Question 1

Suppose that the CPI in 1990 was 150, that the inflation rate in 1991 was 6%, and that the inflation rate in 1992 was 4%. What was the CPI in 1991 and 1992?

Accepted Answer

The CPI in 1991 was ...

Question 2

The inflation rate is the absolute change in the price level from the previous period.

Accepted Answer

A) True 
 B)False

Question 3

When box office receipts are corrected for inflation, the most popular movie of all time is

Accepted Answer

A)   Star Wars.
B)   Titanic.
C)   Gone With the Wind.
D)   The Sound of Music.E) A) and B)
F) None of the above

Question 4

Table 24-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below.
 
-Refer to Table 24-12. Suppose Will's 2009 food expenditures in 2011 dollars amount to $5,750. Then the inflation rate for 2011 is about

Accepted Answer

A)   9.08 percent.
B)   9.52 percent.
C)   10.24 percent.
D)   10.78 percent.E) A) and C)
F) B) and C)

Question 5

Scenario 24-3
Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2013. The price index was 17.6 in 1944 and 218.4 in 2013.
-Refer to Scenario 24-3. Josh Holloway's 2013 income in 1944 dollars is

Accepted Answer

A)   $11,528.
B)   $16,923.
C)   $149,009.
D)   $26,059.E) B) and C)
F) A) and D)

Question 6

If the CPI was 110 this year and 100 last year, then

Accepted Answer

A)   the cost of the CPI basket of goods and services increased by 10 percent this year.
B)   the price level increased by 110 percent this year.
C)   the inflation rate for this year was 10 percent higher than the inflation rate for last year.
D)   All of the above are correct.E) None of the above
F) A) and C)

Question 7

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

Accepted Answer

The 2 percent increase in the ...

Question 8

Table 24-2
The table below pertains to Pieway, an economy in which the typical consumer's basket consists of 15 bushels of peaches and 10 bushels of pecans.
 
-Refer to Table 24-2. If 2012 is the base year, then the CPI for 2013 was

Accepted Answer

A)   95.7.
B)   100.0.
C)   104.4.
D)   110.0.E) A) and B)
F) A) and C)

Question 9

The consumer price index was 225 in 2008 and 232.2 in 2009. The nominal interest rate during this period was 6.5 percent. What was the real interest rate during this period?

Accepted Answer

A)   1.6 percent
B)   3.3 percent
C)   5.1 percent
D)   7.4 percentE) A) and B)
F) None of the above

Question 10

The consumer price index is used to

Accepted Answer

A)   convert nominal GDP into real GDP.
B)   turn dollar figures into meaningful measures of purchasing power.
C)   characterize the types of goods and services that consumers purchase.
D)   measure the quantity of goods and services that the economy produces.E) B) and C)
F) A) and D)

Question 11

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

Accepted Answer

A)   subways.
B)   gasoline.
C)   both subways and gasoline.
D)   neither subways nor gasoline.E) A) and B)
F) A) and C)

Question 12

The inflation rate is defined as the

Accepted Answer

A)   price level in an economy.
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) All of the above
F) B) and D)

Question 13

During a certain year, the nominal interest rate was 7 percent, the real interest rate was 4 percent, and the CPI was 198.3 at the end of the year. The CPI at the beginning of the year was

Accepted Answer

A)   204.2
B)   192.5
C)   178.6
D)   220.1E) All of the above
F) B) and C)

Question 14

Write the formula for finding the rate of inflation in 2011 if you have only the CPI for the years 2010, 2011, and 2012.

Accepted Answer

The answer of Write the formula for finding the rate...

Question 15

Suppose the nominal interest rate this year is 6.5% and that the economy experiences 2.3% deflation. What is the real interest rate?

Accepted Answer

The real i...

Question 16

If the cost of food & beverages increases by 10 percent, then, other things the same, the CPI is likely to increase by about

Accepted Answer

A)   1.5 percent.
B)   7.5 percent.
C)   10 percent.
D)   20 percent.E) None of the above
F) A) and D)

Question 17

A worker received $5 for a daily wage in 1930, which has the equivalent value of $63.24 today. If the CPI was 17 in 1930 what is the value of the CPI today, rounded to the nearest whole number?

Accepted Answer

A)   215
B)   134
C)   17
D)   1.3E) A) and B)
F) B) and C)

Question 18

The substitution bias in the consumer price index refers to the

Accepted Answer

A)   substitution by consumers toward new goods and away from old goods.
B)   substitution by consumers toward a smaller number of high-quality goods and away from a larger number of low-quality goods.
C)   substitution by consumers toward goods that have become relatively less expensive and away from goods that have become relatively more expensive.
D)   substitution of new prices for old prices in the CPI basket of goods and services from one year to the next.E) C) and D)
F) A) and B)

Question 19

What do real interest rates account for that nominal interest rates do not?

Accepted Answer

Unlike nominal interest rates,...

Question 20

The term inflation is used to describe a situation in which

Accepted Answer

A)   the overall level of prices in the economy is increasing.
B)   incomes in the economy are increasing.
C)   stock-market prices are rising.
D)   the economy is growing rapidly.E) None of the above
F) A) and B)

Exam 6: Measuring the Cost of Living

Scenario 24-3 Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2013. The price index was 17.6 in 1944 and 218.4 in 2013. -Refer to Scenario 24-3. Josh Holloway's 2013 income in 1944 dollars is

Correct AnswerverifiedShow Answer

The inflation rate is the absolute change in the price level from the previous period.

Correct AnswerverifiedShow Answer

Suppose that the CPI in 1990 was 150, that the inflation rate in 1991 was 6%, and that the inflation rate in 1992 was 4%. What was the CPI in 1991 and 1992?

Correct AnswerverifiedThe CPI in 1991 was ...View AnswerShow Answer

The substitution bias in the consumer price index refers to the

Correct AnswerverifiedShow Answer

During a certain year, the nominal interest rate was 7 percent, the real interest rate was 4 percent, and the CPI was 198.3 at the end of the year. The CPI at the beginning of the year was

Correct AnswerverifiedShow Answer

The term inflation is used to describe a situation in which

Correct AnswerverifiedShow Answer

A worker received $5 for a daily wage in 1930, which has the equivalent value of $63.24 today. If the CPI was 17 in 1930 what is the value of the CPI today, rounded to the nearest whole number?

Correct AnswerverifiedShow Answer

Table 24-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. -Refer to Table 24-12. Suppose Will's 2009 food expenditures in 2011 dollars amount to $5,750. Then the inflation rate for 2011 is about

Correct AnswerverifiedShow Answer

Table 24-2 The table below pertains to Pieway, an economy in which the typical consumer's basket consists of 15 bushels of peaches and 10 bushels of pecans. -Refer to Table 24-2. If 2012 is the base year, then the CPI for 2013 was

Correct AnswerverifiedShow Answer

The consumer price index is used to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

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

The consumer price index was 225 in 2008 and 232.2 in 2009. The nominal interest rate during this period was 6.5 percent. What was the real interest rate during this period?

Correct AnswerverifiedShow Answer

If the cost of food & beverages increases by 10 percent, then, other things the same, the CPI is likely to increase by about

Correct AnswerverifiedShow Answer

The inflation rate is defined as the

Correct AnswerverifiedShow Answer

Suppose the nominal interest rate this year is 6.5% and that the economy experiences 2.3% deflation. What is the real interest rate?

Correct AnswerverifiedThe real i...View AnswerShow Answer

When box office receipts are corrected for inflation, the most popular movie of all time is

Correct AnswerverifiedShow Answer

If the CPI was 110 this year and 100 last year, then

Correct AnswerverifiedShow Answer

What do real interest rates account for that nominal interest rates do not?

Correct AnswerverifiedUnlike nominal interest rates,...View AnswerShow Answer

Write the formula for finding the rate of inflation in 2011 if you have only the CPI for the years 2010, 2011, and 2012.

Correct AnswerverifiedShow Answer

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The CPI in 1991 was ...
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The 2 percent increase in the ...
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The real i...
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Unlike nominal interest rates,...
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