Question 1

Although they sometimes diverge,generally the CPI and the GDP deflator move in the same direction.

Accepted Answer

A) True 
 B)False

Question 2

When the relative price of a good increases,consumers will 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) All of the above
F) A) and B)

Question 3

The government's use of a statistical technique called hedonics

Accepted Answer

A)  is intended to account for the changing quality of products when calculating price movements.
B)  has been alleged by some people to cause the government-reported inflation rate to be lower than the true inflation rate.
C)  has been criticized by some people as being too subjective.
D)  All of the above are correct.E) All of the above
F) B) and C)

Question 4

An increase in the price of domestically-produced industrial robots will be reflected in

Accepted Answer

A)  both the GDP deflator and the consumer price index.
B)  neither the GDP deflator nor the consumer price index.
C)  the GDP deflator but not in the consumer price index.
D)  the consumer price index but not in the GDP deflator.E) B) and C)
F) All of the above

Question 5

In calculating the consumer price index,a fixed basket of goods is used.The quantities of the goods in the fixed basket are determined by

Accepted Answer

A)  surveying consumers.
B)  surveying sellers of those goods.
C)  working backward from the rate of inflation to arrive at imputed values for those quantities.
D)  arbitrary choices made by federal government employees.E) A) and B)
F) A) and C)

Question 6

The inflation rate is defined as the

Accepted Answer

A)  price level.
B)  change in the price level from one period to the next.
C)  percentage change in the price level from the previous period.
D)  price level minus the price level from the previous period.E) B) and C)
F) A) and C)

Question 7

In the country of Shem, the CPI is calculated using a market basket consisting of 5 apples, 4 loaves of bread, 3 robes and 2 gallons of gasoline. The per-unit prices of these goods have been as follows:
Table 24-3
 
-Refer to Table 24-3.Using 2002 as the base year,what was the inflation rate between 2003 and 2004?

Accepted Answer

A)  28.5 percent
B)  34.2 percent
C)  47 percent
D)  It is impossible to determine without knowing the base year.E) B) and C)
F) A) and D)

Question 8

Which is likely to have the larger effect on the CPI,a 2 percent increase in food or a 3 percent increase in diamond rings? Explain.

Accepted Answer

The 2 percent increase in food...

Question 9

In the CPI,goods and services are weighted according to

Accepted Answer

A)  how long a market has existed for each good or service.
B)  the extent to which each good or service is regarded by the government as a necessity.
C)  how much consumers buy of each good or service.
D)  the number of firms that produce and sell each good or service.E) A) and C)
F) None of the above

Question 10

Laura bought word-processing software in 2005 for $50.Laura's twin brother,Laurence,buys an upgrade of the same software in 2006 for $50.What problem in the construction of the CPI does this situation best represent?

Accepted Answer

A)  substitution bias
B)  unmeasured quality change
C)  introduction of new goods
D)  income biasE) C) and D)
F) A) and D)

Question 11

In computing the consumer price index,a base year is chosen.Which of the following statements about the base year is correct?

Accepted Answer

A)  The base year is always the first year among the years for which computations are being made.
B)  It is necessary to designate a base year only in the simplest case of two goods; in more realistic cases, it is not necessary to designate a base year.
C)  The value of the consumer price index is always 100 in the base year.
D)  All of the above are correct.E) C) and D)
F) All of the above

Question 12

By not taking into account the possibility of consumer substitution,the CPI

Accepted Answer

A)  understates the cost of living.
B)  overstates the cost of living.
C)  may overstate or understate the cost of living, depending on how much prices rise.
D)  may overstate or understate the cost of living, regardless of the extent to which prices rise.E) B) and D)
F) None of the above

Question 13

Suppose the price index in 2004 was 100;the price index in 2005 was 118;and the inflation rate between 2005 and 2006 was lower than it was between 2004 and 2005.This means that

Accepted Answer

A)  the price index in 2006 was lower than 118.00.
B)  the price index in 2006 was lower than 136.00.
C)  the price index in 2006 was lower than 139.24.
D)  the inflation rate between 2005 and 2006 was lower than 1.18 percent.E) C) and D)
F) B) and C)

Question 14

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 D)
F) None of the above

Question 15

An important difference between the GDP deflator and the consumer price index is that

Accepted Answer

A)  the GDP deflator reflects the prices of goods and services bought by producers, whereas the consumer price index reflects the prices of goods and services bought by consumers.
B)  the GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of some goods and services bought by consumers.
C)  the GDP deflator reflects the prices of all final goods and services produced by a nation's citizens, whereas the consumer price index reflects the prices of final goods and services bought by consumers.
D)  the GDP deflator reflects the prices of all goods and services bought by producers and consumers, whereas the consumer price index reflects the prices of final goods and services bought by consumers.E) A) and C)
F) A) and B)

Question 16

The price index in the first year is 150;in the second year it is 160;and in the third year it is 175.The inflation rate is about

Accepted Answer

A)  1.07 percent between the first and second years, and 1.09 percent between the second and third years.
B)  5.4 percent between the first and second years, and 9.4 percent between the second and third years.
C)  6.7 percent between the first and second years, and 9.4 percent between the second and third years.
D)  10 percent between the first and second years, and 1.09 percent between the second and third years.E) None of the above
F) C) and D)

Question 17

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

Accepted Answer

A)  substitution bias
B)  introduction of new goods
C)  unmeasured quality change
D)  income biasE) C) and D)
F) A) and C)

Question 18

The GDP deflator reflects the

Accepted Answer

A)  level of prices in the base year relative to the current level of prices.
B)  current level of prices relative to the level of prices in the base year.
C)  level of real output in the base year relative to the current level of real output.
D)  current level of real output relative to the level of real output in the base year.E) B) and C)
F) C) and D)

Question 19

In general,if a consumer good is produced domestically and consumed domestically,a decrease in its price will have which of the following effects?

Accepted Answer

A)  The consumer price index will decrease relatively more than will the GDP deflator.
B)  The consumer price index and the GDP deflator will decrease by the same amount.
C)  The consumer price index will decrease relatively less than will the GDP deflator.
D)  One cannot generalize about the decrease in the consumer price index relative to the decrease in the GDP deflator.E) A) and B)
F) A) and C)

Question 20

When the quality of a good improves,the purchasing power of the dollar

Accepted Answer

A)  increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for.
B)  increases, so the CPI understates the change in the cost of living if the quality change is not accounted for.
C)  decreases, so the CPI overstates the change in the cost of living if the quality change is not accounted for.
D)  decreases, so the CPI understates the change in the cost of living if the quality change is not accounted for.E) A) and B)
F) A) and C)

Exam 24: Measuring the Cost of Living

An important difference between the GDP deflator and the consumer price index is that

Correct Answer
verified

In general,if a consumer good is produced domestically and consumed domestically,a decrease in its price will have which of the following effects?

Correct Answer
verified

In the CPI,goods and services are weighted according to

Correct Answer
verified

When the quality of a good improves,the purchasing power of the dollar

Correct Answer
verified

Suppose the price index in 2004 was 100;the price index in 2005 was 118;and the inflation rate between 2005 and 2006 was lower than it was between 2004 and 2005.This means that

Correct Answer
verified

In calculating the consumer price index,a fixed basket of goods is used.The quantities of the goods in the fixed basket are determined by

Correct Answer
verified

The price index in the first year is 150;in the second year it is 160;and in the third year it is 175.The inflation rate is about

Correct Answer
verified

By not taking into account the possibility of consumer substitution,the CPI

Correct Answer
verified

The GDP deflator reflects the

Correct Answer
verified

The government's use of a statistical technique called hedonics

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

The inflation rate is defined as the

Correct Answer
verified

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

Correct Answer
verified

In computing the consumer price index,a base year is chosen.Which of the following statements about the base year is correct?

Correct Answer
verified

An increase in the price of domestically-produced industrial robots will be reflected in

Correct Answer
verified

Laura bought word-processing software in 2005 for $50.Laura's twin brother,Laurence,buys an upgrade of the same software in 2006 for $50.What problem in the construction of the CPI does this situation best represent?

Correct Answer
verified

Which is likely to have the larger effect on the CPI,a 2 percent increase in food or a 3 percent increase in diamond rings? Explain.

Correct Answer
verified
The 2 percent increase in food...
View Answer

Although they sometimes diverge,generally the CPI and the GDP deflator move in the same direction.

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Exam 24: Measuring the Cost of Living

An important difference between the GDP deflator and the consumer price index is that

Correct AnswerverifiedShow Answer

In general,if a consumer good is produced domestically and consumed domestically,a decrease in its price will have which of the following effects?

Correct AnswerverifiedShow Answer

In the CPI,goods and services are weighted according to

Correct AnswerverifiedShow Answer

When the quality of a good improves,the purchasing power of the dollar

Correct AnswerverifiedShow Answer

Suppose the price index in 2004 was 100;the price index in 2005 was 118;and the inflation rate between 2005 and 2006 was lower than it was between 2004 and 2005.This means that

Correct AnswerverifiedShow Answer

In calculating the consumer price index,a fixed basket of goods is used.The quantities of the goods in the fixed basket are determined by

Correct AnswerverifiedShow Answer

The price index in the first year is 150;in the second year it is 160;and in the third year it is 175.The inflation rate is about

Correct AnswerverifiedShow Answer

By not taking into account the possibility of consumer substitution,the CPI

Correct AnswerverifiedShow Answer

The GDP deflator reflects the

Correct AnswerverifiedShow Answer

The government's use of a statistical technique called hedonics

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

The inflation rate is defined as the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In computing the consumer price index,a base year is chosen.Which of the following statements about the base year is correct?

Correct AnswerverifiedShow Answer

An increase in the price of domestically-produced industrial robots will be reflected in

Correct AnswerverifiedShow Answer

Laura bought word-processing software in 2005 for $50.Laura's twin brother,Laurence,buys an upgrade of the same software in 2006 for $50.What problem in the construction of the CPI does this situation best represent?

Correct AnswerverifiedShow Answer

Which is likely to have the larger effect on the CPI,a 2 percent increase in food or a 3 percent increase in diamond rings? Explain.

Correct AnswerverifiedThe 2 percent increase in food...View AnswerShow Answer

Although they sometimes diverge,generally the CPI and the GDP deflator move in the same direction.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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The 2 percent increase in food...
View Answer

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