPI
D)   The newspaper editorial is incorrect under all circumstances.E) B) and C)
F) A) and D)

Question 16

Arlo is offered a job in Des Moines,where the CPI is 80,and a job in New York,where the CPI is 125.Arlo's job offer in Des Moines is for $42,000.How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?

Accepted Answer

A)   $42,000
B)   $65,625
C)   $68,880
D)   $189,000E) A) and B)
F) A) and C)

Question 17

Table 16-6.The table below applies to an economy with only two goods - hamburgers and hot dogs.The fixed basket consists of 4 hamburgers and 8 hot dogs.
 
-Refer to Table 16-6.Between 2009 and 2011,the cost of living increased by

Accepted Answer

A)   6 percent.
B)   19 percent.
C)   14 percent.
D)   17 percent.E) All of the above
F) A) and B)

Question 18

The consumer price index is

Accepted Answer

A)   not very useful as a measure of the cost of living.
B)   a perfect measure of the cost of living.
C)   a useful measure,but not a perfect measure,of the cost of living.
D)   not used as a measure of the cost of living.E) A) and B)
F) B) and D)

Question 19

In the United States,real interest rates were

Accepted Answer

A)   high in the 1970s and 1990s.
B)   low in the 1970s and 1990s.
C)   high in the 1970s and low in the 1990s.
D)   low in the 1970s and high in the 1990s.E) A) and C)
F) C) and D)

Question 20

Table 16-4
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 16-4.If the base year is 2006,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) All of the above
F) C) and D)

Exam 16: Measuring the Cost of Living

The second largest category,by relative importance,in the CPI calculation is

Correct Answer
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In the United States,real interest rates were

Correct Answer
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You know that a candy bar cost five cents in 1962.You also know the CPI for 1962 and the CPI for today.Which of the following would you use to compute the price of the candy bar in today's prices?

Correct Answer
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The consumer price index is

Correct Answer
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To calculate the CPI,the Bureau of Labor Statistics uses

Correct Answer
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As long as prices are rising over time,then

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

Correct Answer
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Suppose that the prices of dairy products have risen relatively less than prices in general over the last several years.To which problem in the construction of the CPI is this situation most relevant?

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

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

Correct Answer
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Table 16-4 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 16-4.If the base year is 2006,then the CPI

Correct Answer
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Table 16-3 The table below pertains to Studious,an economy in which the typical consumer's basket consists of 5 books and 10 calculators. -Refer to Table 16-3.The cost of the basket

Correct Answer
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Table 16-6.The table below applies to an economy with only two goods - hamburgers and hot dogs.The fixed basket consists of 4 hamburgers and 8 hot dogs. -Refer to Table 16-6.Between 2010 and 2011,the cost of living increased by

Correct Answer
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Arlo is offered a job in Des Moines,where the CPI is 80,and a job in New York,where the CPI is 125.Arlo's job offer in Des Moines is for $42,000.How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?

Correct Answer
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An increase in the price of imported coffee shows up

Correct Answer
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Table 16-6.The table below applies to an economy with only two goods - hamburgers and hot dogs.The fixed basket consists of 4 hamburgers and 8 hot dogs. -Refer to Table 16-6.Between 2009 and 2011,the cost of living increased by

Correct Answer
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If the nominal interest rate is 4 percent and the real interest rate is -2.5 percent,then the inflation rate is

Correct Answer
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Economists use the term inflation to describe a situation in which the economy's overall price level is rising.

Correct Answer
verified

Exam 16: Measuring the Cost of Living

The second largest category,by relative importance,in the CPI calculation is

Correct AnswerverifiedShow Answer

In the United States,real interest rates were

Correct AnswerverifiedShow Answer

You know that a candy bar cost five cents in 1962.You also know the CPI for 1962 and the CPI for today.Which of the following would you use to compute the price of the candy bar in today's prices?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The consumer price index is

Correct AnswerverifiedShow Answer

To calculate the CPI,the Bureau of Labor Statistics uses

Correct AnswerverifiedShow Answer

As long as prices are rising over time,then

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose that the prices of dairy products have risen relatively less than prices in general over the last several years.To which problem in the construction of the CPI is this situation most relevant?

Correct AnswerverifiedShow Answer

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

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

Table 16-4 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 16-4.If the base year is 2006,then the CPI

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Table 16-3 The table below pertains to Studious,an economy in which the typical consumer's basket consists of 5 books and 10 calculators. -Refer to Table 16-3.The cost of the basket

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Table 16-6.The table below applies to an economy with only two goods - hamburgers and hot dogs.The fixed basket consists of 4 hamburgers and 8 hot dogs. -Refer to Table 16-6.Between 2010 and 2011,the cost of living increased by

Correct AnswerverifiedShow Answer

Arlo is offered a job in Des Moines,where the CPI is 80,and a job in New York,where the CPI is 125.Arlo's job offer in Des Moines is for $42,000.How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An increase in the price of imported coffee shows up

Correct AnswerverifiedShow Answer

Table 16-6.The table below applies to an economy with only two goods - hamburgers and hot dogs.The fixed basket consists of 4 hamburgers and 8 hot dogs. -Refer to Table 16-6.Between 2009 and 2011,the cost of living increased by

Correct AnswerverifiedShow Answer

If the nominal interest rate is 4 percent and the real interest rate is -2.5 percent,then the inflation rate is

Correct AnswerverifiedShow Answer

Economists use the term inflation to describe a situation in which the economy's overall price level is rising.

Correct AnswerverifiedShow Answer

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