Question 1

Suppose that over the past year,the real interest rate was 6 percent and the inflation rate was 4 percent.It follows that

Accepted Answer

A)   the dollar value of savings increased at 6 percent,and the purchasing power of savings increased at 2 percent.
B)   the dollar value of savings increased at 6 percent,and the purchasing power of savings increased at 10 percent.
C)   the dollar value of savings increased at 10 percent,and the purchasing power of savings increased at 2 percent.
D)   the dollar value of savings increased at 10 percent,and the purchasing power of savings increased at 6 percent.E) A) and B)
F) B) and C)

Question 2

Suppose a basket of goods and services has been selected to calculate the consumer price index.In 2005,the basket of goods cost $108.00;in 2006,it cost $135.00;and in 2007,it cost $168.75.Which of the following statements is correct?

Accepted Answer

A)   Using 2005 as the base year,the economy's inflation rate was higher in 2007 than it was in 2006.
B)   If 2007 is the base year,then the CPI is 33.75 in 2006.
C)   If the CPI is 156.25 in 2007,then 2005 is the base year.
D)   Using 2005 as the base year,the economy's inflation rate for 2006 was 27 percent.E) None of the above
F) A) and B)

Question 3

Table 24-3
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 24-3.If 2006 is the base year,then the consumer price index was

Accepted Answer

A)   100 in 2006,135 in 2007,and 155 in 2008.
B)   100 in 2006,270 in 2007,and 310 in 2008.
C)   200 in 2006,135 in 2007,and 155 in 2008.
D)   200 in 2006,270 in 2007,and 310 in 2008.E) A) and B)
F) B) and D)

Question 4

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

Question 5

From 2004 to 2005,the CPI for medical care increased from 260.8 to 272.8.What was the inflation rate for medical care?

Accepted Answer

A)   4.4 percent
B)   4.6 percent
C)   12.0 percent
D)   172.8 percentE) A) and B)
F) A) and C)

Question 6

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 7

Suppose the price of a gallon of ice cream rises from $4 to $5 and the price of a can of coffee rises from $2 to $2.50.If the CPI rises from 150 to 200,then people likely will buy

Accepted Answer

A)   more ice cream and more coffee.
B)   more ice cream and less coffee.
C)   less ice cream and more coffee.
D)   less ice cream and less coffee.E) A) and B)
F) None of the above

Question 8

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

Accepted Answer

A)   3 percent.
B)   6 percent.
C)   12 percent.
D)   50 percent.E) B) and D)
F) B) and C)

Question 9

Which entity within the U.S.government is responsible for computing and reporting the CPI?

Accepted Answer

A)   the Department of Commerce
B)   the Department of Labor
C)   the General Accounting Office
D)   the Council of Economic AdvisersE) A) and D)
F) A) and C)

Question 10

In the basket of goods that is used to compute the consumer price index,the three largest categories of consumer spending are

Accepted Answer

A)   housing,transportation,and recreation.
B)   housing,transportation,and food & beverages.
C)   housing,food & beverages,and education & communication.
D)   housing,medical care,and education & communication.E) A) and B)
F) A) and C)

Question 11

In 1972,one could buy model rocket engines for $1.50 each.If those same engines cost $2.50 each today,then which pair of CPIs would make the engine prices in today's dollars the same for both years?

Accepted Answer

A)   60 in 1972 and 95 today
B)   60 in 1972 and 120 today
C)   90 in 1972 and 140 today
D)   96 in 1972 and 160 todayE) A) and C)
F) B) and C)

Question 12

Which of the following statements about real and nominal interest rates is correct?

Accepted Answer

A)   Real interest rates can be either positive or negative,but nominal interest rates must be positive.
B)   Real interest rates and nominal interest rates must be positive.
C)   Real interest rates must be positive,but nominal interest rates can be either positive or negative.
D)   Real interest rates and nominal interest rates can be either positive or negative.E) A) and D)
F) None of the above

Question 13

If 2004 is the base year,then the inflation rate for 2005 equals
A)
B)
C)
D)

Accepted Answer

The answer of If 2004 is the base year,then the...

Question 14

If the nominal interest rate is 8 percent and the real interest rate is 5.5 percent,then the inflation rate is

Accepted Answer

A)   -2.5 percent.
B)   0.45 percent.
C)   2.5 percent.
D)   13.5 percent.E) B) and C)
F) A) and D)

Question 15

When new goods are introduced,consumers have more variety from which to choose.As a result,each dollar is worth

Accepted Answer

A)   more,and the cost of living increases.
B)   more,and the cost of living decreases.
C)   less,and the cost of living increases.
D)   less,and the cost of living decreases.E) B) and D)
F) C) 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) B) and C)

Question 17

Suppose a basket of goods and services has been selected to calculate the CPI and 2004 has been selected as the base year.In 2002,the basket's cost was $50;in 2004,the basket's cost was $52;and in 2006,the basket's cost was $54.60.The value of the CPI in 2006 was

Accepted Answer

A)   91.6.
B)   95.2.
C)   105.0.
D)   109.2.E) A) and D)
F) B) and C)

Question 18

Suppose the CPI was 108 in 1967,and suppose one must spend $936 today to obtain the same basket of goods and services that could be bought for $200 in 1967.Then today's CPI is

Accepted Answer

A)   116.67.
B)   131.08.
C)   397.44.
D)   505.44.E) B) and D)
F) A) and D)

Question 19

Why does the GDP deflator give a different rate of inflation than the CPI?

Accepted Answer

The GDP deflator and the CPI differ in t...

Question 20

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

Accepted Answer

A)   the number of apples bought by the typical consumer is equal to the number of pears bought by the typical consumer in each year.
B)   neither the number of apples nor the number of pears bought by the typical consumer changes from year to year.
C)   the percentage change in the price of apples is equal to the percentage change in the price of pears from year to year.
D)   neither the price of apples nor the price of pears changes from year to year.E) None of the above
F) A) and B)

Exam 24: Measuring the Cost of Living

Suppose the price of a gallon of ice cream rises from $4 to $5 and the price of a can of coffee rises from $2 to $2.50.If the CPI rises from 150 to 200,then people likely will buy

Correct AnswerverifiedShow Answer

Suppose a basket of goods and services has been selected to calculate the consumer price index.In 2005,the basket of goods cost $108.00;in 2006,it cost $135.00;and in 2007,it cost $168.75.Which of the following statements is correct?

Correct AnswerverifiedShow Answer

If the nominal interest rate is 8 percent and the real interest rate is 5.5 percent,then the inflation rate is

Correct AnswerverifiedShow Answer

Why does the GDP deflator give a different rate of inflation than the CPI?

Correct AnswerverifiedThe GDP deflator and the CPI differ in t...View AnswerShow Answer

Suppose the CPI was 108 in 1967,and suppose one must spend $936 today to obtain the same basket of goods and services that could be bought for $200 in 1967.Then today's CPI is

Correct AnswerverifiedShow Answer

Which of the following statements about real and nominal interest rates is correct?

Correct AnswerverifiedShow Answer

In the basket of goods that is used to compute the consumer price index,the three largest categories of consumer spending are

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Table 24-3 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 24-3.If 2006 is the base year,then the consumer price index was

Correct AnswerverifiedShow Answer

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

If 2004 is the base year,then the inflation rate for 2005 equals A) B) C) D)

Correct AnswerverifiedShow Answer

When new goods are introduced,consumers have more variety from which to choose.As a result,each dollar is worth

Correct AnswerverifiedShow Answer

In 1972,one could buy model rocket engines for $1.50 each.If those same engines cost $2.50 each today,then which pair of CPIs would make the engine prices in today's dollars the same for both years?

Correct AnswerverifiedShow Answer

Suppose that over the past year,the real interest rate was 6 percent and the inflation rate was 4 percent.It follows that

Correct AnswerverifiedShow Answer

Which entity within the U.S.government is responsible for computing and reporting the CPI?

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

From 2004 to 2005,the CPI for medical care increased from 260.8 to 272.8.What was the inflation rate for medical care?

Correct AnswerverifiedShow Answer

Suppose a basket of goods and services has been selected to calculate the CPI and 2004 has been selected as the base year.In 2002,the basket's cost was $50;in 2004,the basket's cost was $52;and in 2006,the basket's cost was $54.60.The value of the CPI in 2006 was

Correct AnswerverifiedShow Answer

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

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

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The GDP deflator and the CPI differ in t...
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