Question 1

In the United States,if the price of imported oil rises so that the prices of gasoline and heating oil rise,then the

Accepted Answer

A)   GDP deflator rises much more than does the consumer price index.
B)   consumer price index rises much more than does the GDP deflator.
C)   GDP deflator and the consumer price index rise by about the same amount.
D)   consumer price index rises slightly more than does the GDP deflator.E) C) and D)
F) A) and B)

Question 2

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

Accepted Answer

A)   shelter.
B)   fuel and other utilities.
C)   household furnishings and operation.
D)   All of the above are correct.E) A) and D)
F) B) and C)

Question 3

When the consumer price index falls,the typical family

Accepted Answer

A)   has to spend more dollars to maintain the same standard of living.
B)   can spend fewer dollars to maintain the same standard of living.
C)   finds that its standard of living is not affected.
D)   can save less because they do not need to offset the effects of rising prices.E) A) and C)
F) None of the above

Question 4

Archie has a savings account at a bank.If he earns 6 percent interest on his account and if there is deflation,then his purchasing power rises by more than 6 percent over the course of a year.

Accepted Answer

A) True 
 B)False

Question 5

Suppose the quality of televisions changes over time,but the quality change goes unmeasured for the purpose of computing the consumer price index.In which of the following instances would the bias resulting from the unmeasured quality change be most severe?

Accepted Answer

A)   The quality of televisions deteriorates and televisions become more expensive relative to other goods.
B)   The quality of televisions improves and televisions become less expensive relative to other goods.
C)   The quality of televisions improves and televisions become more expensive relative to other goods.
D)   The quality of televisions deteriorates and the price of televisions relative to other prices remains unchanged.E) All of the above
F) None of the above

Question 6

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent.A year later,Bob withdraws his $105.If deflation was 5 percent during the year the money was deposited,then Bob's purchasing power has not changed.

Accepted Answer

A) True 
 B)False

Question 7

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

Question 8

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 150 today
D)   96 in 1972 and 154 todayE) All of the above
F) A) and B)

Question 9

A 2009 Chevrolet model has more horsepower than the 2008 version and is included in the BLS basket of goods.BLS attempts to account for this change in the market basket by

Accepted Answer

A)   dropping the good from the basket.
B)   substituting in a different vehicle with the same horsepower as the 2008 model.
C)   adjusting the share of the market basket allocated to transportation.
D)   adjusting the price of the good to account for the quality change.E) C) and D)
F) A) and C)

Question 10

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

Question 11

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 inflation rate in 2005 was

Accepted Answer

A)   -44.5%.
B)   -30.8%.
C)   7.7%.
D)   12.5%.E) A) and D)
F) A) and B)

Question 12

Table 16-12.Will's expenditures on food for three consecutive years,along with other values,are presented in the table below.
 
-Refer to Table 16-12.Will's 2009 food expenditures in 2010 dollars amount to

Accepted Answer

A)   $5,500.
B)   $5,250.
C)   $4,975.
D)   $3,625.E) B) and C)
F) A) and D)

Question 13

The price index was 150 in the first year,160 in the second year,and 165 in the third year.Which of the following statements is correct?

Accepted Answer

A)   The price level was higher in the second year than in the first year,and it was higher in the third year than in the second year.
B)   The inflation rate was positive between the first and second years,and it was positive between the second and third years.
C)   The inflation rate was lower between the second and third years than it was between the first and second years.
D)   All of the above are correct.E) C) and D)
F) A) and C)

Question 14

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

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Substitution bias occurs because the CPI ignores the possibility of consumer substitution toward goods that have become relatively less expensive.

Accepted Answer

A) True 
 B)False

Question 17

The real interest rate measures the change in dollar amounts.

Accepted Answer

A) True 
 B)False

Question 18

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent.A year later,Bob withdraws his $105.If inflation was 7 percent during the year the money was deposited,then Bob's purchasing power has increased by 2 percent.

Accepted Answer

A) True 
 B)False

Question 19

In the United States,nominal 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 B)
F) C) and D)

Question 20

Henry Ford paid his workers $5 a day in 1914,when the CPI was 10.Today,with the price index at 177,the $5 a day is worth $88.50.

Accepted Answer

A) True 
 B)False

Exam 16: Measuring the Cost of Living

A 2009 Chevrolet model has more horsepower than the 2008 version and is included in the BLS basket of goods.BLS attempts to account for this change in the market basket by

Correct Answer
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Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent.A year later,Bob withdraws his $105.If deflation was 5 percent during the year the money was deposited,then Bob's purchasing power has not changed.

Correct Answer
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For purposes of calculating the CPI,the housing category of consumer spending includes the cost of

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 inflation rate in 2005 was

Correct Answer
verified

The price index was 150 in the first year,160 in the second year,and 165 in the third year.Which of the following statements is correct?

Correct Answer
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The CPI is a measure of the overall cost of the goods and services bought by a typical consumer.

Correct Answer
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When the consumer price index falls,the typical family

Correct Answer
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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 Answer
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Correct Answer
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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 Answer
verified

In the United States,if the price of imported oil rises so that the prices of gasoline and heating oil rise,then the

Correct Answer
verified

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent.A year later,Bob withdraws his $105.If inflation was 7 percent during the year the money was deposited,then Bob's purchasing power has increased by 2 percent.

Correct Answer
verified

Archie has a savings account at a bank.If he earns 6 percent interest on his account and if there is deflation,then his purchasing power rises by more than 6 percent over the course of a year.

Correct Answer
verified

Table 16-12.Will's expenditures on food for three consecutive years,along with other values,are presented in the table below. -Refer to Table 16-12.Will's 2009 food expenditures in 2010 dollars amount to

Correct Answer
verified

Which of the following is not correct?

Correct Answer
verified

Henry Ford paid his workers $5 a day in 1914,when the CPI was 10.Today,with the price index at 177,the $5 a day is worth $88.50.

Correct Answer
verified

Suppose the quality of televisions changes over time,but the quality change goes unmeasured for the purpose of computing the consumer price index.In which of the following instances would the bias resulting from the unmeasured quality change be most severe?

Correct Answer
verified

The real interest rate measures the change in dollar amounts.

Correct Answer
verified

In the United States,nominal interest rates were

Correct Answer
verified

Substitution bias occurs because the CPI ignores the possibility of consumer substitution toward goods that have become relatively less expensive.

Correct Answer
verified

Exam 16: Measuring the Cost of Living

A 2009 Chevrolet model has more horsepower than the 2008 version and is included in the BLS basket of goods.BLS attempts to account for this change in the market basket by

Correct AnswerverifiedShow Answer

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent.A year later,Bob withdraws his $105.If deflation was 5 percent during the year the money was deposited,then Bob's purchasing power has not changed.

Correct AnswerverifiedShow Answer

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

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 inflation rate in 2005 was

Correct AnswerverifiedShow Answer

The price index was 150 in the first year,160 in the second year,and 165 in the third year.Which of the following statements is correct?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When the consumer price index falls,the typical family

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

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

In the United States,if the price of imported oil rises so that the prices of gasoline and heating oil rise,then the

Correct AnswerverifiedShow Answer

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent.A year later,Bob withdraws his $105.If inflation was 7 percent during the year the money was deposited,then Bob's purchasing power has increased by 2 percent.

Correct AnswerverifiedShow Answer

Archie has a savings account at a bank.If he earns 6 percent interest on his account and if there is deflation,then his purchasing power rises by more than 6 percent over the course of a year.

Correct AnswerverifiedShow Answer

Table 16-12.Will's expenditures on food for three consecutive years,along with other values,are presented in the table below. -Refer to Table 16-12.Will's 2009 food expenditures in 2010 dollars amount to

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

Henry Ford paid his workers $5 a day in 1914,when the CPI was 10.Today,with the price index at 177,the $5 a day is worth $88.50.

Correct AnswerverifiedShow Answer

Suppose the quality of televisions changes over time,but the quality change goes unmeasured for the purpose of computing the consumer price index.In which of the following instances would the bias resulting from the unmeasured quality change be most severe?

Correct AnswerverifiedShow Answer

The real interest rate measures the change in dollar amounts.

Correct AnswerverifiedShow Answer

In the United States,nominal interest rates were

Correct AnswerverifiedShow Answer

Substitution bias occurs because the CPI ignores the possibility of consumer substitution toward goods that have become relatively less expensive.

Correct AnswerverifiedShow Answer

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