Question 1

Substitution bias causes the CPI to understate the increase in the cost of living from one year to the next.

Accepted Answer

A) True 
 B)False

Question 2

Dewey earned a salary of $75,000 in 2001 and $95,000 in 2006. The consumer price index was 177 in 2001 and 266 in 2006. Dewey's 2001 salary in 2006 dollars is

Accepted Answer

A)  $37,711.86.
B)  $49,906.02.
C)  $66,750.00.
D)  $112,711.86.E) C) and D)
F) B) and C)

Question 3

For an imaginary economy, the value of the consumer price index was 125 in 2009, and the inflation rate was 4.8 percent between 2008 and 2009. The consumer price index in 2008 was

Accepted Answer

A)  119.27.
B)  120.2.
C)  129.8.
D)  131.E) A) and B)
F) A) and C)

Question 4

Suppose the typical consumer buys more bananas than oranges. In fixing the basket of goods and services for the purpose of calculating the consumer price index, the Bureau of Labor Statistics

Accepted Answer

A)  ignores the fact that the typical consumer buys more bananas than orange; this procedure does not affect the value of the index.
B)  ignores the fact that the typical consumer buys more bananas than orange; this procedure results in a potentially-serious bias in the index.
C)  places more weight on the price of bananas than on the price of oranges; the weights of the two prices are determined by surveying consumers.
D)  places more weight on the price of bananas than on the price of oranges; the weights of the two prices are determined by the extent to which those prices have changed over the previous year.E) A) and B)
F) A) and C)

Question 5

Social Security payments are indexed for inflation using

Accepted Answer

A)  the CPI.
B)  the PPI.
C)  the GDP deflator.
D)  real interest rates.E) None of the above
F) A) and B)

Question 6

In the United States, nominal interest rates were

Accepted Answer

A)  high in the 1970s and 1990s.
B)  low in the 1970s and 1990s.
C)  high in the 1970s and low in the 1990s.
D)  low in the 1970s and high in the 1990s.E) B) and C)
F) A) and D)

Question 7

If the nominal interest rate is 4 percent and the real interest rate is 7 percent, then the inflation rate is

Accepted Answer

A)  -3 percent.
B)  0.75 percent.
C)  3 percent.
D)  11 percent.E) B) and C)
F) A) and D)

Question 8

Suppose the quality of televisions changes over time, but the quality change goes unmeasured for the purpose of computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality change be most severe?

Accepted Answer

A)  The quality of televisions deteriorates and televisions become more expensive relative to other goods.
B)  The quality of televisions improves and televisions become less expensive relative to other goods.
C)  The quality of televisions improves and televisions become more expensive relative to other goods.
D)  The quality of televisions deteriorates and the price of televisions relative to other prices remains unchanged.E) B) and C)
F) A) and C)

Question 9

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 C)
F) A) and C)

Question 10

The second largest category, by relative importance, in the CPI calculation is

Accepted Answer

A)  housing.
B)  apparel.
C)  transportation.
D)  medical care.E) A) and C)
F) C) and D)

Question 11

Table 11-3
The table below pertains to Studious, an economy in which the typical consumer's basket consists of 5 books and 10 calculators.   Year  Price of a  Buak  Price of a  Calculator 2006$24$82007$30$122008$32$15\begin{array} { | c | c | c | } \hline 	ext { Year } & \begin{array} { c } 	ext { Price of a } \	ext { Buak }\end{array} & \begin{array} { c } 	ext { Price of a } \	ext { Calculator }\end{array} \\hline 2006 & \$ 24 & \$ 8 \\hline 2007 & \$ 30 & \$ 12 \\hline 2008 & \$ 32 & \$ 15 \\hline\end{array} Year 200620072008​ Price of a  Buak ​$24$30$32​ Price of a  Calculator ​$8$12$15​​ 
-Refer to Table 11-3. The inflation rate was

Accepted Answer

A)  22.6 percent in 2007 and 12.9 percent in 2008.
B)  25.9 percent in 2007 and 14.8 percent in 2008.
C)  35 percent in 2007 and 14.8 percent in 2008.
D)  35 percent in 2007 and 20 percent in 2008. E) None of the above
F) B) and D)

Question 12

The economy's inflation rate is the

Accepted Answer

A)  price level in the current period.
B)  change in the price level from the previous period.
C)  change in the gross domestic product from the previous period.
D)  percentage change in the price level from the previous period.E) All of the above
F) None of the above

Question 13

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 B)
F) B) and D)

Question 14

When the price of nuclear missiles rises, this change is reflected in the CPI but not in the GDP deflator.

Accepted Answer

A) True 
 B)False

Question 15

The Bureau of Labor Statistics does not try to account for quality changes in the goods and services in the basket used to compute the CPI.

Accepted Answer

A) True 
 B)False

Question 16

Table 11-6. The table below applies to an economy with only two goods - hamburgers and hot dogs. The fixed basket consists of 4 hamburgers and 8 hot dogs.   Year  Priee of hamburegers  Prife of hat doges 2009$5.00$3.0020105.503.3020115.613.63\begin{array} { l c c } \hline 	ext { Year } & 	ext { Priee of hamburegers } & 	ext { Prife of hat doges } \\hline 2009 & \$ 5.00 & \$ 3.00 \2010 & 5.50 & 3.30 \2011 & 5.61 & 3.63 \\hline\end{array} Year 200920102011​ Priee of hamburegers $5.005.505.61​ Prife of hat doges $3.003.303.63​​ 
-Refer to Table 11-6. Between 2009 and 2011, the cost of living increased by

Accepted Answer

A)  6 percent.
B)  19 percent.
C)  14 percent.
D)  17 percent. E) All of the above
F) A) and B)

Exam 11: Measuring the Cost of Living

Substitution bias causes the CPI to understate the increase in the cost of living from one year to the next.

Correct Answer
verified

The Bureau of Labor Statistics does not try to account for quality changes in the goods and services in the basket used to compute the CPI.

Correct Answer
verified

When the price of nuclear missiles rises, this change is reflected in the CPI but not in the GDP deflator.

Correct Answer
verified

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

Correct Answer
verified

If the nominal interest rate is 4 percent and the real interest rate is 7 percent, then the inflation rate is

Correct Answer
verified

Social Security payments are indexed for inflation using

Correct Answer
verified

Suppose the typical consumer buys more bananas than oranges. In fixing the basket of goods and services for the purpose of calculating the consumer price index, the Bureau of Labor Statistics

Correct Answer
verified

Suppose the quality of televisions changes over time, but the quality change goes unmeasured for the purpose of computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality change be most severe?

Correct Answer
verified

The economy's inflation rate is the

Correct Answer
verified

The second largest category, by relative importance, in the CPI calculation is

Correct Answer
verified

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

Correct Answer
verified

For an imaginary economy, the value of the consumer price index was 125 in 2009, and the inflation rate was 4.8 percent between 2008 and 2009. The consumer price index in 2008 was

Correct Answer
verified

Correct Answer
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In the United States, nominal interest rates were

Correct Answer
verified

Dewey earned a salary of $75,000 in 2001 and $95,000 in 2006. The consumer price index was 177 in 2001 and 266 in 2006. Dewey's 2001 salary in 2006 dollars is

Correct Answer
verified

Exam 11: Measuring the Cost of Living

Substitution bias causes the CPI to understate the increase in the cost of living from one year to the next.

Correct AnswerverifiedShow Answer

The Bureau of Labor Statistics does not try to account for quality changes in the goods and services in the basket used to compute the CPI.

Correct AnswerverifiedShow Answer

When the price of nuclear missiles rises, this change is reflected in the CPI but not in the GDP deflator.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the nominal interest rate is 4 percent and the real interest rate is 7 percent, then the inflation rate is

Correct AnswerverifiedShow Answer

Social Security payments are indexed for inflation using

Correct AnswerverifiedShow Answer

Suppose the typical consumer buys more bananas than oranges. In fixing the basket of goods and services for the purpose of calculating the consumer price index, the Bureau of Labor Statistics

Correct AnswerverifiedShow Answer

Suppose the quality of televisions changes over time, but the quality change goes unmeasured for the purpose of computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality change be most severe?

Correct AnswerverifiedShow Answer

The economy's inflation rate is the

Correct AnswerverifiedShow Answer

The second largest category, by relative importance, in the CPI calculation is

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

For an imaginary economy, the value of the consumer price index was 125 in 2009, and the inflation rate was 4.8 percent between 2008 and 2009. The consumer price index in 2008 was

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the United States, nominal interest rates were

Correct AnswerverifiedShow Answer

Dewey earned a salary of $75,000 in 2001 and $95,000 in 2006. The consumer price index was 177 in 2001 and 266 in 2006. Dewey's 2001 salary in 2006 dollars is

Correct AnswerverifiedShow Answer

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