Question 1

If the cost of medical care increases by 40 percent,then,other things the same,the CPI is likely to increase by about

Accepted Answer

A)   0.9 percent.
B)   2.4 percent.
C)   8.0 percent.
D)   40 percent.E) B) and D)
F) A) and B)

Question 2

The consumer price index tires to measure how much consumer incomes must rise in order to maintain a constant

Accepted Answer

A)   level of real GDP.
B)   ratio of consumption to GDP.
C)   ratio of net exports to GDP.
D)   standard of living.E) None of the above
F) B) and D)

Question 3

The Bureau of Labor Statistics does not try to account for quality changes in the goods and services in the basket used to compute the CPI.

Accepted Answer

A) True 
 B)False

Question 4

When the price of Italian wine rises,this change is reflected in the U.S.CPI but not in the U.S.GDP deflator.

Accepted Answer

A) True 
 B)False

Question 5

When the consumer price index is computed,the base year is always the first year among the years being considered.

Accepted Answer

A) True 
 B)False

Question 6

The goal of the consumer price index is to measure changes in the

Accepted Answer

A)   costs of production.
B)   cost of living.
C)   relative prices of consumer goods.
D)   production of consumer goods.E) A) and B)
F) A) and C)

Question 7

Suppose a basket of goods and services has been selected to calculate the CPI and 2009 has been selected as the base year.In 2007,the basket's cost was $64;in 2009,the basket's cost was $68;and in 2011,the basket's cost was $70.The value of the CPI in 2011 was

Accepted Answer

A)   97.14.
B)   100.10.
C)   102.94.
D)   109.38.E) A) and C)
F) A) and B)

Question 8

With respect to the consumer price index,which of the following serves as an example of how the substitution bias arises? Between 2010 and 2011,the price of a pound of peanuts

Accepted Answer

A)   rises from $0.80 to $1.00 while the price of a loaf of bread rises from $2.00 to $2.50.
B)   falls from $0.90 to $0.72 while the price of a loaf of bread falls from $2.00 to $1.60.
C)   remains constant,as does the price of a loaf of bread.
D)   None of the above serves as an example of how the substitution bias arises.E) B) and C)
F) None of the above

Question 9

The GDP deflator reflects the prices of all goods and services produced around the world,whereas the consumer price index reflects the prices of all goods and services bought by consumers.

Accepted Answer

A) True 
 B)False

Question 10

Table 11-12.Will's expenditures on food for three consecutive years,along with other values,are presented in the table below.
 
-Refer to Table 11-12.Suppose the consumer price index is 15.5 percent higher in 2011 than in 2009.Then Will's food expenditures for 2010 in 2011 dollars amount to

Accepted Answer

A)   $6,352.
B)   $6,380.
C)   $6,426.
D)   $6,651.E) A) and B)
F) A) and C)

Question 11

The three problems with using the consumer price index as a measure of the cost of living are

Accepted Answer

A)   widely acknowledged and easy to solve.
B)   widely acknowledged and difficult to solve.
C)   nearly unacknowledged and easy to solve.
D)   nearly unacknowledged and difficult to solve.E) None of the above
F) B) and C)

Question 12

Ethel purchased a bag of groceries in 1970 for $8.She purchased the same bag of groceries in 2006 for $25.If the price index was 38.8 in 1970 and the price index was 180 in 2006,then what is the price of the 1970 bag of groceries in 2006 dollars?

Accepted Answer

A)   $5.39
B)   $25.00
C)   $29.11
D)   $37.11E) A) and B)
F) A) and C)

Question 13

Table 24-1
The table below shows the prices of baseballs and baseball bats for three years.Assume the typical consumer's basket consists of 6 baseballs and 2 baseball bats.
 
-Refer to Table 24-1.How much was the cost of the basket in 2008?

Accepted Answer

A)   $78.25
B)   $84.75
C)   $169.50
D)   $456.50E) B) and D)
F) None of the above

Question 14

In 1986,Ken bought a Ford Mustang for $8,000.If the price index was 122 in 1986 and the price index was 280 in 2011,then what is the price of the Mustang in 2011 dollars?

Accepted Answer

A)   $3,485.71
B)   $8,100.71
C)   $18,360.66
D)   $22,400.00E) A) and D)
F) B) and D)

Question 15

When the overall level of prices in the economy is increasing,economists say that the economy is experiencing

Accepted Answer

A)   economic growth.
B)   stagflation.
C)   inflation.
D)   deflation.E) A) and B)
F) A) and C)

Question 16

Social Security payments are indexed for inflation using

Accepted Answer

A)   the CPI.
B)   the PPI.
C)   the GDP deflator.
D)   real interest rates.E) B) and C)
F) A) and B)

Question 17

Sophia puts money in the bank and earns a 5 percent nominal interest rate.If the inflation rate is 2 percent,then after one year,

Accepted Answer

A)   Sophia will have 3 percent more money,which will purchase 5 percent more goods.
B)   Sophia will have 3 percent more money,which will purchase 7 percent more goods.
C)   Sophia will have 5 percent more money,which will purchase 3 percent more goods.
D)   Sophia will have 5 percent more money,which will purchase 7 percent more goods.E) B) and C)
F) A) and B)

Question 18

Michelle bought word-processing software in 2009 for $75.Michelle's cousin,Barry,bought an upgrade of the same software in 2010 for $75.To which problem in the construction of the CPI is this situation most relevant?

Accepted Answer

A)   substitution bias
B)   unmeasured quality change
C)   introduction of new goods
D)   income biasE) None of the above
F) All of the above

Question 19

Table 11-5
The table below pertains to Napandsnack,an economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs.
 
-Refer to Table 11-5.If the base year is 2009,then the consumer price index was

Accepted Answer

A)   100 in 2009,115 in 2010,and 116 in 2011.
B)   100 in 2009,115 in 2010,and 135 in 2011.
C)   100 in 2009,120 in 2010,and 116 in 2011.
D)   120 in 2009,125 in 2010,and 135 in 2011.E) All of the above
F) None of the above

Question 20

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.
 
-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) B) and D)
F) A) and C)

Exam 24: Measuring the Cost of Living

Ethel purchased a bag of groceries in 1970 for $8.She purchased the same bag of groceries in 2006 for $25.If the price index was 38.8 in 1970 and the price index was 180 in 2006,then what is the price of the 1970 bag of groceries in 2006 dollars?

Correct AnswerverifiedShow Answer

Table 11-5 The table below pertains to Napandsnack,an economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs. -Refer to Table 11-5.If the base year is 2009,then the consumer price index was

Correct AnswerverifiedShow Answer

In 1986,Ken bought a Ford Mustang for $8,000.If the price index was 122 in 1986 and the price index was 280 in 2011,then what is the price of the Mustang in 2011 dollars?

Correct AnswerverifiedShow Answer

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. -Refer to Table 11-6.Between 2010 and 2011,the cost of living increased by

Correct AnswerverifiedShow Answer

Sophia puts money in the bank and earns a 5 percent nominal interest rate.If the inflation rate is 2 percent,then after one year,

Correct AnswerverifiedShow Answer

When the overall level of prices in the economy is increasing,economists say that the economy is experiencing

Correct AnswerverifiedShow Answer

Table 11-12.Will's expenditures on food for three consecutive years,along with other values,are presented in the table below. -Refer to Table 11-12.Suppose the consumer price index is 15.5 percent higher in 2011 than in 2009.Then Will's food expenditures for 2010 in 2011 dollars amount to

Correct AnswerverifiedShow Answer

Social Security payments are indexed for inflation using

Correct AnswerverifiedShow Answer

Michelle bought word-processing software in 2009 for $75.Michelle's cousin,Barry,bought an upgrade of the same software in 2010 for $75.To which problem in the construction of the CPI is this situation most relevant?

Correct AnswerverifiedShow Answer

Table 24-1 The table below shows the prices of baseballs and baseball bats for three years.Assume the typical consumer's basket consists of 6 baseballs and 2 baseball bats. -Refer to Table 24-1.How much was the cost of the basket in 2008?

Correct AnswerverifiedShow Answer

The Bureau of Labor Statistics does not try to account for quality changes in the goods and services in the basket used to compute the CPI.

Correct AnswerverifiedShow Answer

The consumer price index tires to measure how much consumer incomes must rise in order to maintain a constant

Correct AnswerverifiedShow Answer

The three problems with using the consumer price index as a measure of the cost of living are

Correct AnswerverifiedShow Answer

Suppose a basket of goods and services has been selected to calculate the CPI and 2009 has been selected as the base year.In 2007,the basket's cost was $64;in 2009,the basket's cost was $68;and in 2011,the basket's cost was $70.The value of the CPI in 2011 was

Correct AnswerverifiedShow Answer

The GDP deflator reflects the prices of all goods and services produced around the world,whereas the consumer price index reflects the prices of all goods and services bought by consumers.

Correct AnswerverifiedShow Answer

When the price of Italian wine rises,this change is reflected in the U.S.CPI but not in the U.S.GDP deflator.

Correct AnswerverifiedShow Answer

If the cost of medical care increases by 40 percent,then,other things the same,the CPI is likely to increase by about

Correct AnswerverifiedShow Answer

When the consumer price index is computed,the base year is always the first year among the years being considered.

Correct AnswerverifiedShow Answer

The goal of the consumer price index is to measure changes in the

Correct AnswerverifiedShow Answer

With respect to the consumer price index,which of the following serves as an example of how the substitution bias arises? Between 2010 and 2011,the price of a pound of peanuts

Correct AnswerverifiedShow Answer

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