Question 1

The basket of goods in the consumer price index changes

Accepted Answer

A)   occasionally, as does the group of goods used to compute the GDP deflator.
B)   automatically, as does the group of goods used to compute the GDP deflator.
C)   occasionally, whereas the group of goods used to compute the GDP deflator changes automatically.
D)   automatically, whereas the group of goods used to compute the GDP deflator changes occasionally.E) B) and C)
F) All of the above

Question 2

Suppose lawn mowers are part of the market basket used to compute the CPI. Suppose also that the quality of lawn mowers deteriorates 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) A) and D)
F) A) and B)

Question 3

Table 6-4
The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys.
 
-Refer to Table 6-4. If the base year is 2004, then the CPI

Accepted Answer

A)   increased from 2004 to 2005 and increased from 2005 to 2006.
B)   increased from 2004 to 2005 and decreased from 2005 to 2006.
C)   decreased from 2004 to 2005 and increased from 2005 to 2006.
D)   decreased from 2004 to 2005 and decreased from 2005 to 2006.E) All of the above
F) A) and B)

Question 4

The CPI and the GDP deflator

Accepted Answer

A)   generally move together.
B)   generally show different patterns of movement.
C)   always show identical changes.
D)   always show different patterns of movement.E) A) and D)
F) None of the above

Question 5

If the nominal interest rate is 1.5 percent and the rate of inflation is -0.5 percent, then the real interest rate is

Accepted Answer

A)   -4 percent.
B)   -2 percent.
C)   1 percent.
D)   2 percent.E) All of the above
F) A) and D)

Question 6

Indexation refers to

Accepted Answer

A)   a process of adjusting the nominal interest rate so that it is equal to the real interest rate.
B)   using a law or contract to automatically correct a dollar amount for the effects of inflation.
C)   using a price index to deflate dollar values.
D)   an adjustment made by the Bureau of Labor Statistics to the CPI so that the index is in line with the GDP deflator.E) B) and D)
F) All of the above

Question 7

If the consumer price index is 120 in 2009 and 139.2 in 2010, then the rate of inflation for 2010 is 39.2 percent.

Accepted Answer

A) True 
 B)False

Question 8

In 1949, Sycamore, Illinois built a hospital for about $500,000. In 1987, the county restored the courthouse for about $2.4 million. A price index for nonresidential construction was 14 in 1949, 92 in 1987, and 114.5 in 2000. According to these numbers, the hospital cost about

Accepted Answer

A)   $3.6 million in 2000 dollars, which is less than the cost of the courthouse restoration in 2000 dollars.
B)   $3.6 million in 2000 dollars, which is more than the cost of the courthouse restoration in 2000 dollars.
C)   $4.1 million in 2000 dollars, which is less than the cost of the courthouse restoration in 2000 dollars.
D)   $4.1 million in 2000 dollars, which is more than the cost of the courthouse restoration in 2000 dollars.E) C) and D)
F) A) and C)

Question 9

Suppose OPEC succeeds in raising world oil prices by 300 percent. This price increase causes inventors to look at alternative sources of fuel for internal-combustion engines. A hydrogen-powered engine is developed which is cheaper to operate than gasoline engines. Which problems in the construction of the CPI does this situation represent?

Accepted Answer

A)   substitution bias and introduction of new goods
B)   introduction of new goods and unmeasured quality change
C)   substitution bias and unmeasured quality change
D)   income bias and substitution biasE) C) and D)
F) A) and D)

Question 10

A dollar figure from 1908 is converted into 2008 dollars by dividing the 2008 price level by the 1908 price level, then multiplying by the 1908 dollar figure.

Accepted Answer

A) True 
 B)False

Question 11

Scenario 6-1
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 6-1. 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

Suppose the price index was 110 in 2004, 120 in 2005, and 125 in 2006. Which of the following statements is correct?

Accepted Answer

A)   The economy experienced inflation between 2004 and 2005 and between 2005 and 2006.
B)   The inflation rate was positive between 2004 and 2005, and it was negative between 2005 and 2006.
C)   The inflation rate was higher between 2005 and 2006 than it was between 2004 and 2005.
D)   All of the above are correct.E) B) and D)
F) C) and D)

Question 13

In the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the smallest?

Accepted Answer

A)   education & communication
B)   apparel
C)   medical care
D)   recreationE) A) and D)
F) None of the above

Question 14

The introduction of the video cassette recorder in the 1970s exemplified a problem in measuring the cost of living; that problem is the problem of

Accepted Answer

A)   substitution bias.
B)   product-improvement bias.
C)   introduction of new goods.
D)   unmeasured quality change.E) B) and C)
F) C) and D)

Question 15

The U.S. income tax system is completely indexed for inflation.

Accepted Answer

A) True 
 B)False

Question 16

The consumer price index tires to measure how much consumer incomes must rise in order to maintain a constant

Accepted Answer

A)   level of real GDP.
B)   ratio of consumption to GDP.
C)   ratio of net exports to GDP.
D)   standard of living.E) All of the above
F) A) and B)

Question 17

Scenario 6-3
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 2008. The price index was 17.6 in 1944 and 184 in 2008.
-Refer to Scenario 6-3. Sue Holloway's 1944 income in 2008 dollars is

Accepted Answer

A)   $1,147.83.
B)   $113,454.55.
C)   $125,454.55.
D)   $1,996,800.00.E) A) and B)
F) None of the above

Question 18

For the purpose of calculating the consumer price index, the basket of goods

Accepted Answer

A)   is kept the same from year to year so that the effects of price changes are isolated from the effect of any quantity changes that might be occurring at the same time.
B)   is kept the same from year to year; otherwise, the value of the index would remain constant from year to year.
C)   varies from year to year; otherwise, the value of the index would remain constant from year to year.
D)   varies from year to year so that consumers' buying patterns are updated in a timely fashion.E) A) and D)
F) B) and D)

Question 19

Archie has a savings account at a bank. If he earns 6 percent interest on his account and if there is deflation, then his purchasing power rises by more than 6 percent over the course of a year.

Accepted Answer

A) True 
 B)False

Question 20

When constructing the consumer price index, the Bureau of Labor Statistics does not do which of the following?

Accepted Answer

A)   Try to include all the goods and services that the typical consumer buys.
B)   Try to weight the goods and services that the typical consumer buys according to how much consumers buy of each item.
C)   Survey consumers to determine what the typical consumer buys.
D)   Survey sellers to determine what the typical consumer buys.E) A) and B)
F) A) and C)

Exam 6: Measuring the Cost of Living

The consumer price index tires to measure how much consumer incomes must rise in order to maintain a constant

Correct Answer
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Suppose the price index was 110 in 2004, 120 in 2005, and 125 in 2006. Which of the following statements is correct?

Correct Answer
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Scenario 6-3 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 2008. The price index was 17.6 in 1944 and 184 in 2008. -Refer to Scenario 6-3. Sue Holloway's 1944 income in 2008 dollars is

Correct Answer
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When constructing the consumer price index, the Bureau of Labor Statistics does not do which of the following?

Correct Answer
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If the nominal interest rate is 1.5 percent and the rate of inflation is -0.5 percent, then the real interest rate is

Correct Answer
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The U.S. income tax system is completely indexed for inflation.

Correct Answer
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Table 6-4 The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. -Refer to Table 6-4. If the base year is 2004, then the CPI

Correct Answer
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Correct Answer
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For the purpose of calculating the consumer price index, the basket of goods

Correct Answer
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The basket of goods in the consumer price index changes

Correct Answer
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In 1949, Sycamore, Illinois built a hospital for about $500,000. In 1987, the county restored the courthouse for about $2.4 million. A price index for nonresidential construction was 14 in 1949, 92 in 1987, and 114.5 in 2000. According to these numbers, the hospital cost about

Correct Answer
verified

The CPI and the GDP deflator

Correct Answer
verified

Archie has a savings account at a bank. If he earns 6 percent interest on his account and if there is deflation, then his purchasing power rises by more than 6 percent over the course of a year.

Correct Answer
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Indexation refers to

Correct Answer
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In the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the smallest?

Correct Answer
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A dollar figure from 1908 is converted into 2008 dollars by dividing the 2008 price level by the 1908 price level, then multiplying by the 1908 dollar figure.

Correct Answer
verified

The introduction of the video cassette recorder in the 1970s exemplified a problem in measuring the cost of living; that problem is the problem of

Correct Answer
verified

Scenario 6-1 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 6-1. The price of a 1975 tennis ball in 2005 dollars is

Correct Answer
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If the consumer price index is 120 in 2009 and 139.2 in 2010, then the rate of inflation for 2010 is 39.2 percent.

Correct Answer
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Correct Answer
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Exam 6: Measuring the Cost of Living

The consumer price index tires to measure how much consumer incomes must rise in order to maintain a constant

Correct AnswerverifiedShow Answer

Suppose the price index was 110 in 2004, 120 in 2005, and 125 in 2006. Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Scenario 6-3 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 2008. The price index was 17.6 in 1944 and 184 in 2008. -Refer to Scenario 6-3. Sue Holloway's 1944 income in 2008 dollars is

Correct AnswerverifiedShow Answer

When constructing the consumer price index, the Bureau of Labor Statistics does not do which of the following?

Correct AnswerverifiedShow Answer

If the nominal interest rate is 1.5 percent and the rate of inflation is -0.5 percent, then the real interest rate is

Correct AnswerverifiedShow Answer

The U.S. income tax system is completely indexed for inflation.

Correct AnswerverifiedShow Answer

Table 6-4 The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. -Refer to Table 6-4. If the base year is 2004, then the CPI

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

For the purpose of calculating the consumer price index, the basket of goods

Correct AnswerverifiedShow Answer

The basket of goods in the consumer price index changes

Correct AnswerverifiedShow Answer

In 1949, Sycamore, Illinois built a hospital for about $500,000. In 1987, the county restored the courthouse for about $2.4 million. A price index for nonresidential construction was 14 in 1949, 92 in 1987, and 114.5 in 2000. According to these numbers, the hospital cost about

Correct AnswerverifiedShow Answer

The CPI and the GDP deflator

Correct AnswerverifiedShow Answer

Archie has a savings account at a bank. If he earns 6 percent interest on his account and if there is deflation, then his purchasing power rises by more than 6 percent over the course of a year.

Correct AnswerverifiedShow Answer

Indexation refers to

Correct AnswerverifiedShow Answer

In the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the smallest?

Correct AnswerverifiedShow Answer

A dollar figure from 1908 is converted into 2008 dollars by dividing the 2008 price level by the 1908 price level, then multiplying by the 1908 dollar figure.

Correct AnswerverifiedShow Answer

The introduction of the video cassette recorder in the 1970s exemplified a problem in measuring the cost of living; that problem is the problem of

Correct AnswerverifiedShow Answer

Scenario 6-1 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 6-1. The price of a 1975 tennis ball in 2005 dollars is

Correct AnswerverifiedShow Answer

If the consumer price index is 120 in 2009 and 139.2 in 2010, then the rate of inflation for 2010 is 39.2 percent.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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