Question 1

-Refer to the Table 6-2. Suppose that the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn. What is the inflation rate for 2015?

Accepted Answer

A)   21.33 percent
B)   25.00 percent
C)   29.17 percent
D)   36.11 percentE) B) and C)
F) None of the above

Question 2

Suppose that the real interest rate was 3 percent and the inflation rate was 1 percent. What happened with the value of savings?

Accepted Answer

A)   The dollar value of savings increased at 2 percent, and the value of savings measured in goods increased at 3 percent.
B)   The dollar value of savings increased at 1 percent, and the value of savings measured in goods increased at 2 percent.
C)   The dollar value of savings increased at 3 percent, and the value of savings measured in goods increased at 1 percent.
D)   The dollar value of savings increased at 4 percent, and the value of savings measured in goods increased at 3 percent.E) B) and C)
F) A) and D)

Question 3

Which statement best characterizes the consumer price index?

Accepted Answer

A)   It is a measure of a nation's standard of living.
B)   It shows production of consumer goods.
C)   It measures the increase in the prices of all final goods and services produced within the borders of a country.
D)   It is an imperfect measure of the cost of living.E) B) and D)
F) B) and C)

Question 4

When does a cost-of-living allowance (COLA)  automatically raise the wage rate?

Accepted Answer

A)   when GDP increases
B)   when the consumer price index increases
C)   when taxes increase
D)   when the consumer price index is announcedE) A) and B)
F) C) and D)

Question 5

The price index is 260 in one year and 300 in the next. What is the inflation rate?

Accepted Answer

A)   1.0 percent
B)   9.3 percent
C)   12 percent
D)   15.3 percentE) A) and D)
F) C) and D)

Question 6

Research done at the Bank of Canada suggests that the sources of bias in CPI, taken together, cause the Canadian CPI to overstate increases in the cost of living. How much does the research indicate it is overstated by?

Accepted Answer

A)   0.5 percentage points
B)   1.6 percentage points
C)   2.1 percentage points
D)   3.4 of a percentage pointE) None of the above
F) A) and B)

Question 7

-The market basket used to calculate the CPI in Aquilonia is:

Accepted Answer

A)   20.00 percent
B)   24.4 percent
C)   30.00 percent
D)   35.56 percentE) B) and C)
F) A) and D)

Question 8

Canadians spend about 27 percent of their total expenditures on housing. If the price of housing increases by 10 percent, by how much does the CPI increase?

Accepted Answer

A)   0.27 percent
B)   2.7 percent
C)   27 percent
D)   270 percentE) A) and B)
F) A) and C)

Question 9

Laura bought word processing software for $50. A year later, Laura's twin brother Laurence bought an upgraded version of the same software for $50. Which 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) A) and B)
F) B) and D)

Question 10

For the average Canadian consumer, what percentage of spending does food make up?

Accepted Answer

A)   4.1 percent
B)   10.6 percent
C)   12.0 percent
D)   16.4 percentE) None of the above
F) All of the above

Question 11

Ethel purchased a bag of groceries in 1970 for $8. She purchased the same bag of groceries in 2015 for $25. If the price index was 38.8 in 1970 and 180 in 2015, what's the price of a 1970 bag of groceries in 2015 prices?

Accepted Answer

A)   $25.00
B)   $29.11
C)   $37.11
D)   $38.80E) B) and D)
F) B) and C)

Question 12

If the real interest rate is 9 percent and the expected inflation rate is 2 percent, what would a person expect to have after a year?

Accepted Answer

A)   7 percent more dollars, which will purchase 7 percent more goods
B)   7 percent more dollars, which will purchase 9 percent more goods
C)   11 percent more dollars, which will purchase 7 percent more goods
D)   11 percent more dollars, which will purchase 9 percent more goodsE) A) and B)
F) A) and C)

Question 13

Which statement best describes the relationship between the nominal interest rate and the real interest rate?

Accepted Answer

A)   The real interest rate is the nominal interest rate times the rate of inflation.
B)   The real interest rate is the nominal interest rate minus the rate of inflation.
C)   The real interest rate is the nominal interest rate plus the rate of inflation.
D)   The real interest rate is the nominal interest rate divided by the rate of inflation.E) A) and B)
F) A) and C)

Question 14

Which problem in the construction of the CPI is the invention of pocket-sized computers most relevant to?

Accepted Answer

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

Question 15

Which agency calculates the CPI?

Accepted Answer

A)   the National Price Board
B)   the Department of Consumer Affairs
C)   Statistics Canada
D)   the Ministry of FinanceE) None of the above
F) A) and C)

Question 16

How do the GDP deflator and the consumer price index compare to each other?

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, but 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, but 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) None of the above
F) B) and C)

Question 17

If the cost of shelter increases by 10 percent, then, other things the same, how much is the CPI likely to increase?

Accepted Answer

A)   by about 1 percent
B)   by about 3 percent
C)   by about 7 percent
D)   by about 10 percentE) None of the above
F) A) and B)

Question 18

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

Accepted Answer

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

Question 19

When the quality of a good improves, what happens to the purchasing power of the dollar?

Accepted Answer

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

Question 20

Ingrid takes a job in 1981 at a salary of $10,000. By 2014, she has been promoted, with a salary of $50,000. If the price index in 1981 is 50, and the price index in 2014 is 180, what is Ingrid's 2014 salary in 1981 dollars?

Accepted Answer

A)   $13,889
B)   $18,000
C)   $26,000
D)   $36,000E) A) and B)
F) A) and C)

Exam 6: Measuring the Cost of Living

Suppose that the real interest rate was 3 percent and the inflation rate was 1 percent. What happened with the value of savings?

Correct AnswerverifiedShow Answer

Which agency calculates the CPI?

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Which statement best characterizes the consumer price index?

Correct AnswerverifiedShow Answer

-Refer to the Table 6-2. Suppose that the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn. What is the inflation rate for 2015?

Correct AnswerverifiedShow Answer

Laura bought word processing software for $50. A year later, Laura's twin brother Laurence bought an upgraded version of the same software for $50. Which problem in the construction of the CPI does this situation best represent?

Correct AnswerverifiedShow Answer

Which problem in the construction of the CPI is the invention of pocket-sized computers most relevant to?

Correct AnswerverifiedShow Answer

Which statement best describes the relationship between the nominal interest rate and the real interest rate?

Correct AnswerverifiedShow Answer

Ethel purchased a bag of groceries in 1970 for $8. She purchased the same bag of groceries in 2015 for $25. If the price index was 38.8 in 1970 and 180 in 2015, what's the price of a 1970 bag of groceries in 2015 prices?

Correct AnswerverifiedShow Answer

Canadians spend about 27 percent of their total expenditures on housing. If the price of housing increases by 10 percent, by how much does the CPI increase?

Correct AnswerverifiedShow Answer

Research done at the Bank of Canada suggests that the sources of bias in CPI, taken together, cause the Canadian CPI to overstate increases in the cost of living. How much does the research indicate it is overstated by?

Correct AnswerverifiedShow Answer

The price index is 260 in one year and 300 in the next. What is the inflation rate?

Correct AnswerverifiedShow Answer

Ingrid takes a job in 1981 at a salary of $10,000. By 2014, she has been promoted, with a salary of $50,000. If the price index in 1981 is 50, and the price index in 2014 is 180, what is Ingrid's 2014 salary in 1981 dollars?

Correct AnswerverifiedShow Answer

How do the GDP deflator and the consumer price index compare to each other?

Correct AnswerverifiedShow Answer

If the cost of shelter increases by 10 percent, then, other things the same, how much is the CPI likely to increase?

Correct AnswerverifiedShow Answer

For the average Canadian consumer, what percentage of spending does food make up?

Correct AnswerverifiedShow Answer

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

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

When does a cost-of-living allowance (COLA) automatically raise the wage rate?

Correct AnswerverifiedShow Answer

If the real interest rate is 9 percent and the expected inflation rate is 2 percent, what would a person expect to have after a year?

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When the quality of a good improves, what happens to the purchasing power of the dollar?

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-The market basket used to calculate the CPI in Aquilonia is:

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