Question 1

When the CPI increases from one year to the next:

Accepted Answer

A)   the cost of living has decreased.
B)   deflation has occurred.
C)   more money must be spent to buy the same amount of goods as the previous year.
D)   All of these are true.E) All of the above
F) A) and D)

Question 2

The ICP index:

Accepted Answer

A)   uses a broad market basket that tries to represent the full cost of living across countries.
B)   is an imperfect measure because of cultural differences.
C)   is an imperfect measure because of typical weather and geographical differences.
D)   All of these are true.E) B) and C)
F) A) and D)

Question 3

When something is indexed:

Accepted Answer

A)   its value is automatically adjusted in proportion to the cost of living.
B)   it is expressed as a nominal value multiplied by a price index.
C)   its real value is converted into nominal terms for comparison.
D)   the value of consumption items is compared against the value of input prices.E) A) and C)
F) All of the above

Question 4

The table shown displays the price-level adjustments for Australia, China, and Mexico as compared to the United States.  A person who is earning $30,000 in the United States would need to earn _______ in China to have the same standard of living.

Accepted Answer

A)   $40,000
B)   $7,500
C)   $22,500
D)   $15,000E) A) and D)
F) B) and C)

Question 5

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

Accepted Answer

A)   A missile
B)   A gallon of milk
C)   A pair of khaki pants
D)   A tank of heating oilE) A) and D)
F) A) and C)

Question 6

Economists create a market basket to:

Accepted Answer

A)   understand changes in the purchasing patterns of firms.
B)   see how the cost of buying the goods and services on the list changes over time.
C)   understand how each individual consumer is being affected by changing prices.
D)   get a sense of which items people buy on a weekly basis.E) None of the above
F) All of the above

Question 7

The table shown displays yearly salaries and the CPI across five decades.  Calculate the value of the 1999 salary in 2009 dollars. How does that salary compare to the 2009 salary shown in the table?

Accepted Answer

A)   Although the nominal salary has increased, the amount of purchasing power has remained the same from 1999 to 2009.
B)   The increase in salary from 1999 to 2009 was larger than inflation during that period.
C)   The 1999 salary had a higher real value in 2009.
D)   All of these are true.E) A) and B)
F) None of the above

Question 8

Hedonic price adjustment:

Accepted Answer

A)   measures changes in the quality of a product to get a more accurate picture of price changes.
B)   measures how much enjoyment a consumer receives from a particular product.
C)   only measures the price changes of "bad" goods, such as alcohol or cigarettes.
D)   estimates price changes of similar goods to control for quality differences between them.E) A) and B)
F) A) and C)

Question 9

The index that measures the prices of goods and services purchased by firms is called the:

Accepted Answer

A)   producer price index.
B)   purchasing power index.
C)   consumer price index.
D)   retail sales index.E) A) and D)
F) None of the above

Question 10

Which of the following is not a reason for changes in consumption patterns over time?

Accepted Answer

A)   Substitution
B)   Hedonic price adjustment
C)   Innovation
D)   Consumer preferencesE) B) and D)
F) B) and C)

Question 11

The CPI-U does not include goods consumed by:

Accepted Answer

A)   the unemployed.
B)   the retired.
C)   persons in prison.
D)   All of these are excluded from the CPI-U.E) A) and D)
F) A) and C)

Question 12

Which of the following statements is true about inflation?

Accepted Answer

A)   If all wages rise at the same rate as the price level, then purchasing power is not affected.
B)   Increases in the price level are always offset by changes in production.
C)   Keeping prices constant is the only way to ensure increasing purchasing power over time.
D)   If all prices decline, the purchasing power of everyone declines.E) A) and D)
F) A) and B)

Question 13

Inflation is measured by examining the percent increase in _______ from one year to the next.

Accepted Answer

A)   the CPI
B)   the price of gas
C)   GDP growth
D)   nominal GDPE) A) and B)
F) A) and D)

Question 14

The table shown displays the price-level adjustments for Australia, China, and Mexico as compared to the United States.  A person who makes $35,000 would be able to buy more goods and services living in _______ than any of the other countries in this table.

Accepted Answer

A)   Australia
B)   the United States
C)   Mexico
D)   ChinaE) B) and D)
F) A) and B)

Question 15

The table shown displays CPI data for 2015 to 2019.  What was the rate of inflation from 2015 to 2016?

Accepted Answer

A)   5.32 percent
B)   5.05 percent
C)   5.00 percent
D)   6.00 percentE) A) and B)
F) B) and C)

Question 16

The table shown displays the price-level adjustments for Australia, China, and Mexico as compared to the United States.  If Jasmine is earning $30,000 in the United States and Roberto is earning $40,000 in Mexico, what can be said about their standards of living?

Accepted Answer

A)   Roberto is earning more in real terms than Jasmine.
B)   Jasmine is earning more in real terms than Roberto.
C)   Jasmine and Roberto are earning the same amount in real terms.
D)   Jasmine and Roberto are earning the same amount in nominal terms.E) A) and D)
F) C) and D)

Question 17

The CPI is based on an:

Accepted Answer

A)   average of the goods and services purchased by urban consumers.
B)   average of the goods and services purchased by rural consumers.
C)   average of the two baskets of goods and services purchased by both urban and rural consumers.
D)   aggregated average meant to reflect the statistical average consumption.E) B) and D)
F) B) and C)

Question 18

Just as the CPI allows us to compare the cost of living across different periods of time, the _______ allows us to compare the cost of living across different locations.

Accepted Answer

A)   consumer purchasing index
B)   purchasing power index
C)   producer purchasing index
D)   retail power parityE) A) and B)
F) A) and C)

Question 19

The table shown displays yearly salaries and the CPI across five decades.  What is the 2009 value of the 1979 salary?

Accepted Answer

A)   $127,828
B)   $14,643
C)   $57,824
D)   $504,766E) A) and B)
F) A) and C)

Question 20

The first recipients of unindexed Social Security checks:

Accepted Answer

A)   were employed by the government.
B)   received less than what was legislated by Congress.
C)   grew poorer over time, because the payments were nominal amounts.
D)   All of these are true.E) B) and D)
F) None of the above

Exam 8: Thecost of Living

The table shown displays yearly salaries and the CPI across five decades. What is the 2009 value of the 1979 salary?

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The table shown displays the price-level adjustments for Australia, China, and Mexico as compared to the United States. A person who makes $35,000 would be able to buy more goods and services living in _______ than any of the other countries in this table.

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The table shown displays yearly salaries and the CPI across five decades. Calculate the value of the 1999 salary in 2009 dollars. How does that salary compare to the 2009 salary shown in the table?

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When the CPI increases from one year to the next:

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The table shown displays CPI data for 2015 to 2019. What was the rate of inflation from 2015 to 2016?

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Which of the following is not a reason for changes in consumption patterns over time?

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Economists create a market basket to:

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The first recipients of unindexed Social Security checks:

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The CPI is based on an:

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Just as the CPI allows us to compare the cost of living across different periods of time, the _______ allows us to compare the cost of living across different locations.

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The ICP index:

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The table shown displays the price-level adjustments for Australia, China, and Mexico as compared to the United States. If Jasmine is earning $30,000 in the United States and Roberto is earning $40,000 in Mexico, what can be said about their standards of living?

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Inflation is measured by examining the percent increase in _______ from one year to the next.

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The CPI-U does not include goods consumed by:

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Which of the following statements is true about inflation?

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

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The table shown displays the price-level adjustments for Australia, China, and Mexico as compared to the United States. A person who is earning $30,000 in the United States would need to earn _______ in China to have the same standard of living.

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The index that measures the prices of goods and services purchased by firms is called the:

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Hedonic price adjustment:

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When something is indexed:

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