Question 1

If the quality of a good deteriorates while its price remains the same,then the value of a dollar

Accepted Answer

A)   rises and the cost of living increases.
B)   rises and the cost of living decreases.
C)   falls and the cost of living increases.
D)   falls and the cost of living decreases.E) B) and C)
F) A) and B)

Question 2

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

Question 3

In a particular economy,the price index was 270 in 2005 and 300 in 2006.Which of the following statements is correct?

Accepted Answer

A)   The economy experienced a rising price level between 2005 and 2006.
B)   The economy experienced a higher inflation rate between 2005 and 2006 than it had experienced between 2004 and 2005.
C)   The inflation rate between 2005 and 2006 was 30 percent.
D)   All of the above are correct.E) B) and C)
F) A) and D)

Question 4

For purposes of calculating the CPI,the transportation category of consumer spending includes the cost of

Accepted Answer

A)   subways.
B)   gasoline.
C)   both subways and gasoline.
D)   neither subways nor gasoline.E) A) and B)
F) B) and D)

Question 5

The steps involved in calculating the consumer price index and the inflation rate,in order,are as follows:

Accepted Answer

A)   Choose a base year,update the basket,find the prices,estimate the basket's cost,compute the index,and compute the inflation rate.
B)   Choose a base year,fix the basket,find the prices,compute the inflation rate,compute the basket's cost,and compute the index.
C)   Fix the basket,find the prices,compute the basket's cost,choose a base year and compute the index,and compute the inflation rate.
D)   Fix the basket,find the prices,compute the inflation rate,compute the basket's cost,and choose a base year and compute the index.E) All of the above
F) C) and D)

Question 6

The CPI does not reflect the increase in the value of the dollar that arises from the introduction of new goods.

Accepted Answer

A) True 
 B)False

Question 7

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) A) and B)
F) None of the above

Question 8

The price index was 120 in 2006 and 127.2 in 2007.What was the inflation rate?

Accepted Answer

A)   5.7 percent
B)   6.0 percent
C)   7.2 percent
D)   27.2 percentE) None of the above
F) C) and D)

Question 9

Marion collected Social Security payments of $250 a month in 1985.If the price index rose from 90 to 108 between 1985 and 1986,then her Social Security payments for 1986 should have been

Accepted Answer

A)   $268.
B)   $292.
C)   $300.
D)   $358.E) All of the above
F) None of the above

Question 10

If the CPI was 104 in 1967 and is 390 today,then $10 in 1967 purchased the same amount of goods and services as

Accepted Answer

A)   $2.67 purchases today.
B)   $37.50 purchases today.
C)   $39.00 purchases today.
D)   $104.00 purchases today.E) A) and B)
F) A) and C)

Question 11

Several studies in the 1990s concluded that the consumer price index overstated inflation by about

Accepted Answer

A)   3 percentage points per year,and that number of percentage points likely still applies now.
B)   3 percentage points per year,but recent improvements to the CPI probably have reduced the overstatement of inflation to something less than 3 percentage points.
C)   1 percentage point per year,and that number of percentage points likely still applies now.
D)   1 percentage point per year,but recent improvements to the CPI probably have reduced the overstatement of inflation to something less than 1 percentage pointE) All of the above
F) None of the above

Question 12

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.E) A) and D)
F) None of the above

Question 13

If you currently make $25,000 a year and the CPI rises from 110 today to 150 in five years,then you need to be making $43,333.33 in five years to have kept pace with consumer price inflation.

Accepted Answer

A) True 
 B)False

Question 14

Corey deposits $1,000 in a savings account that pays an annual interest rate of 5 percent.Over the course of a year,the inflation rate is 1.7 percent.At the end of the year,Corey has

Accepted Answer

A)   $17 more in his account,and his purchasing power has increased by $10.
B)   $30 more in his account,and his purchasing power has increased by $50.
C)   $40 more in his account,and his purchasing power has increased by $33.
D)   $50 more in his account,and his purchasing power has increased by $33.E) B) and D)
F) B) and C)

Question 15

Which of the following statements is correct?

Accepted Answer

A)   The consumer price index is a measure of the overall level of prices,whereas the GDP deflator is not a measure of the overall level of prices.
B)   If,in the year 2011,the consumer price index has a value of 123.50,then the inflation rate for 2011 must be 23.50 percent.
C)   Compared to the GDP deflator,the consumer price index is the more common gauge of inflation.
D)   The consumer price index and the GDP deflator reflect the goods and services bought by consumers equally well.E) None of the above
F) A) and B)

Question 16

If the CPI was 108.00 in 1942 and is 336.96 today,then $10 in 1942 purchased the same amount of goods and services as

Accepted Answer

A)   $2.57 purchases today.
B)   $28.89 purchases today.
C)   $31.20 purchases today.
D)   $38.89 purchases today.E) A) and B)
F) None of the above

Question 17

Scenario 24-2
A small economy produced and consumed goods X and Y in 2010 and 2011 in the amounts shown in the table below.Assume that the market basket for the CPI is defined in the base year.
 
-Refer to Scenario 24-2.Using 2011 as the base year,what is the inflation rate in 2011?

Accepted Answer

The inflat...

Question 18

When the relative price of a good decreases,consumers respond by buying

Accepted Answer

A)   a larger quantity of that good and a larger quantity of substitutes for that good.
B)   a larger quantity of that good and a smaller quantity of substitutes for that good.
C)   a smaller quantity of that good and a larger quantity of substitutes for that good.
D)   a smaller quantity of that good and a smaller quantity of substitutes for that good.E) A) and C)
F) All of the above

Question 19

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

Accepted Answer

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

Question 20

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.
 
-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) B) and D)
F) B) and C)

Exam 24: Measuring the Cost of Living

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

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The price index was 120 in 2006 and 127.2 in 2007.What was the inflation rate?

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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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For purposes of calculating the CPI,the transportation category of consumer spending includes the cost of

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Which of the following statements is correct?

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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

The steps involved in calculating the consumer price index and the inflation rate,in order,are as follows:

Correct AnswerverifiedShow Answer

If you currently make $25,000 a year and the CPI rises from 110 today to 150 in five years,then you need to be making $43,333.33 in five years to have kept pace with consumer price inflation.

Correct AnswerverifiedShow Answer

If the CPI was 108.00 in 1942 and is 336.96 today,then $10 in 1942 purchased the same amount of goods and services as

Correct AnswerverifiedShow Answer

If the quality of a good deteriorates while its price remains the same,then the value of a dollar

Correct AnswerverifiedShow Answer

Corey deposits $1,000 in a savings account that pays an annual interest rate of 5 percent.Over the course of a year,the inflation rate is 1.7 percent.At the end of the year,Corey has

Correct AnswerverifiedShow Answer

If the CPI was 104 in 1967 and is 390 today,then $10 in 1967 purchased the same amount of goods and services as

Correct AnswerverifiedShow Answer

In a particular economy,the price index was 270 in 2005 and 300 in 2006.Which of the following statements is correct?

Correct AnswerverifiedShow Answer

The CPI does not reflect the increase in the value of the dollar that arises from the introduction of new goods.

Correct AnswerverifiedShow Answer

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. -Refer to Table 11-6.Between 2009 and 2011,the cost of living increased by

Correct AnswerverifiedShow Answer

Scenario 24-2 A small economy produced and consumed goods X and Y in 2010 and 2011 in the amounts shown in the table below.Assume that the market basket for the CPI is defined in the base year. -Refer to Scenario 24-2.Using 2011 as the base year,what is the inflation rate in 2011?

Correct AnswerverifiedThe inflat...View AnswerShow Answer

Several studies in the 1990s concluded that the consumer price index overstated inflation by about

Correct AnswerverifiedShow Answer

When the relative price of a good decreases,consumers respond by buying

Correct AnswerverifiedShow Answer

Marion collected Social Security payments of $250 a month in 1985.If the price index rose from 90 to 108 between 1985 and 1986,then her Social Security payments for 1986 should have been

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

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