Question 1

Many economists believe the bias in the CPI is now only about half as large as it once was.

Accepted Answer

A) True 
 B)False

Question 2

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

Question 3

If the CPI was 108.00 in 1942 and is 336.96 today, then $10 in 1942 purchased the same amount of goods and services as

Accepted Answer

A)  $2.57 purchases today.
B)  $28.89 purchases today.
C)  $31.20 purchases today.
D)  $38.89 purchases today.E) A) and B)
F) C) and D)

Question 4

Consider a small economy in which consumers buy only two goods: pretzels and cookies. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that

Accepted Answer

A)  the percentage change in the price of pretzels is equal to the percentage change in the price of cookies from year to year.
B)  the number of pretzels bought by the typical consumer is equal to the number of cookies bought by the typical consumer in each year.
C)  neither the number of pretzels nor the number of cookies bought by the typical consumer changes from year to year.
D)  neither the price of pretzels nor the price of cookies changes from year to year.E) All of the above
F) A) and B)

Question 5

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 $8.00 an hour and is scheduled to index their wages today. If the CPI is currently 160 and was 128 a year ago, the firm should increase the hourly wages of its workers by

Accepted Answer

A)  $0.25.
B)  $1.60.
C)  $2.00.
D)  $2.56.E) None of the above
F) A) and C)

Question 6

When the relative price of a good increases, consumers respond by buying

Accepted Answer

A)  a larger quantity of that good and a larger quantity of substitutes for that good.
B)  a larger quantity of that good and a smaller quantity of substitutes for that good.
C)  a smaller quantity of that good and a larger quantity of substitutes for that good.
D)  a smaller quantity of that good and a smaller quantity of substitutes for that good.E) None of the above
F) All of the above

Question 7

Table 11-4
The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys.   Year  Price of  Meat  Price of a  Tryy 2004$3 per pound $22005$1 per pound $72006$4 per pound $5\begin{array} { | c | c | c } 	ext { Year } & \begin{array} { c } 	ext { Price of } \	ext { Meat }\end{array} & \begin{array} { c } 	ext { Price of a } \	ext { Tryy }\end{array} \\hline 2004 & \$ 3 	ext { per pound } & \$ 2 \\hline 2005 & \$ 1 	ext { per pound } & \$ 7 \\hline 2006 & \$ 4 	ext { per pound } & \$ 5 \\hline\end{array} Year 200420052006​ Price of  Meat ​$3 per pound $1 per pound $4 per pound ​ Price of a  Tryy ​$2$7$5​​ 
-Refer to Table 11-4. If the base year is 2004, 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) C) and D)
F) B) and D)

Question 8

If the nominal interest rate is 5 percent and the inflation rate is 2 percent, then the real interest rate is 7 percent.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is correct about the relationship between inflation and interest rates?

Accepted Answer

A)  There is no relationship between inflation and interest rates.
B)  The interest rate is determined by the rate of inflation.
C)  In order to fully understand inflation, we need to know how to correct for the effects of interest rates.
D)  In order to fully understand interest rates, we need to know how to correct for the effects of inflation.E) A) and B)
F) A) and C)

Question 10

The CPI is a measure of the overall cost of the goods and services bought by

Accepted Answer

A)  a typical firm.
B)  the government.
C)  a typical consumer.
D)  All of the above are correct.E) None of the above
F) C) and D)

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

Question 12

In an imaginary economy, consumers buy only sandwiches and magazines. The fixed basket consists of 20 sandwiches and 30 magazines. In 2006, a sandwich cost $4 and a magazine cost $2. In 2007, a sandwich cost $5. The base year is 2006. If the consumer price index in 2007 was 125, then how much did a magazine cost in 2007?

Accepted Answer

A)  $0.83
B)  $2.25
C)  $2.50
D)  $3.00E) B) and C)
F) A) and D)

Question 13

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

Question 14

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

Question 15

Which is the most accurate statement about the GDP deflator and the consumer price index?

Accepted Answer

A)  The GDP deflator compares the price of a fixed basket of goods and services to the price of the basket in the base year, whereas the consumer price index compares the price of currently produced goods and services to the price of the same goods and services in the base year.
B)  The consumer price index compares the price of a fixed basket of goods and services to the price of the basket in the base year, whereas the GDP deflator compares the price of currently produced goods and services to the price of the same goods and services in the base year.
C)  Both the GDP deflator and the consumer price index compare the price of a fixed basket of goods and services to the price of the basket in the base year.
D)  Both the GDP deflator and the consumer price index compare the price of currently produced goods and services to the price of the same goods and services in the base year.E) A) and B)
F) C) and D)

Question 16

Table 11-6. 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.   Year  Priee of hamburegers  Prife of hat doges 2009$5.00$3.0020105.503.3020115.613.63\begin{array} { l c c } \hline 	ext { Year } & 	ext { Priee of hamburegers } & 	ext { Prife of hat doges } \\hline 2009 & \$ 5.00 & \$ 3.00 \2010 & 5.50 & 3.30 \2011 & 5.61 & 3.63 \\hline\end{array} Year 200920102011​ Priee of hamburegers $5.005.505.61​ Prife of hat doges $3.003.303.63​​ 
-Refer to Table 11-6. 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) A) and C)
F) None of the above

Question 17

In a particular economy, the price index was 270 in 2005 and 300 in 2006. Which of the following statements is correct?

Accepted Answer

A)  The economy experienced a rising price level between 2005 and 2006.
B)  The economy experienced a higher inflation rate between 2005 and 2006 than it had experienced between 2004 and 2005.
C)  The inflation rate between 2005 and 2006 was 30 percent.
D)  All of the above are correct.E) B) and C)
F) All of the above

Question 18

Suppose a basket of goods and services has been selected to calculate the CPI and 2002 has been chosen as the base year. In 2002, the basket's cost was $75.00; in 2004, the basket's cost was $79.50; and in 2006, the basket's cost was $85.86. The value of the CPI was

Accepted Answer

A)  100 in 2002.
B)  106 in 2004.
C)  114.48 in 2006.
D)  All of the above are correct.E) None of the above
F) A) and B)

Question 19

The CPI is a measure of the overall cost of the goods and services bought by

Accepted Answer

A)  a typical consumer, and the CPI is computed and reported by the Department of the Treasury.
B)  typical consumers and typical business firms, and the CPI is computed and reported by the Department of the Treasury.
C)  a typical consumer, and the CPI is computed and reported by the Bureau of Labor Statistics.
D)  typical consumers and typical business firms, and the CPI is computed and reported by the Bureau of Labor Statistics.E) All of the above
F) A) and C)

Question 20

Every unit of good x that is produced in the United States is exported to other countries. An increase in the price of good x 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) B) and C)

Exam 11: Measuring the Cost of Living

Correct Answer
verified

Which is the most accurate statement about the GDP deflator and the consumer price index?

Correct Answer
verified

Consider a small economy in which consumers buy only two goods: pretzels and cookies. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that

Correct Answer
verified

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 Answer
verified

If the CPI was 108.00 in 1942 and is 336.96 today, then $10 in 1942 purchased the same amount of goods and services as

Correct Answer
verified

Which of the following statements is correct about the relationship between inflation and interest rates?

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

If the nominal interest rate is 5 percent and the inflation rate is 2 percent, then the real interest rate is 7 percent.

Correct Answer
verified

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
verified

The CPI is a measure of the overall cost of the goods and services bought by

Correct Answer
verified

When the relative price of a good increases, consumers respond by buying

Correct Answer
verified

In a particular economy, the price index was 270 in 2005 and 300 in 2006. Which of the following statements is correct?

Correct Answer
verified

Every unit of good x that is produced in the United States is exported to other countries. An increase in the price of good x shows up

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

Correct Answer
verified

Suppose a basket of goods and services has been selected to calculate the CPI and 2002 has been chosen as the base year. In 2002, the basket's cost was $75.00; in 2004, the basket's cost was $79.50; and in 2006, the basket's cost was $85.86. The value of the CPI was

Correct Answer
verified

Many economists believe the bias in the CPI is now only about half as large as it once was.

Correct Answer
verified

Correct Answer
verified

The CPI is a measure of the overall cost of the goods and services bought by

Correct Answer
verified

Exam 11: Measuring the Cost of Living

Correct AnswerverifiedShow Answer

Which is the most accurate statement about the GDP deflator and the consumer price index?

Correct AnswerverifiedShow Answer

Consider a small economy in which consumers buy only two goods: pretzels and cookies. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that

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

If the CPI was 108.00 in 1942 and is 336.96 today, then $10 in 1942 purchased the same amount of goods and services as

Correct AnswerverifiedShow Answer

Which of the following statements is correct about the relationship between inflation and interest rates?

Correct AnswerverifiedShow Answer

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

If the nominal interest rate is 5 percent and the inflation rate is 2 percent, then the real interest rate is 7 percent.

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

The CPI is a measure of the overall cost of the goods and services bought by

Correct AnswerverifiedShow Answer

When the relative price of a good increases, consumers respond by buying

Correct AnswerverifiedShow Answer

In a particular economy, the price index was 270 in 2005 and 300 in 2006. Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Every unit of good x that is produced in the United States is exported to other countries. An increase in the price of good x shows up

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

Correct AnswerverifiedShow Answer

Suppose a basket of goods and services has been selected to calculate the CPI and 2002 has been chosen as the base year. In 2002, the basket's cost was $75.00; in 2004, the basket's cost was $79.50; and in 2006, the basket's cost was $85.86. The value of the CPI was

Correct AnswerverifiedShow Answer

Many economists believe the bias in the CPI is now only about half as large as it once was.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The CPI is a measure of the overall cost of the goods and services bought by

Correct AnswerverifiedShow Answer

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