Question 1

In 1964,one could buy a chili dog and a root beer for $1.25.Today the same chili dog and root beer cost $2.95.Which pair of CPIs would imply that the cost in today's dollars was the same for both meals?

Accepted Answer

A)   60 in 1964 and 141.6 today
B)   75 in 1964 and 126.4 today
C)   80 in 1964 and 112 today
D)   90 in 1964 and 108.5 todayE) A) and C)
F) A) and D)

Question 2

An increase in the price of Irish whiskey regularly purchased by Americans will be reflected in

Accepted Answer

A)   both the U.S.GDP deflator and the U.S.CPI.
B)   neither the U.S.GDP deflator nor the U.S.CPI.
C)   the U.S.GDP deflator,but not the U.S.CPI.
D)   the U.S.CPI,but not the U.S.GDP deflator.E) A) and C)
F) A) and B)

Question 3

In 1949,Sycamore,Illinois built a hospital for about $500,000.In 1987,the county restored the courthouse for about $2.4 million.A price index for nonresidential construction was 14 in 1949,92 in 1987,and 114.5 in 2000.According to these numbers,the hospital cost about

Accepted Answer

A)   $3.6 million in 2000 dollars,which is less than the cost of the courthouse restoration in 2000 dollars.
B)   $3.6 million in 2000 dollars,which is more than the cost of the courthouse restoration in 2000 dollars.
C)   $4.1 million in 2000 dollars,which is less than the cost of the courthouse restoration in 2000 dollars.
D)   $4.1 million in 2000 dollars,which is more than the cost of the courthouse restoration in 2000 dollars.E) All of the above
F) A) and B)

Question 4

Table 24-3
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 24-3.The cost of the basket in 2006 was

Accepted Answer

A)   $32.
B)   $200.
C)   $280.
D)   $480.E) A) and B)
F) B) and C)

Question 5

The consumer price index and the GDP deflator are two alternative measures of the overall price level.Which of the following statements about the two measures is correct?

Accepted Answer

A)   The two measures are constructed differently,but they always indicate the same inflation rate.
B)   The substitution bias applies equally to both measures.
C)   A change in the price of Korean televisions is reflected in the U.S.consumer price index but not in the U.S.GDP deflator.
D)   All of the above are correct.E) A) and D)
F) B) and C)

Question 6

Because the consumer price index reflects the goods and services bought by consumers better than the GDP deflator does,it is the more common gauge of inflation.

Accepted Answer

A) True 
 B)False

Question 7

During a certain year,the consumer price index increased from 150 to 159 and the purchasing power of a person's bank account increased by 3.5 percent.For that year,

Accepted Answer

A)   the nominal interest rate was 6 percent.
B)   the nominal interest rate was 9.5 percent.
C)   the inflation rate was 3.5 percent.
D)   the inflation rate was 9.5 percent.E) A) and C)
F) A) and B)

Question 8

Table 24-5
The table below pertains to Yackandsnack,an economy in which the typical consumer's basket consists of 2 cell phones and 20 ham sandwiches.
 
-Refer to Table 24-5.The cost of the basket

Accepted Answer

A)   increased from 2006 to 2007 and increased from 2007 to 2008.
B)   increased from 2006 to 2007 and decreased from 2007 to 2008.
C)   decreased from 2006 to 2007 and increased from 2007 to 2008.
D)   decreased from 2006 to 2007 and decreased from 2007 to 2008.E) B) and C)
F) B) and D)

Question 9

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

Accepted Answer

A)   3 percent.
B)   15 percent.
C)   20 percent.
D)   30 percent.E) C) and D)
F) A) and B)

Question 10

Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?

Accepted Answer

A)   The real interest rate is the nominal interest rate times the rate of inflation.
B)   The real interest rate is the nominal interest rate minus the rate of inflation.
C)   The real interest rate is the nominal interest rate plus the rate of inflation.
D)   The real interest rate is the nominal interest rate divided by the rate of inflation.E) A) and C)
F) All of the above

Question 11

In the calculation of the CPI,coffee is given greater weight than tea if

Accepted Answer

A)   consumers buy more coffee than tea.
B)   the price of coffee is higher than the price of tea.
C)   it costs more to produce coffee than it costs to produce tea.
D)   coffee is more readily available than tea is to the typical consumer.E) B) and C)
F) A) and B)

Question 12

Henri earned a salary of $50,000 in 2001 and $70,000 in 2006.The consumer price index was 177 in 2001 and 265.5 in 2006.Henri's 2001 salary in 2006 dollars is

Accepted Answer

A)   $25,000.00.
B)   $33,333.33.
C)   $44,250.00
D)   $75,000.00.E) A) and C)
F) A) and B)

Question 13

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

Question 14

The nominal interest rate tells you how fast the number of dollars in your bank account rises over time.

Accepted Answer

A) True 
 B)False

Question 15

Table 24-1
The table below pertains to Pieway,an economy in which the typical consumer's basket consists of 10 bushels of peaches and 15 bushels of pecans.
 
-Refer to Table 24-1.The cost of the basket in 2006 was

Accepted Answer

A)   $200.
B)   $210.
C)   $240.
D)   $245.E) None of the above
F) All of the above

Question 16

If the current year CPI is 90,then the price level has decreased 10 percent since the base year.

Accepted Answer

A) True 
 B)False

Question 17

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)   recreationE) None of the above
F) B) and C)

Question 18

The real interest rate is the interest rate corrected for inflation.

Accepted Answer

A) True 
 B)False

Question 19

If the CPI was 125 this year and 120 last year,then

Accepted Answer

A)   the cost of the CPI basket of goods and services increased by 4.2 percent this year.
B)   the price level increased by 4.2 percent this year.
C)   the inflation rate for this year was 4.2 percent.
D)   All of the above are correct.E) A) and D)
F) None of the above

Question 20

If the nominal interest rate is 7.5 percent and the rate of inflation is -2.5 percent,then the real interest rate is

Accepted Answer

A)   -10 percent.
B)   -5 percent.
C)   5 percent.
D)   10 percent.E) A) and B)
F) C) and D)

Exam 24: Measuring the Cost of Living

The consumer price index and the GDP deflator are two alternative measures of the overall price level.Which of the following statements about the two measures is correct?

Correct AnswerverifiedShow Answer

An increase in the price of Irish whiskey regularly purchased by Americans will be reflected in

Correct AnswerverifiedShow Answer

Table 24-1 The table below pertains to Pieway,an economy in which the typical consumer's basket consists of 10 bushels of peaches and 15 bushels of pecans. -Refer to Table 24-1.The cost of the basket in 2006 was

Correct AnswerverifiedShow Answer

Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?

Correct AnswerverifiedShow Answer

In 1949,Sycamore,Illinois built a hospital for about $500,000.In 1987,the county restored the courthouse for about $2.4 million.A price index for nonresidential construction was 14 in 1949,92 in 1987,and 114.5 in 2000.According to these numbers,the hospital cost about

Correct AnswerverifiedShow Answer

The real interest rate is the interest rate corrected for inflation.

Correct AnswerverifiedShow Answer

In the calculation of the CPI,coffee is given greater weight than tea if

Correct AnswerverifiedShow Answer

Table 24-5 The table below pertains to Yackandsnack,an economy in which the typical consumer's basket consists of 2 cell phones and 20 ham sandwiches. -Refer to Table 24-5.The cost of the basket

Correct AnswerverifiedShow Answer

Because the consumer price index reflects the goods and services bought by consumers better than the GDP deflator does,it is the more common gauge of inflation.

Correct AnswerverifiedShow Answer

If the current year CPI is 90,then the price level has decreased 10 percent since the base year.

Correct AnswerverifiedShow Answer

In 1964,one could buy a chili dog and a root beer for $1.25.Today the same chili dog and root beer cost $2.95.Which pair of CPIs would imply that the cost in today's dollars was the same for both meals?

Correct AnswerverifiedShow Answer

If the CPI was 125 this year and 120 last year,then

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Table 24-3 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 24-3.The cost of the basket in 2006 was

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

Henri earned a salary of $50,000 in 2001 and $70,000 in 2006.The consumer price index was 177 in 2001 and 265.5 in 2006.Henri's 2001 salary in 2006 dollars is

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

During a certain year,the consumer price index increased from 150 to 159 and the purchasing power of a person's bank account increased by 3.5 percent.For that year,

Correct AnswerverifiedShow Answer

The nominal interest rate tells you how fast the number of dollars in your bank account rises over time.

Correct AnswerverifiedShow Answer

If the nominal interest rate is 7.5 percent and the rate of inflation is -2.5 percent,then the real interest rate is

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified