Question 1

In the calculation of the CPI, books are given greater weight than magazines if

Accepted Answer

A)  consumers buy more books than magazines.
B)  the price of books is higher than the price of magazines.
C)  it costs more to produce books than it costs to produce magazines.
D)  books are more readily available than magazines to the typical consumer.

Question 2

The real interest rate tells you

Accepted Answer

A)  how fast the number of dollars in your bank account rises over time.
B)  how fast the purchasing power of your bank account rises over time.
C)  the number of dollars in your bank account today.
D)  the purchasing power of your bank account today.

Question 3

List the three major problems in using the CPI as a measure of the cost of living.

Accepted Answer

(1) Substitution bias. The CPI ignores t...

Question 4

Arlo is offered a job in Des Moines, where the CPI is 60, and a job in New York, where the CPI is 125. Arlo's job offer in Des Moines is for $48,000. How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?

Accepted Answer

A)  $23,040
B)  $52,000
C)  $79,200
D)  $100,000

Question 5

Table 24-8
The table below relates to the economy of Mainland, where the typical consumer's market basket consists of 2 televisions and 300 hamburgers. 
-Refer to Table 24-8. The cost of the basket

Accepted Answer

A)  increased from 2013 to 2014 and increased from 2014 to 2015.
B)  increased from 2013 to 2014 and decreased from 2014 to 2015.
C)  decreased from 2013 to 2014 and increased from 2014 to 2015.
D)  decreased from 2013 to 2014 and decreased from 2014 to 2015.

Question 6

Which of the following is not correct?

Accepted Answer

A)  The consumer price index gives economists a way of turning dollar figures into meaningful measures of purchasing power.
B)  The consumer price index is used to monitor changes in the cost of living over time.
C)  The consumer price index is used by economists to measure the inflation rate.
D)  The consumer price index is used to measure the quantity of goods and services that the economy is producing.

Question 7

If the CPI increased from 215 to 218 between the years 2012 and 2013, while the nominal interest rate increased from 3.25% to 3.80%, what is the real interest rate in 2013?

Accepted Answer

The answer of If the CPI increased from 215 to...

Question 8

Suppose that U.S. mining companies purchase German-made ore trucks at a reduced price. By itself, what effect will this purchase have on the GDP deflator and on the consumer price index?

Accepted Answer

A)  The consumer price index and the GDP deflator will both fall.
B)  The consumer price index and the GDP deflator will both be unaffected.
C)  The consumer price index will fall, and the GDP deflator will be unaffected.
D)  The consumer price index will be unaffected, and the GDP deflator will fall.

Question 9

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.

Question 10

Table 24-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. 
-Refer to Table 24-12. Suppose the consumer price index is 15.5 percent higher in 2011 than in 2009. Then Will's food expenditures for 2010 in 2011 dollars amount to

Accepted Answer

A)  $6,352.
B)  $6,380.
C)  $6,426.
D)  $6,651.

Question 11

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

Accepted Answer

A)  education & communication
B)  recreation
C)  medical care
D)  All of the above categories are about equal in magnitude.

Question 12

When the consumer price index falls, the typical family

Accepted Answer

A)  has to spend more dollars to maintain the same standard of living.
B)  can spend fewer dollars to maintain the same standard of living.
C)  finds that its standard of living is not affected.
D)  can save less because they do not need to offset the effects of rising prices.

Question 13

Suppose prices of personal computers fall significantly and consumers respond by buying more personal computers. The consumer price index

Accepted Answer

A)  reflects this price decrease accurately.
B)  understates this price decrease due to the substitution bias.
C)  overstates this price decrease due to the income bias.
D)  overstates this price decrease due to the substitution bias.

Question 14

Data from the Bureau of Labor Statistics show that consumer spending on medical care is about equal to consumer spending on housing.

Accepted Answer

A) True 
 B)False

Question 15

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.

Question 16

When new goods are introduced, consumers have more variety from which to choose. As a result, each dollar is worth

Accepted Answer

A)  more, and the cost of living increases.
B)  more, and the cost of living decreases.
C)  less, and the cost of living increases.
D)  less, and the cost of living decreases.

Question 17

Table 24-7. 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. 
-Refer to Table 24-7. If the base year is 2009, then the economy's inflation rate is

Accepted Answer

A)  10 percent in 2010 and 6.36 percent in 2011.
B)  10 percent in 2010 and 17 percent in 2011.
C)  9.2 percent in 2010 and 6 percent in 2011.
D)  8.22 percent in 2010 and 5 percent in 2011.

Question 18

Suppose the nominal interest rate this year is 6.5% and that the economy experiences 2.3% deflation. What is the real interest rate?

Accepted Answer

The real i...

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)  education & communication
B)  apparel
C)  medical care
D)  recreation

Question 20

If the nominal interest rate is 4.2 percent and the rate of inflation is -0.5 percent, then the real interest rate is

Accepted Answer

A)  -8.4 percent.
B)  -2.1 percent.
C)  3.7 percent.
D)  4.7 percent.

Exam 24: Measuring the Cost of Living

When the consumer price index falls, the typical family

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Suppose prices of personal computers fall significantly and consumers respond by buying more personal computers. The consumer price index

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In the calculation of the CPI, books are given greater weight than magazines if

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The basket of goods in the consumer price index changes

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When new goods are introduced, consumers have more variety from which to choose. As a result, each dollar is worth

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The real interest rate tells you

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Table 24-7. 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. -Refer to Table 24-7. If the base year is 2009, then the economy's inflation rate is

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Table 24-8 The table below relates to the economy of Mainland, where the typical consumer's market basket consists of 2 televisions and 300 hamburgers. -Refer to Table 24-8. The cost of the basket

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Arlo is offered a job in Des Moines, where the CPI is 60, and a job in New York, where the CPI is 125. Arlo's job offer in Des Moines is for $48,000. How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?

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Table 24-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. -Refer to Table 24-12. Suppose the consumer price index is 15.5 percent higher in 2011 than in 2009. Then Will's food expenditures for 2010 in 2011 dollars amount to

Correct AnswerverifiedShow Answer

Suppose that U.S. mining companies purchase German-made ore trucks at a reduced price. By itself, what effect will this purchase have on the GDP deflator and on the consumer price index?

Correct AnswerverifiedShow Answer

Suppose the nominal interest rate this year is 6.5% and that the economy experiences 2.3% deflation. What is the real interest rate?

Correct AnswerverifiedThe real i...View AnswerShow Answer

List the three major problems in using the CPI as a measure of the cost of living.

Correct Answerverified(1) Substitution bias. The CPI ignores t...View AnswerShow Answer

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

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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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If the nominal interest rate is 4.2 percent and the rate of inflation is -0.5 percent, then the real interest rate is

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Data from the Bureau of Labor Statistics show that consumer spending on medical care is about equal to consumer spending on housing.

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Which of the following is not correct?

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If the CPI increased from 215 to 218 between the years 2012 and 2013, while the nominal interest rate increased from 3.25% to 3.80%, what is the real interest rate in 2013?

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The real i...
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(1) Substitution bias. The CPI ignores t...
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