Question 1

Trade restrictions can prevent purchasing power parity from holding because:

Accepted Answer

A)   the time and energy of importation paperwork can add to the cost of the good sold.
B)   tariffs can add to the cost of the good sold.
C)   they can add costs to the selling price because they add to the seller's cost.
D)   All of these statements are true.

Question 2

This table shows the price-level adjustment as compared to the United States.  According to the information in the table shown, if someone were earning $20,000 in Mexico, approximately what would he 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 3

When we say the cost of living has gone up, we mean that, looking broadly over a range of goods and services:

Accepted Answer

A)   a dollar buys less today than it used to buy.
B)   a dollar buys more today than it used to buy.
C)   a dollar buys the same today as it used to buy.
D)   our income has increased to match the cost of those goods.

Question 4

Cost-of-living adjustments are:

Accepted Answer

A)   indexed payments.
B)   common in the U.S.
C)   not performed on social security payments.
D)   not very common in Europe.

Question 5

Core inflation:

Accepted Answer

A)   measures the changes in prices for the entire market basket of the average urban consumer.
B)   is inflation measured using the producer price index.
C)   measures price changes for the market basket of the average urban consumer with food and energy costs taken out.
D)   is inflation measured using the retail price index.

Question 6

The urban consumers that the CPI is based on includes:

Accepted Answer

A)   institutionalized persons.
B)   incarcerated persons.
C)   persons in the military.
D)   the CPI does not include any of these.

Question 7

Indexing Social Security payments:

Accepted Answer

A)   no longer requires a concerted effort on the part of Congress to maintain their real value.
B)   still requires a concerted effort on the part of Congress to vote the amount of increase.
C)   no longer requires a concerted effort on the part of Congress to maintain their nominal value.
D)   still requires a concerted effort on the part of Congress to convert them to their nominal amounts.

Question 8

Because increases in input prices eventually make it to consumers when they buy the final product, the PPI:

Accepted Answer

A)   is considered a good predictor of future consumer prices.
B)   is a lag variable for inflation.
C)   accounts for inflation before it reaches consumers, adjusting the CPI downward.
D)   accounts for inflation before it reaches consumers, adjusting the CPI upward.

Question 9

Which of the following goods is least likely to be in a market basket?

Accepted Answer

A)   Shuttle service
B)   Airfare
C)   Streetlamps
D)   Coffee beans

Question 10

Ida May Fuller was the first person to:

Accepted Answer

A)   receive a Social Security check.
B)   have her Social Security check adjusted for inflation.
C)   receive Social Security payments for over 20 years.
D)   petition Congress for indexing Social Security payments.

Question 11

The market basket approach:

Accepted Answer

A)   measures changes in the cost of a fixed shopping basket, assuming that typical consumer buys the same items in the same quantities.
B)   gives us a single number to measure how much your total costs for all goods and services change over time.
C)   is equivalent to simply averaging the increase in the price of each grocery item.
D)   is how economists monitor trends in what people like to buy from year to year.

Question 12

The market basket approach:

Accepted Answer

A)   gives us a single number that represents how changing prices affect the typical consumer.
B)   gives us a list of what the typical consumer buys and the average price change of those goods.
C)   tells us how the prices of all goods and services in an economy change over time.
D)   tells us exactly how people change what they buy from year to year.

Question 13

Which of the following doesn't characterize the properties of a dollar:

Accepted Answer

A)   changes in value over time.
B)   can reflect the cost of living in terms of the goods it can purchase.
C)   has no worth itself, but represents goods we can buy with it.
D)   it has a fixed value that doesn't change over time.

Question 14

If the 1999 salary in 2009 dollars is $174,136, what can we say about it compared to the 2009 income given in the table shown?

Accepted Answer

A)   Although the nominal salary has increased, the amount of purchasing power has remained the same from 1999 to 2009.
B)   The increase in salary from 1999 to 2009 was more than inflation during that period.
C)   The 1999 salary could buy more goods and services in 2009 than the 2009 salary could buy.
D)   All of these statements are true.

Question 15

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

Accepted Answer

A)   measures the prices of goods and services purchased by firms.
B)   stands for the producer price index.
C)   looks specifically at the price changes that affect the typical producer.
D)   All of these statements are true.

Question 16

If the 1989 salary in 2009 dollars is $147,951, how do we interpret this?

Accepted Answer

A)   The salary earned in 1989 could have purchased the same amount of goods as $147,951 could buy in 2009.
B)   It would take $147,951 in 2009 to buy the same amount of goods that was purchased in 1989 with $85,529.
C)   Someone earning $85,529 in 1989 would be as well off if he were earning $147,951 in 2009.
D)   All of these interpretations are correct.

Question 17

The substitution by consumers of one good for another because of relative price changes is:

Accepted Answer

A)   not captured by the CPI and causes the CPI to overestimate the cost-of-living changes.
B)   captured by the CPI and causes the CPI to overestimate the cost-of-living changes.
C)   not captured by the CPI and causes the CPI to underestimate the cost-of-living changes.
D)   captured by the CPI and causes the CPI to underestimate the cost-of-living changes.

Question 18

A good that is most likely to be in the producer price index is:

Accepted Answer

A)   light trucks.
B)   gasoline.
C)   passenger cars.
D)   All of these are in the PPI.

Question 19

The GDP deflator:

Accepted Answer

A)   measures price changes for everything produced in the country.
B)   may include goods produced abroad.
C)   is computed using the quantities that are consumed in the economy each year.
D)   is the same as PPI.

Question 20

The most commonly used price index to track changes in prices for the typical household in the U.S. is:

Accepted Answer

A)   consumer price index.
B)   average price index.
C)   retail price index.
D)   producer price index.

Exam 8: The Cost of Living

Cost-of-living adjustments are:

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The market basket approach:

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This table shows the price-level adjustment as compared to the United States. According to the information in the table shown, if someone were earning $20,000 in Mexico, approximately what would he need to earn in the United States to enjoy the same amount of goods and services?

Correct AnswerverifiedShow Answer

Core inflation:

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The urban consumers that the CPI is based on includes:

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Indexing Social Security payments:

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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:

Correct AnswerverifiedShow Answer

If the 1989 salary in 2009 dollars is $147,951, how do we interpret this?

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If the 1999 salary in 2009 dollars is $174,136, what can we say about it compared to the 2009 income given in the table shown?

Correct AnswerverifiedShow Answer

The substitution by consumers of one good for another because of relative price changes is:

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The most commonly used price index to track changes in prices for the typical household in the U.S. is:

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Trade restrictions can prevent purchasing power parity from holding because:

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Which of the following doesn't characterize the properties of a dollar:

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The market basket approach:

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Because increases in input prices eventually make it to consumers when they buy the final product, the PPI:

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

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Which of the following goods is least likely to be in a market basket?

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Ida May Fuller was the first person to:

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A good that is most likely to be in the producer price index is:

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The GDP deflator:

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