Question 1

Economists calculate many price indexes:

Accepted Answer

A)   to capture a complete picture of how price changes are affecting the economy.
B)   to see how the prices of different groups of goods are changing.
C)   to measure how different groups of people in the economy are being affected by changing prices.
D)   All of these are true.

Question 2

One of the biggest challenges in calculating the CPI is:

Accepted Answer

A)   determining which goods to include in the market basket so that it accurately reflects the purchasing decisions of the largest group of people.
B)   comparing changes in the U.S. CPI against changes in the price levels of other countries.
C)   gathering prices for the goods traded on the black market.
D)   adjusting for seasonal variations in prices.

Question 3

Assume a market basket includes ten boxes of mac and cheese, ten packages of ramen, 5 bottles of soda, and 1 gallon of milk.  According to the table shown, what is the change in the price level between the base year and the current year?

Accepted Answer

A)   4.9 percent
B)   5.3 percent
C)   5.7 percent
D)   6.1 percent

Question 4

While the CPI focuses on changes to prices for consumers, the PPI:

Accepted Answer

A)   measures the prices of goods and services purchased by domestic firms.
B)   measures the prices of goods and services purchased by firms abroad.
C)   looks specifically at the price changes that affect the government.
D)   looks specifically at the price changes that affect farmers.

Question 5

The table shown displays CPI data for 2015 to 2019.  What can be said about the cost of living in 2016?

Accepted Answer

A)   The cost of living increased 5.3 percent from the previous year.
B)   The cost of living increased 5.0 percent from the previous year.
C)   No cost of living comparisons can be made, as 2016 is the base year.
D)   The cost of living did not change, because 2016 is the base year.

Question 6

When the CPI is less than 100:

Accepted Answer

A)   the cost of living has increased.
B)   the cost of living is lower than the base year.
C)   the cost of living is unchanged.
D)   we cannot make assumptions about the cost of living without more information.

Question 7

Using the market basket approach:

Accepted Answer

A)   allows us to see how cost of living is affected by the changing prices of different goods relative to how much of each good people buy.
B)   is the least reliable way of tracking changes in the cost of living.
C)   we are able to measure changes in production in the economy.
D)   All of these are true.

Question 8

Purchasing power parity:

Accepted Answer

A)   theorizes that purchasing power in different countries should be the same when stated in local currencies.
B)   allows us to compare the cost of living across different locations.
C)   almost always holds in reality.
D)   All of these are true.

Question 9

The table shown displays CPI data for 2015 to 2019.  Between 2015 and 2019, the cost of living:

Accepted Answer

A)   increased 11.6 percent.
B)   increased 6 percent.
C)   decreased 11.6 percent.
D)   increased 10.4 percent.

Question 10

The table shown displays the price-level adjustments for Australia, China, and Mexico as compared to the United States.  A person who is earning $20,000 in Mexico would 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)   $15,000

Question 11

When we say the cost of living has gone up, we mean that, looking broadly over a range of goods and services, a dollar buys _______ it used to buy.

Accepted Answer

A)   less today than
B)   more today than
C)   the same today as
D)   more abroad than

Question 12

Which of the following statements characterizes the dollar?

Accepted Answer

A)   It changes in value over time.
B)   Its value is supported by a gold reserve held by the U.S. government.
C)   It is not traded on the black market.
D)   It has a fixed value that does not change over time.

Question 13

Which of the following goods would be included in the producer price index?

Accepted Answer

A)   Industrial machinery
B)   Sriracha hot sauce
C)   Spaghetti
D)   All of these would be included in the PPI.

Question 14

When we say the cost of living has gone down, we mean that, looking broadly over a range of goods and services, a dollar buys _______ it used to buy.

Accepted Answer

A)   less today than
B)   more today than
C)   the same today
D)   less abroad than

Question 15

Social Security payments today:

Accepted Answer

A)   continue to cause the elderly to lose income over time.
B)   cause concern for retirees, due to high taxes that must be paid on the benefits.
C)   hold their real value because they are adjusted for inflation.
D)   are the biggest drain on a retirees' budget each year.

Question 16

The table shown displays yearly salaries and the CPI across five decades.  If the 1989 salary in 2009 dollars is $147,951, how do we interpret this finding?

Accepted Answer

A)   A person with a salary of $85,539 in 1989 could have purchased the same amount of goods as someone earning $147,951 in 2009 could have bought.
B)   It would take $147,951 in 2009 to buy the same amount of goods that someone purchased in 1989 with $85,529.
C)   A person earning $85,529 in 1989 would have been as well off as a person earning $147,951 in 2009.
D)   All of these interpretations are correct.

Question 17

While the CPI _______, the GDP deflator _______.

Accepted Answer

A)   tracks changes in prices using a market basket; measures price changes for everything produced in the economy
B)   tracks changes in prices using a market basket; measures price changes for all goods sold in the economy, including goods produced abroad
C)   measures price changes for everything produced in the economy; tracks changes in prices using a market basket
D)   measures price changes for everything produced in the economy; tracks changes in prices using a market basket, including goods produced abroad but purchased domestically

Question 18

The CPI measures changes in the price level for urban consumers because this allows the BLS to:

Accepted Answer

A)   measure changes in the prices of the most expensive goods.
B)   track price changes in larger markets.
C)   measure price changes more frequently.
D)   capture the consumption habits of the largest group of people.

Question 19

What are two reasons why purchasing power parity may not hold in reality?

Accepted Answer

A)   Inflation and export costs
B)   Transaction costs and trade restrictions
C)   Political decisions, and changes in GDP
D)   Unemployment and transaction costs

Question 20

Real figures represent _______ value, while nominal figures show _______ value.

Accepted Answer

A)   past; constant
B)   constant; past
C)   constant; current
D)   current; constant

Exam 8: Thecost of Living

One of the biggest challenges in calculating the CPI is:

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Which of the following goods would be included in the producer price index?

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Purchasing power parity:

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Assume a market basket includes ten boxes of mac and cheese, ten packages of ramen, 5 bottles of soda, and 1 gallon of milk. According to the table shown, what is the change in the price level between the base year and the current year?

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The CPI measures changes in the price level for urban consumers because this allows the BLS to:

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While the CPI focuses on changes to prices for consumers, the PPI:

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Which of the following statements characterizes the dollar?

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While the CPI _______, the GDP deflator _______.

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When the CPI is less than 100:

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Using the market basket approach:

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The table shown displays the price-level adjustments for Australia, China, and Mexico as compared to the United States. A person who is earning $20,000 in Mexico would need to earn _______ in the United States to enjoy the same amount of goods and services.

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The table shown displays yearly salaries and the CPI across five decades. If the 1989 salary in 2009 dollars is $147,951, how do we interpret this finding?

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When we say the cost of living has gone down, we mean that, looking broadly over a range of goods and services, a dollar buys _______ it used to buy.

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Social Security payments today:

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What are two reasons why purchasing power parity may not hold in reality?

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When we say the cost of living has gone up, we mean that, looking broadly over a range of goods and services, a dollar buys _______ it used to buy.

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The table shown displays CPI data for 2015 to 2019. What can be said about the cost of living in 2016?

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The table shown displays CPI data for 2015 to 2019. Between 2015 and 2019, the cost of living:

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Economists calculate many price indexes:

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Real figures represent _______ value, while nominal figures show _______ value.

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While the CPI _, the GDP deflator _.

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Real figures represent _ value, while nominal figures show _ value.

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