Question 1

The Big Mac index:

Accepted Answer

A)   tracks the size of Big Macs in different countries.
B)   is a simple measure that indicates varying costs of living in different countries.
C)   is a tool used by McDonald's when making decisions about where to expand operations.
D)   All of these are true.E) B) and D)
F) B) and C)

Question 2

Headline inflation measures price changes:

Accepted Answer

A)   for the entire market basket of the average urban consumer.
B)   using the producer price index.
C)   for the entire market basket, but with food and energy costs taken out of the basket.
D)   using the retail price index.E) B) and C)
F) C) and D)

Question 3

One problem with keeping the CPI basket fixed is it:

Accepted Answer

A)   doesn't accurately isolate price changes from behavior changes.
B)   doesn't allow for changes in people's preferences over time.
C)   can't properly predict when prices will change.
D)   doesn't really capture what a typical household may purchase in a base year.E) A) and B)
F) None of the above

Question 4

Which of the following is a non-tradable good?

Accepted Answer

A)   Insurance services
B)   A pair of Levi's jeans
C)   A double-decker bus tour of London
D)   A double-decker busE) A) and C)
F) A) and B)

Question 5

The PPI is considered a good predictor of future consumer prices because increases in input prices:

Accepted Answer

A)   eventually make it to consumers when they buy the final product.
B)   are accounted for in the PPI, which then automatically adjusts the CPI.
C)   tend to immediately translate into changes in the wage rate.
D)   are used by consumers to make purchasing decisions.E) B) and C)
F) A) and D)

Question 6

Making international comparisons of purchasing power is:

Accepted Answer

A)   generally a straightforward process.
B)   complicated by attempts to define a "typical" consumer across countries.
C)   challenging only when exploring the true purchasing power of the poor.
D)   All of these are true.E) All of the above
F) A) and D)

Question 7

Which statement about the PPI is true?

Accepted Answer

A)   The PPI is a good predictor of future consumer prices because increases in input prices eventually make it back to consumers.
B)   The PPI is more stable than the CPI over time.
C)   The PPI only measures the changes of input prices for firms that manufacture goods abroad.
D)   The PPI is the main indicator used by the Federal Reserve to track changes in the price level.E) All of the above
F) A) and C)

Question 8

The table shown displays yearly salaries and the CPI across five decades.  What is the 1999 salary in 2009 dollars?

Accepted Answer

A)   $174,136
B)   $132,692
C)   $105,292
D)   $170,844E) None of the above
F) All of the above

Question 9

The inflation rate:

Accepted Answer

A)   calculates the percentage change in the overall price level.
B)   describes the amount an economy can grow if the factors of production are used efficiently.
C)   measures the rate of increase in the cost of imported goods.
D)   cannot be accurately measured with the CPI.E) C) and D)
F) B) and C)

Question 10

Why don't economists simply average the price changes of all goods in the market basket to calculate changes in the price level?

Accepted Answer

A)   Consumers typically don't buy the same amount of each good in the basket.
B)   The median would be a more accurate measure.
C)   More expensive items should carry greater weight.
D)   The market basket isn't representative of all goods in the economy.E) C) and D)
F) A) and B)

Question 11

The CPI attempts to:

Accepted Answer

A)   balance out the consumption of different types of people in different life stages.
B)   balance out the consumption of different types of people in different life situations.
C)   capture an average across a very large group of U.S. consumers.
D)   All of these are true.E) B) and D)
F) A) and B)

Question 12

Goods in the market basket:

Accepted Answer

A)   are held relatively constant over time.
B)   change rapidly to suit the tastes of consumers.
C)   never change.
D)   are determined by a group of manufacturers.E) A) and B)
F) B) and C)

Question 13

PPP-adjustment:

Accepted Answer

A)   gives us a more realistic sense of differences in living standards around the world.
B)   only adjusts the values of tradable goods.
C)   inflates the incomes of people in wealthier countries.
D)   focuses on changes in input prices around the world.E) A) and D)
F) B) and D)

Question 14

Which of the following goods is least likely to be included in a market basket?

Accepted Answer

A)   Bottled water
B)   Airfare
C)   Street lamps
D)   Coffee beansE) A) and D)
F) A) and C)

Question 15

Cost-of-living adjustments are:

Accepted Answer

A)   indexed payments.
B)   adjustments to federal income taxes that depend on the rate of inflation.
C)   loan repayment terms.
D)   changes in Pell Grant payments mandated by different states.E) A) and B)
F) All of the above

Question 16

We translate nominal income in any past year into constant, real dollars to:

Accepted Answer

A)   compare changes in purchasing power over time.
B)   see what an income earned in the past would be equivalent to today.
C)   understand how the purchasing power of a given amount of money changes over time.
D)   All of these are true.E) A) and B)
F) B) and D)

Question 17

When the market basket is tracked over time, the goods within the basket:

Accepted Answer

A)   remain the same, and only changing prices are captured.
B)   change to reflect the purchasing habits of a typical consumer each year.
C)   change to reflect the purchasing habits of a typical consumer each year, but prices are held constant, so it measures changes in consumption.
D)   remain the same, and prices are held constant on items that are important to consumers.E) None of the above
F) C) and D)

Question 18

Which of the following goods would be included in the producer price index?

Accepted Answer

A)   Gasoline
B)   Apples
C)   Books
D)   None of these would be included in the PPI.E) A) and B)
F) B) and C)

Question 19

The table shown displays the price-level adjustments for Australia, China, and Mexico as compared to the United States.  This information:

Accepted Answer

A)   allows us to compare the standard of living in Mexico to that of China.
B)   has been indexed to the United States.
C)   shows that the typical good in Australia is more expensive than it is in the United States.
D)   All of these are true.E) A) and B)
F) A) and C)

Question 20

Trade restrictions can prevent purchasing power parity from holding because:

Accepted Answer

A)   they only influence the price of non-tradable goods.
B)   tariffs can add to the cost of the good sold.
C)   they always cause devaluations in a country's currency.
D)   tariffs can reduce the cost of the good sold.E) C) and D)
F) None of the above

Exam 8: Thecost of Living

The CPI attempts to:

Correct AnswerverifiedShow Answer

Cost-of-living adjustments are:

Correct AnswerverifiedShow Answer

The inflation rate:

Correct AnswerverifiedShow Answer

PPP-adjustment:

Correct AnswerverifiedShow Answer

Trade restrictions can prevent purchasing power parity from holding because:

Correct AnswerverifiedShow Answer

Which statement about the PPI is true?

Correct AnswerverifiedShow Answer

We translate nominal income in any past year into constant, real dollars to:

Correct AnswerverifiedShow Answer

When the market basket is tracked over time, the goods within the basket:

Correct AnswerverifiedShow Answer

Which of the following is a non-tradable good?

Correct AnswerverifiedShow Answer

The table shown displays the price-level adjustments for Australia, China, and Mexico as compared to the United States. This information:

Correct AnswerverifiedShow Answer

The table shown displays yearly salaries and the CPI across five decades. What is the 1999 salary in 2009 dollars?

Correct AnswerverifiedShow Answer

Making international comparisons of purchasing power is:

Correct AnswerverifiedShow Answer

Goods in the market basket:

Correct AnswerverifiedShow Answer

Why don't economists simply average the price changes of all goods in the market basket to calculate changes in the price level?

Correct AnswerverifiedShow Answer

The Big Mac index:

Correct AnswerverifiedShow Answer

Headline inflation measures price changes:

Correct AnswerverifiedShow Answer

Which of the following goods is least likely to be included in a market basket?

Correct AnswerverifiedShow Answer

One problem with keeping the CPI basket fixed is it:

Correct AnswerverifiedShow Answer

Which of the following goods would be included in the producer price index?

Correct AnswerverifiedShow Answer

The PPI is considered a good predictor of future consumer prices because increases in input prices:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified