Question 1

If the nominal interest rate is 4 percent and the real interest rate is -2.5 percent, then the inflation rate is

Accepted Answer

A)   -6.5 percent.
B)   -1.5 percent.
C)   1.5 percent.
D)   6.5 percent.E) A) and B)
F) B) and D)

Question 2

For a country like the United States, explain why the CPI would increase at a faster rate than the GDP deflator during periods of oil and gasoline price increases.

Accepted Answer

The U.S. i...

Question 3

The consumer price index was 200 in 2012 and 208 in 2013. The nominal interest rate during this period was 9 percent. What was the real interest rate during this period?

Accepted Answer

A)   5.00 percent
B)   1.00 percent
C)   5.15 percent
D)   13.00 percentE) A) and D)
F) B) and C)

Question 4

For an imaginary economy, the value of the consumer price index was 140 in 2013, and the inflation rate was 5.0 percent between 2013 and 2014. The consumer price index in 2014 was

Accepted Answer

A)   145.0.
B)   147.0.
C)   135.0.
D)   133.3.E) A) and B)
F) A) and C)

Question 5

Table 24-10
The table below shows the prices of baseballs and baseball bats for three years. Assume the typical consumer's basket consists of 6 baseballs and 2 baseball bats.
 
-Refer to Table 24-10. The inflation rate was

Accepted Answer

A)   10.03 percent in 2009 and 17.43 percent in 2010.
B)   17.00 percent in 2009 and 32.50 percent in 2010.
C)   10.03 percent in 2009 and 29.20 percent in 2010.
D)   17.00 percent in 2009 and 29.20 percent in 2010.E) A) and B)
F) All of the above

Question 6

In computing the consumer price index, a base year is chosen. Which of the following statements about the base year is correct?

Accepted Answer

A)   The base year is always the first year among the years for which computations are being made.
B)   It is necessary to designate a base year only in the simplest case of two goods; in more realistic cases, it is not necessary to designate a base year.
C)   The value of the consumer price index is always 100 in the base year.
D)   The base year is always the year in which the cost of the basket was highest among the years for which computations are being made.E) B) and C)
F) A) and B)

Question 7

Which of the following is the correct formula for calculating the inflation rate?

Accepted Answer

A)   
B)   
C)   
D)   E) B) and D)
F) A) and D)

Question 8

Suppose the Tooth Fairy paid 50 cents for a tooth in 1970. The CPI in 1970 was 38.8, while the CPI in 2010 was 218.1. What is the value of the Tooth Fairy's payment in 2010 dollars?

Accepted Answer

The answer of Suppose the Tooth Fairy paid 50 cents...

Question 9

Table 24-4
The table below pertains to Studious, an economy in which the typical consumer's basket consists of 5 books and 10 calculators.
 
-Refer to Table 24-4. The inflation rate was

Accepted Answer

A)   24.3 percent in 2013 and 22.5 percent in 2014.
B)   23.8 percent in 2013 and 9.5 percent in 2014.
C)   23.8 percent in 2013 and 7.7 percent in 2014.
D)   24.3 percent in 2013 and 7.3 percent in 2014.E) All of the above
F) C) and D)

Question 10

During a certain year, the consumer price index increased from 120 to 132 and the purchasing power of a person's bank account increased by 4 percent. For that year,

Accepted Answer

A)   the nominal interest rate was 6 percent.
B)   the nominal interest rate was 14 percent.
C)   the inflation rate was 12 percent.
D)   the inflation rate was 9 percent.E) None of the above
F) All of the above

Question 11

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) C) and D)
F) A) and B)

Question 12

If the cost of transportation increases by 20 percent, then, other things the same, the CPI is likely to increase by about

Accepted Answer

A)   0.3 percent.
B)   1.7 percent.
C)   3.4 percent.
D)   10 percent.E) A) and C)
F) A) and B)

Question 13

The group of goods and services used to compute the GDP deflator changes automatically over time, but the group of goods and services used to compute the CPI does not.

Accepted Answer

A) True 
 B)False

Question 14

The introduction of a new good

Accepted Answer

A)   increases the cost of maintaining the same level of economic well-being.
B)   decreases the cost of maintaining the same level of economic well-being.
C)   has no impact on the cost of maintaining the same level of economic well-being.
D)   may increase or decrease the cost of maintaining the same level of economic well-being, depending on how expensive the new good is.E) A) and D)
F) A) and C)

Question 15

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

Accepted Answer

A)   1.7 percent.
B)   3.3 percent.
C)   4.1 percent.
D)   10 percent.E) C) and D)
F) All of the above

Question 16

When consumer spending is broken down into the major categories of goods and services, the largest single category is spending on transportation.

Accepted Answer

A) True 
 B)False

Question 17

Suppose that over the past year, the real interest rate was 3 percent, the CPI was 126.2 at the beginning of the year, and the CPI was 129.5 at the end of the year. It follows that

Accepted Answer

A)   the dollar value of savings increased at 5.6 percent, and the purchasing power of savings increased at 3 percent.
B)   the dollar value of savings increased at 0.4 percent, and the purchasing power of savings increased at 3 percent.
C)   the dollar value of savings increased at 3 percent, and the purchasing power of savings increased at 5.6 percent.
D)   the dollar value of savings increased at 3 percent, and the purchasing power of savings increased at 0.4 percent.E) B) and D)
F) All of the above

Question 18

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

Accepted Answer

A)   clothing, but not footwear or jewelry.
B)   clothing and footwear, but not jewelry.
C)   clothing and jewelry, but not footwear.
D)   clothing, footwear, and jewelry.E) B) and D)
F) A) and C)

Question 19

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)   food & beverages
B)   recreation
C)   housing
D)   apparelE) B) and C)
F) C) and D)

Question 20

For any given year, the CPI is the price of the basket of goods and services in the

Accepted Answer

A)   given year divided by the price of the basket in the base year, then multiplied by 100.
B)   given year divided by the price of the basket in the previous year, then multiplied by 100.
C)   base year divided by the price of the basket in the given year, then multiplied by 100.
D)   previous year divided by the price of the basket in the given year, then multiplied by 100.E) B) and C)
F) A) and B)

Exam 11: Measuring the Cost of Living

Table 24-10 The table below shows the prices of baseballs and baseball bats for three years. Assume the typical consumer's basket consists of 6 baseballs and 2 baseball bats. -Refer to Table 24-10. The inflation rate was

Correct AnswerverifiedShow Answer

When consumer spending is broken down into the major categories of goods and services, the largest single category is spending on transportation.

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For a country like the United States, explain why the CPI would increase at a faster rate than the GDP deflator during periods of oil and gasoline price increases.

Correct AnswerverifiedThe U.S. i...View AnswerShow Answer

Which of the following is the correct formula for calculating the inflation rate?

Correct AnswerverifiedShow Answer

In computing the consumer price index, a base year is chosen. Which of the following statements about the base year is correct?

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Suppose the Tooth Fairy paid 50 cents for a tooth in 1970. The CPI in 1970 was 38.8, while the CPI in 2010 was 218.1. What is the value of the Tooth Fairy's payment in 2010 dollars?

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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?

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During a certain year, the consumer price index increased from 120 to 132 and the purchasing power of a person's bank account increased by 4 percent. For that year,

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Suppose that over the past year, the real interest rate was 3 percent, the CPI was 126.2 at the beginning of the year, and the CPI was 129.5 at the end of the year. It follows that

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The CPI and the GDP deflator

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The group of goods and services used to compute the GDP deflator changes automatically over time, but the group of goods and services used to compute the CPI does not.

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If the cost of transportation increases by 20 percent, then, other things the same, the CPI is likely to increase by about

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The introduction of a new good

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

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If the nominal interest rate is 4 percent and the real interest rate is -2.5 percent, then the inflation rate is

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For any given year, the CPI is the price of the basket of goods and services in the

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Table 24-4 The table below pertains to Studious, an economy in which the typical consumer's basket consists of 5 books and 10 calculators. -Refer to Table 24-4. The inflation rate was

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The consumer price index was 200 in 2012 and 208 in 2013. The nominal interest rate during this period was 9 percent. What was the real interest rate during this period?

Correct AnswerverifiedShow Answer

For an imaginary economy, the value of the consumer price index was 140 in 2013, and the inflation rate was 5.0 percent between 2013 and 2014. The consumer price index in 2014 was

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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The U.S. i...
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