Question 1

Table 24-1
The table below pertains to Pieway,an economy in which the typical consumer's basket consists of 10 bushels of peaches and 15 bushels of pecans.
 
-Refer to Table 24-1.If 2006 is the base year,then the inflation rate in 2006 was

Accepted Answer

A)   16.7 percent.
B)   20 percent.
C)   40 percent.
D)   44.1 percent.E) A) and D)
F) None of the above

Question 2

What basket of goods and services is used to construct the CPI?

Accepted Answer

A)   a random sample of all goods and services produced in the economy
B)   the goods and services that are typically bought by consumers as determined by government surveys
C)   only food,clothing,transportation,entertainment,and education
D)   the least expensive and the most expensive goods and services in each major category of consumer expendituresE) A) and B)
F) A) and C)

Question 3

Suppose lawn mowers are part of the market basket used to compute the CPI.Suppose also that the quality of lawn mowers improves while the price of lawn mowers stays the same.If the Bureau of Labor Statistics is able to precisely adjust the CPI for the improvement in quality,then,other things equal,

Accepted Answer

A)   the CPI will rise.
B)   the CPI will fall.
C)   the CPI will stay the same.
D)   lawn mowers will no longer be included in the market basket.E) C) and D)
F) B) and D) B

Question 4

Scenario 24-3
Grant Gant was a doctor in 1944 and earned $12,000 that year.His daughter,Gretta Gant,is a doctor today and she earned $210,000 in 2005.The price index was 17.6 in 1944 and 184 in 2005.
-Refer to Scenario 24-3.Gretta Gant's 2005 income in 1944 dollars is

Accepted Answer

A)   $11,931.82.
B)   $20,086.96.
C)   $1,985,454.55.
D)   $2,195,454.55.E) A) and B)
F) C) and D) B

Question 5

Which of the following is correct?

Accepted Answer

A)   The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers.
B)   The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers.
C)   The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers.
D)   The GDP deflator is more commonly used as a gauge of inflation than the CPI is.E) B) and D)
F) B) and C)

Question 6

Because the CPI is based on a fixed basket of goods,the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living.This is so because

Accepted Answer

A)   new goods and services are always of higher quality than existing goods and services.
B)   new goods and services cost less than existing goods and services.
C)   new goods and services cost more than existing goods and services.
D)   when a new good is introduced,it gives consumers greater choice,thus reducing the amount they must spend to maintain their standard of living.E) A) and D)
F) None of the above

Question 7

Changes in the consumer price index are useful in predicting changes in the producer price index.

Accepted Answer

A) True 
 B)False  False

Question 8

If the CPI was 108 in 1942 and is 420 today,then $10 in 1942 purchased the same amount of goods and services as

Accepted Answer

A)   $2.57 purchases today.
B)   $28.89 purchases today.
C)   $31.20 purchases today.
D)   $38.89 purchases today.E) None of the above
F) All of the above

Question 9

Table 24-2
The table below pertains to Iowan,an economy in which the typical consumer's basket consists of 3 pounds of pork and 4 bushels of corn.
 
-Refer to Table 24-2.If 2008 is the base year,then the CPI for 2008 was

Accepted Answer

A)   73.5.
B)   100
C)   108
D)   136.1.E) A) and B)
F) A) and C)

Question 10

If the nominal interest rate is 5 percent and the inflation rate is 2 percent,then the real interest rate is 7 percent.

Accepted Answer

A) True 
 B)False

Question 11

Scenario 24-1
The price tag on a tennis ball in 1975 read $0.10,and the price tag on a tennis ball in 2005 read $1.00.The CPI in 1975 was 52.3,and the CPI in 2005 was 191.3.
-Refer to Scenario 24-1.The price of a 1975 tennis ball in 2005 dollars is

Accepted Answer

A)   $0.03.
B)   $0.27.
C)   $0.37.
D)   $1.00.E) A) and D)
F) A) and C)

Question 12

The Bureau of Labor Statistics determines which prices are most important to the typical consumer by surveying consumers.

Accepted Answer

A) True 
 B)False

Question 13

If the price of domestically produced power tools increases,then

Accepted Answer

A)   the consumer price index and the GDP deflator will both increase.
B)   the consumer price index will increase,and the GDP deflator will be unaffected.
C)   the consumer price index will be unaffected,and the GDP deflator will increase.
D)   the consumer price index and the GDP deflator will both be unaffected.E) All of the above
F) C) and D)

Question 14

Which of these events would cause the consumer price index to overstate the increase in the cost of living?

Accepted Answer

A)   Car makers benefit from a new technology that allows them to sell higher-quality cars to consumers with no increase in price.
B)   Energy prices decrease,and consumers respond by buying more gas and electricity.
C)   A new good is introduced that renders cellular telephones inferior and obsolete.
D)   All of the above are correct.E) B) and D)
F) A) and C)

Question 15

The inflation rate you are likely to hear on the nightly news is calculated from

Accepted Answer

A)   the GDP deflator.
B)   the CPI.
C)   the Dow Jones Industrial Average.
D)   the unemployment rate.E) A) and C)
F) A) and D)

Question 16

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 17

Consternation Corporation has an agreement with its workers to index completely the wage of its employees using the CPI.Consternation Corporation currently pays its production line workers $7.50 an hour and is scheduled to index their wages today.If the CPI is currently 130 and was 125 a year ago,the firm should increase the hourly wages of its workers by

Accepted Answer

A)   $0.04.
B)   $0.29.
C)   $0.30.
D)   $0.50.E) A) and B)
F) C) and D)

Question 18

If the nominal interest rate is 4 percent and the real interest rate is 7 percent,then the inflation rate is

Accepted Answer

A)   -3 percent.
B)   0.75 percent.
C)   3 percent.
D)   11 percent.E) C) and D)
F) A) and C)

Question 19

In 1979 and 1980,

Accepted Answer

A)   the U.S.inflation rate as measured by the GDP deflator was higher than that measured by the CPI,and the difference was explained by rapidly rising prices of goods exported by the U.S.
B)   the U.S.inflation rate as measured by the CPI was higher than that measured by the GDP deflator,and the difference was explained by rapidly rising prices of goods exported by the U.S.
C)   the U.S.inflation rate as measured by the GDP deflator was higher than that measured by the CPI,and the difference was explained by rapidly rising oil prices.
D)   the U.S.inflation rate as measured by the CPI was higher than that measured by the GDP deflator,and the difference was explained by rapidly rising oil prices.E) A) and D)
F) A) and C)

Question 20

Table 24-5
The table below pertains to Yackandsnack,an economy in which the typical consumer's basket consists of 2 cell phones and 20 ham sandwiches.
 
-Refer to Table 24-5.If the base year is 2006,then the consumer price index was

Accepted Answer

A)   100 in 2006,125 in 2007,and 131.25 in 2008.
B)   100 in 2006,200 in 2007,and 210 in 2008.
C)   160 in 2006,125 in 2007,and 131.25 in 2008.
D)   160 in 2006,200 in 2007,and 210 in 2008.E) B) and C)
F) A) and D)

Exam 24: Measuring the Cost of Living

Table 24-1 The table below pertains to Pieway,an economy in which the typical consumer's basket consists of 10 bushels of peaches and 15 bushels of pecans. -Refer to Table 24-1.If 2006 is the base year,then the inflation rate in 2006 was

Correct Answer
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What basket of goods and services is used to construct the CPI?

Correct Answer
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Suppose lawn mowers are part of the market basket used to compute the CPI.Suppose also that the quality of lawn mowers improves while the price of lawn mowers stays the same.If the Bureau of Labor Statistics is able to precisely adjust the CPI for the improvement in quality,then,other things equal,

Correct Answer
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B

Scenario 24-3 Grant Gant was a doctor in 1944 and earned $12,000 that year.His daughter,Gretta Gant,is a doctor today and she earned $210,000 in 2005.The price index was 17.6 in 1944 and 184 in 2005. -Refer to Scenario 24-3.Gretta Gant's 2005 income in 1944 dollars is

Correct Answer
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B

Which of the following is correct?

Correct Answer
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Because the CPI is based on a fixed basket of goods,the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living.This is so because

Correct Answer
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Changes in the consumer price index are useful in predicting changes in the producer price index.

Correct Answer
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False

If the CPI was 108 in 1942 and is 420 today,then $10 in 1942 purchased the same amount of goods and services as

Correct Answer
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Table 24-2 The table below pertains to Iowan,an economy in which the typical consumer's basket consists of 3 pounds of pork and 4 bushels of corn. -Refer to Table 24-2.If 2008 is the base year,then the CPI for 2008 was

Correct Answer
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If the nominal interest rate is 5 percent and the inflation rate is 2 percent,then the real interest rate is 7 percent.

Correct Answer
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Scenario 24-1 The price tag on a tennis ball in 1975 read $0.10,and the price tag on a tennis ball in 2005 read $1.00.The CPI in 1975 was 52.3,and the CPI in 2005 was 191.3. -Refer to Scenario 24-1.The price of a 1975 tennis ball in 2005 dollars is

Correct Answer
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The Bureau of Labor Statistics determines which prices are most important to the typical consumer by surveying consumers.

Correct Answer
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If the price of domestically produced power tools increases,then

Correct Answer
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Which of these events would cause the consumer price index to overstate the increase in the cost of living?

Correct Answer
verified

The inflation rate you are likely to hear on the nightly news is calculated from

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
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Correct Answer
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If the nominal interest rate is 4 percent and the real interest rate is 7 percent,then the inflation rate is

Correct Answer
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In 1979 and 1980,

Correct Answer
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Table 24-5 The table below pertains to Yackandsnack,an economy in which the typical consumer's basket consists of 2 cell phones and 20 ham sandwiches. -Refer to Table 24-5.If the base year is 2006,then the consumer price index was

Correct Answer
verified

Exam 24: Measuring the Cost of Living

Table 24-1 The table below pertains to Pieway,an economy in which the typical consumer's basket consists of 10 bushels of peaches and 15 bushels of pecans. -Refer to Table 24-1.If 2006 is the base year,then the inflation rate in 2006 was

Correct AnswerverifiedShow Answer

What basket of goods and services is used to construct the CPI?

Correct AnswerverifiedShow Answer

Suppose lawn mowers are part of the market basket used to compute the CPI.Suppose also that the quality of lawn mowers improves while the price of lawn mowers stays the same.If the Bureau of Labor Statistics is able to precisely adjust the CPI for the improvement in quality,then,other things equal,

Correct AnswerverifiedB

Scenario 24-3 Grant Gant was a doctor in 1944 and earned $12,000 that year.His daughter,Gretta Gant,is a doctor today and she earned $210,000 in 2005.The price index was 17.6 in 1944 and 184 in 2005. -Refer to Scenario 24-3.Gretta Gant's 2005 income in 1944 dollars is

Correct AnswerverifiedB

Which of the following is correct?

Correct AnswerverifiedShow Answer

Because the CPI is based on a fixed basket of goods,the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living.This is so because

Correct AnswerverifiedShow Answer

Changes in the consumer price index are useful in predicting changes in the producer price index.

Correct AnswerverifiedFalse

If the CPI was 108 in 1942 and is 420 today,then $10 in 1942 purchased the same amount of goods and services as

Correct AnswerverifiedShow Answer

Table 24-2 The table below pertains to Iowan,an economy in which the typical consumer's basket consists of 3 pounds of pork and 4 bushels of corn. -Refer to Table 24-2.If 2008 is the base year,then the CPI for 2008 was

Correct AnswerverifiedShow Answer

If the nominal interest rate is 5 percent and the inflation rate is 2 percent,then the real interest rate is 7 percent.

Correct AnswerverifiedShow Answer

Scenario 24-1 The price tag on a tennis ball in 1975 read $0.10,and the price tag on a tennis ball in 2005 read $1.00.The CPI in 1975 was 52.3,and the CPI in 2005 was 191.3. -Refer to Scenario 24-1.The price of a 1975 tennis ball in 2005 dollars is

Correct AnswerverifiedShow Answer

The Bureau of Labor Statistics determines which prices are most important to the typical consumer by surveying consumers.

Correct AnswerverifiedShow Answer

If the price of domestically produced power tools increases,then

Correct AnswerverifiedShow Answer

Which of these events would cause the consumer price index to overstate the increase in the cost of living?

Correct AnswerverifiedShow Answer

The inflation rate you are likely to hear on the nightly news is calculated from

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

Correct AnswerverifiedShow Answer

If the nominal interest rate is 4 percent and the real interest rate is 7 percent,then the inflation rate is

Correct AnswerverifiedShow Answer

In 1979 and 1980,

Correct AnswerverifiedShow Answer

Table 24-5 The table below pertains to Yackandsnack,an economy in which the typical consumer's basket consists of 2 cell phones and 20 ham sandwiches. -Refer to Table 24-5.If the base year is 2006,then the consumer price index was

Correct AnswerverifiedShow Answer

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