Question 1

Product innovation:

Accepted Answer

A)  presents a problem for those calculating the CPI because they use a fixed basket of goods.
B)  causes the basket of goods to inaccurately reflect the popularization of these goods.
C)  can cause the CPI to be underestimated.
D)  All of these statements are true.E) A) and D)
F) A) and C)

Question 2

Social Security payments:

Accepted Answer

A)  now hold their value over time.
B)  are adjusted for inflation using the CPI.
C)  undergo cost-of-living adjustments.
D)  All of these statements are true.E) B) and C)
F) A) and D) D

Question 3

This table shows the price-level adjustment as compared to the United States. 
According to the information in the table shown,if someone were earning $20,000 in Mexico,approximately what would he need to earn in the United States to enjoy the same amount of goods and services?

Accepted Answer

A)  $30,303
B)  $35,000
C)  $20,030
D)  $15,000E) C) and D)
F) All of the above

Question 4

A good that is most likely to be in the producer price index is:

Accepted Answer

A)  light trucks.
B)  gasoline.
C)  passenger cars.
D)  All of these are in the PPI.E) A) and B)
F) None of the above

Question 5

An example of a nontradable good is:

Accepted Answer

A)  fire-protection services.
B)  a Domino's pizza.
C)  a double-decker bus tour of London.
D)  All of these would be considered a nontradable good.E) A) and B)
F) A) and C) D

Question 6

When something is indexed:

Accepted Answer

A)  its value is automatically adjusted in proportion to the cost of living.
B)  it is expressed as nominal value multiplied by price index.
C)  its real value is converted into nominal terms for comparison.
D)  its relative rank in consumption items is compensated for relative to its cost.E) B) and C)
F) A) and D)

Question 7

The index used for international price comparisons is the:

Accepted Answer

A)  World Bank's International Comparison Program index.
B)  World Bank's World Price Index.
C)  United Nations' World Consumer Price Index.
D)  World Trade Federation's International Price Index.E) B) and D)
F) B) and C)

Question 8

A dollar's value can change:

Accepted Answer

A)  over time.
B)  across different locations.
C)  Both of these statements are true.
D)  Neither of these statements is true.E) C) and D)
F) A) and B)

Question 9

The substitution by consumers of one good for another because of relative price changes:

Accepted Answer

A)  is not captured by the CPI and causes the CPI to overestimate the cost-of-living changes.
B)  is captured by the CPI and causes the CPI to overestimate the cost-of-living changes.
C)  is not captured by the CPI and causes the CPI to underestimate the cost-of-living changes.
D)  is captured by the CPI and causes the CPI to underestimate the cost-of-living changes.E) All of the above
F) B) and C)

Question 10

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

Accepted Answer

A)  CPI
B)  PPI
C)  GDP deflator
D)  Inflation is measured as the percentage increase of any index,regardless of the index used.E) All of the above
F) A) and B)

Question 11

The consumers that the CPI is based on includes:

Accepted Answer

A)  institutionalized persons.
B)  incarcerated persons.
C)  persons in the military.
D)  The CPI does not include any of these.E) A) and B)
F) A) and C)

Question 12

This table shows the price-level adjustment as compared to the United States. 
According to the information in the table shown,if someone were earning $50,000 in Australia,approximately what would she need to earn in the United States to enjoy the same standard of living?

Accepted Answer

A)  $75,000
B)  $33,333
C)  $25,000
D)  $37,500E) A) and B)
F) A) and C)

Question 13

The substitution of one good for another by consumers:

Accepted Answer

A)  due to price changes is captured by the CPI.
B)  due to changes in tastes/preferences is captured by the CPI.
C)  The substitution of one good for another for whatever reason is captured by the CPI.
D)  The substitution of one good for another for whatever reason is not captured by the CPI.E) B) and D)
F) None of the above

Question 14

The inflation rate is:

Accepted Answer

A)  the percentage change in the overall price level.
B)  one of the central concepts in macroeconomics.
C)  a measure of the rate of increase in the cost of living.
D)  All of these statements are true.E) None of the above
F) B) and C)

Question 15

As new goods and services become available:

Accepted Answer

A)  the basket of goods used to calculate the CPI immediately changes to reflect them.
B)  the basket of goods used to calculate the CPI doesn't change until 75 percent of urban consumers use it.
C)  the basket of goods used to calculate the CPI never changes to reflect them.
D)  None of these statements is true.E) A) and B)
F) C) and D)

Question 16

The GDP deflator differs from the CPI in its measurement of inflation in that:

Accepted Answer

A)  it measures the price changes of all goods,not just those in a typical consumer's basket.
B)  it uses the total quantities that are produced,not the ratio of what a typical consumer might consume.
C)  it does not include imports,which may have a real effect on the typical consumer's cost of living.
D)  All of these statements are true.E) All of the above
F) B) and C)

Question 17

PPP-adjustment:

Accepted Answer

A)  gives us a more realistic sense of differences in living standards around the world.
B)  lets us see that poorer countries are not quite so poor as suggested by their nominal GDP per capita.
C)  gives us a realistic sense of how the living standards of the world's poorest citizens translate into dollar terms.
D)  All of these statements are true.E) C) and D)
F) B) and C)

Question 18

The consumers that the CPI is based on does not include:

Accepted Answer

A)  retired persons.
B)  persons living in rural areas.
C)  unemployed persons.
D)  The CPI does not include any of these.E) A) and D)
F) B) and C)

Question 19

This table shows the price-level adjustment as compared to the United States. 
According to the table shown,if Bob is earning $30,000 in the United States and Bill is earning $40,000 in Mexico,what can be said about their standards of living?

Accepted Answer

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

Question 20

In practice,the three measurements of inflation,the CPI,PPI,and GDP deflator:

Accepted Answer

A)  all closely track each other.
B)  are all positively correlated.
C)  all measure inflation,but focus on different parts of the economy.
D)  All of these statements are true.E) All of the above
F) A) and B)

Exam 25: The Cost of Living

Product innovation:

Correct AnswerverifiedShow Answer

Social Security payments:

Correct AnswerverifiedD

This table shows the price-level adjustment as compared to the United States. According to the information in the table shown,if someone were earning $20,000 in Mexico,approximately what would he need to earn in the United States to enjoy the same amount of goods and services?

Correct AnswerverifiedShow Answer

A good that is most likely to be in the producer price index is:

Correct AnswerverifiedShow Answer

An example of a nontradable good is:

Correct AnswerverifiedD

When something is indexed:

Correct AnswerverifiedShow Answer

The index used for international price comparisons is the:

Correct AnswerverifiedShow Answer

A dollar's value can change:

Correct AnswerverifiedShow Answer

The substitution by consumers of one good for another because of relative price changes:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The consumers that the CPI is based on includes:

Correct AnswerverifiedShow Answer

This table shows the price-level adjustment as compared to the United States. According to the information in the table shown,if someone were earning $50,000 in Australia,approximately what would she need to earn in the United States to enjoy the same standard of living?

Correct AnswerverifiedShow Answer

The substitution of one good for another by consumers:

Correct AnswerverifiedShow Answer

The inflation rate is:

Correct AnswerverifiedShow Answer

As new goods and services become available:

Correct AnswerverifiedShow Answer

The GDP deflator differs from the CPI in its measurement of inflation in that:

Correct AnswerverifiedShow Answer

PPP-adjustment:

Correct AnswerverifiedShow Answer

The consumers that the CPI is based on does not include:

Correct AnswerverifiedShow Answer

This table shows the price-level adjustment as compared to the United States. According to the table shown,if Bob is earning $30,000 in the United States and Bill is earning $40,000 in Mexico,what can be said about their standards of living?

Correct AnswerverifiedA

In practice,the three measurements of inflation,the CPI,PPI,and GDP deflator:

Correct AnswerverifiedShow Answer

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D

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A

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