Question 1

A Korean steel company produces steel in the United States,with some of its steel being exported to other nations and some of it being sold within the United States.If the prices of this steel increase,then

Accepted Answer

A)   the GDP deflator and the CPI will both increase.
B)   the GDP deflator will increase and the CPI will be unchanged.
C)   the GDP deflator will be unchanged and the CPI will increase.
D)   the GDP deflator and the CPI will both be unchanged.E) All of the above
F) C) and D)

Question 2

The Bureau of Labor Statistics surveys consumers to determine a fixed basket of goods.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A)   housing.
B)   apparel.
C)   transportation.
D)   medical care.E) B) and C)
F) A) and D)

Question 4

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

Accepted Answer

A)   clothing,but not footwear or jewelry.
B)   clothing and footwear,but not jewelry.
C)   clothing and jewelry,but not footwear.
D)   clothing,footwear,and jewelry.E) None of the above
F) B) and D)

Question 5

The consumer price index was 225 in 2008 and 232.2 in 2009.The nominal interest rate during this period was 6.5 percent.What was the real interest rate during this period?

Accepted Answer

A)   1.6 percent
B)   3.3 percent
C)   5.1 percent
D)   7.4 percentE) C) and D)
F) A) and B)

Question 6

Which of the following is correct?

Accepted Answer

A)   The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers.
B)   The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers.
C)   The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers.
D)   The GDP deflator is more commonly used as a gauge of inflation than the CPI is.E) A) and B)
F) All of the above

Question 7

If the CPI today is 120 and the CPI five years ago was 80,then something that cost $1 five years ago would cost $1.50 in today's prices.

Accepted Answer

A) True 
 B)False

Question 8

Price changes from year to year are not proportional,and consumers respond to these changes by altering their spending patterns.The problem this creates for inflation calculations is called

Accepted Answer

A)   deflation.
B)   inflation.
C)   unmeasured quality change.
D)   substitution bias.E) B) and D)
F) B) and C)

Question 9

Which of the following changes in the price index produces the greatest rate of inflation: 106 to 112,112 to 118,or 118 to 124?

Accepted Answer

A)   106 to 112
B)   112 to 120
C)   118 to 126
D)   All of these changes produce the same rate of inflation.E) All of the above
F) B) and C)

Question 10

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

Question 11

In 1949,Sycamore,Illinois built a hospital for about $500,000.In 1987,the county restored the courthouse for about $2.4 million.A price index for nonresidential construction was 14 in 1949,92 in 1987,and 114.5 in 2000.According to these numbers,the hospital cost about

Accepted Answer

A)   $3.6 million in 2000 dollars,which is less than the cost of the courthouse restoration in 2000 dollars.
B)   $3.6 million in 2000 dollars,which is more than the cost of the courthouse restoration in 2000 dollars.
C)   $4.1 million in 2000 dollars,which is less than the cost of the courthouse restoration in 2000 dollars.
D)   $4.1 million in 2000 dollars,which is more than the cost of the courthouse restoration in 2000 dollars.E) All of the above
F) None of the above

Question 12

An increase in the price of Irish whiskey imported into the United States will be reflected in

Accepted Answer

A)   both the U.S.GDP deflator and the U.S.CPI.
B)   neither the U.S.GDP deflator nor the U.S.CPI.
C)   the U.S.GDP deflator,but not the U.S.CPI.
D)   the U.S.CPI,but not the U.S.GDP deflator.E) A) and B)
F) C) and D)

Question 13

Suppose today's CPI is 134.85,and suppose one must spend $580 today to purchase the same basket of goods and services that could be bought for $400 in 1989.Then the CPI in 1989 was

Accepted Answer

A)   24.27.
B)   60.68.
C)   93.00.
D)   195.53.E) A) and D)
F) All of the above

Question 14

From 2008 to 2009,the CPI for medical care increased from 150.8 to 164.4.What was the inflation rate for medical care?

Accepted Answer

A)   4.4 percent
B)   7.6 percent
C)   9.0 percent
D)   12.1 percentE) A) and B)
F) B) and C)

Question 15

The real interest rate measures the change in dollar amounts.

Accepted Answer

A) True 
 B)False

Question 16

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 2003 salary in 1974 dollars?

Accepted Answer

A)   $13,888.89
B)   $40,000
C)   $65,000
D)   $180,000E) None of the above
F) A) and C)

Question 17

One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI

Accepted Answer

A)   fails to account for consumer spending on housing.
B)   accounts only for consumer spending on food,clothing,and energy.
C)   fails to account for the fact that consumers spend larger percentages of their incomes on some goods and smaller percentages of their incomes on other goods.
D)   fails to account for the introduction of new goods.E) B) and C)
F) All of the above

Question 18

If the cost of food & beverages increases by 10 percent,then,other things the same,the CPI is likely to increase by about

Accepted Answer

A)   1.5 percent.
B)   7.5 percent.
C)   10 percent.
D)   20 percent.E) C) and D)
F) B) and D)

Question 19

Categories of U.S.consumer spending,ranked from largest to smallest,are

Accepted Answer

A)   housing,food & beverages,education & communication,and transportation.
B)   education & communication,housing,food & beverages,and transportation.
C)   food & beverages,housing,transportation,and medical care.
D)   housing,transportation,food & beverages,and medical care.E) C) and D)
F) All of the above

Question 20

Which of the following is not correct?

Accepted Answer

A)   The U.S.economy has never experienced deflation.
B)   Since 1965,the U.S.nominal interest rate has exceeded the U.S.real interest rate.
C)   Since 1965,the U.S.economy has experienced rising consumer prices in most years.
D)   During deflation,the real interest rate exceeds the nominal interest rate.E) B) and D)
F) B) and C)

Exam 24: Measuring the Cost of Living

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

Which of the following is not correct?

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The real interest rate measures the change in dollar amounts.

Correct AnswerverifiedShow Answer

Which of the following is correct?

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Suppose today's CPI is 134.85,and suppose one must spend $580 today to purchase the same basket of goods and services that could be bought for $400 in 1989.Then the CPI in 1989 was

Correct AnswerverifiedShow Answer

Price changes from year to year are not proportional,and consumers respond to these changes by altering their spending patterns.The problem this creates for inflation calculations is called

Correct AnswerverifiedShow Answer

The Bureau of Labor Statistics surveys consumers to determine a fixed basket of goods.

Correct AnswerverifiedShow Answer

The consumer price index was 225 in 2008 and 232.2 in 2009.The nominal interest rate during this period was 6.5 percent.What was the real interest rate during this period?

Correct AnswerverifiedShow Answer

An increase in the price of Irish whiskey imported into the United States will be reflected in

Correct AnswerverifiedShow Answer

In 1949,Sycamore,Illinois built a hospital for about $500,000.In 1987,the county restored the courthouse for about $2.4 million.A price index for nonresidential construction was 14 in 1949,92 in 1987,and 114.5 in 2000.According to these numbers,the hospital cost about

Correct AnswerverifiedShow Answer

From 2008 to 2009,the CPI for medical care increased from 150.8 to 164.4.What was the inflation rate for medical care?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following changes in the price index produces the greatest rate of inflation: 106 to 112,112 to 118,or 118 to 124?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Categories of U.S.consumer spending,ranked from largest to smallest,are

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 2003 salary in 1974 dollars?

Correct AnswerverifiedShow Answer

If the CPI today is 120 and the CPI five years ago was 80,then something that cost $1 five years ago would cost $1.50 in today's prices.

Correct AnswerverifiedShow Answer

A Korean steel company produces steel in the United States,with some of its steel being exported to other nations and some of it being sold within the United States.If the prices of this steel increase,then

Correct AnswerverifiedShow Answer

One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI

Correct AnswerverifiedShow Answer

If the cost of food & beverages increases by 10 percent,then,other things the same,the CPI is likely to increase by about

Correct AnswerverifiedShow Answer

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