Question 1

PPP-adjustment involves:

Accepted Answer

A)   recalculating economic statistics to account for differences in price levels across countries.
B)   a method very similar to adjusting to cost-of-living increases using a price index like the CPI.
C)   recalculating a variable like GDP per capita so we can compare someone's standard of living across countries.
D)   All of these statements are true.E) A) and B)
F) C) and D)

Question 2

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

Accepted Answer

A)   A missile
B)   A gallon of milk
C)   A pair of khaki pants
D)   A tank of heating oilE) A) and D)
F) B) and C)

Question 3

The idea of purchasing power parity:

Accepted Answer

A)   always holds.
B)   rarely holds.
C)   explains why standards of living have changed over time.
D)   explains how standards of living is fixed over time.E) All of the above
F) A) and C)

Question 4

Suppose we want to know how much money your grandparents would have to earn now to have purchasing power equivalent to their income in 1969. We could:

Accepted Answer

A)   translate their nominal income in 1969 into constant, real dollars of today.
B)   translate their nominal income today into 1969 dollars.
C)   take a ratio of their income today with their income from 1969.
D)   None of these statements is true.E) A) and D)
F) All of the above

Question 5

PPP-adjustment:

Accepted Answer

A)   gives us a more realistic sense of differences in living standards around the world.
B)   allows us to see that poorer countries are not quite so poor as suggested by their nominal GDP per capita.
C)   gives us a realistic sense of how the living standards of the world's poorest citizens translate into dollar terms.
D)   All of these statements are true.E) None of the above
F) A) and B)

Question 6

Social Security payments were not indexed to adjust for inflation until:

Accepted Answer

A)   1940.
B)   1968.
C)   1975.
D)   1990.E) All of the above
F) B) and C)

Question 7

COLA stands for:

Accepted Answer

A)   cost-of-living adjustment.
B)   cost-of-living aggregate.
C)   capital operations leasing adjustment.
D)   capital operations leasing agreement.E) A) and B)
F) C) and D)

Question 8

The CPI is based on an:

Accepted Answer

A)   average of the goods and services purchased by "urban consumers."
B)   average of the goods and services purchased by "rural consumers."
C)   average of the two baskets of goods and services purchased both by "urban" and by "rural" consumers.
D)   aggregated average meant to reflect the statistical average consumption.E) A) and B)
F) None of the above

Question 9

As new goods and services become available the basket of goods used to calculate the CPI:

Accepted Answer

A)   immediately changes to reflect them.
B)   doesn't change until 75 percent of urban consumers use them.
C)   never changes to reflect them.
D)   periodically is updated in order to reflect the changes.E) B) and C)
F) None of the above

Question 10

When someone tells you they made $17,000 in 1970:

Accepted Answer

A)   it is difficult to tell from that number if the person was well off or not, because prices have changed so much since then.
B)   the income should be adjusted into current dollars to clearly understand what that salary is "worth" in terms of purchasing power.
C)   it is a nominal figure that is hard to understand. A real figure would be more helpful.
D)   All of these statements are true.E) All of the above
F) A) and D)

Question 11

According to the table shown, what can be said about the cost of living in 2012?

Accepted Answer

A)   The typical consumer must spend 5 % more in 2012 than he did in 2011 in order to buy the same goods.
B)   Every consumer will experience a 5 % increase in his cost of living from 2011.
C)   Whatever consumers bought in 2012 cost 5% more than what they spent in 2011.
D)   None of these statements is true.E) A) and B)
F) A) and C)

Question 12

Just as indexing allows us to compare the cost of living across different periods of time, the ____________ is used to allow us to compare the cost of living across different locations.

Accepted Answer

A)   consumer purchasing index
B)   purchasing power index
C)   producer purchasing index
D)   retail power parityE) B) and D)
F) A) and B)

Question 13

According to the table shown, which year is most likely being used for the base year?

Accepted Answer

A)   2010
B)   2011
C)   2012
D)   2013E) B) and C)
F) A) and C)

Question 14

Headline 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 with food and energy costs taken out of the basket.
D)   is inflation measured using the retail price index.E) All of the above
F) A) and D)

Question 15

An example of a nontradable good is:

Accepted Answer

A)   a lead-painted toy from China.
B)   a stack of firewood from Montreal, Canada.
C)   a dish of handmade pasta in Lucca, Italy.
D)   All of these would be considered a nontradable good.E) B) and C)
F) A) and D)

Question 16

The CPI basket of goods represents those goods and services purchased by urban consumers because it represents:

Accepted Answer

A)   over 80 percent of our population.
B)   over 90 percent of our population.
C)   78 percent of our population.
D)   60 percent of our population.E) B) and D)
F) B) and C)

Question 17

How can we use the information from the table shown to compare the real value of the 1979 salary to that of the one earned in 2009?

Accepted Answer

A)   You can see that the salary has increased from $43,265 to $170,844.
B)   You need to put the 2009 salary into real 2009 terms to compare it to 1979.
C)   You need to put both salaries into real dollars in the same year for comparison.
D)   There is no real way to compare the two without more information.E) All of the above
F) B) and C)

Question 18

We translate nominal income in any past year into constant, real dollars to:

Accepted Answer

A)   allow us to compare changes in purchasing power over time.
B)   see what an income we were earning in the past would be equivalent to today.
C)   understand what a salary in the past would equal in current dollars to determine how much more we have actually gained in purchasing power.
D)   All of these statements are true.E) A) and C)
F) None of the above

Question 19

Suppose the base year of the CPI is 2010, and the CPI calculated for 2012 was 102. What is the correct interpretation of this number?

Accepted Answer

A)   Average prices in the economy have increased by 102 % since 2010.
B)   Average prices in the economy have increased by 1.9 % since 2010.
C)   The cost of living for a typical consumer is 2 % higher than it was in 2010.
D)   The average goods of all consumers has risen an average of 2 % from 2010 to 2012.E) B) and D)
F) B) and C)

Question 20

In general we may note that inflation:

Accepted Answer

A)   doesn't necessarily harm purchasing power.
B)   always decreases purchasing power.
C)   always increases purchasing power.
D)   should try to be avoided at all costs.E) All of the above
F) A) and B)

Exam 8: The Cost of Living

As new goods and services become available the basket of goods used to calculate the CPI:

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PPP-adjustment:

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An example of a nontradable good is:

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Social Security payments were not indexed to adjust for inflation until:

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Just as indexing allows us to compare the cost of living across different periods of time, the ____________ is used to allow us to compare the cost of living across different locations.

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PPP-adjustment involves:

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When someone tells you they made $17,000 in 1970:

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We translate nominal income in any past year into constant, real dollars to:

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Suppose the base year of the CPI is 2010, and the CPI calculated for 2012 was 102. What is the correct interpretation of this number?

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In general we may note that inflation:

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COLA stands for:

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According to the table shown, what can be said about the cost of living in 2012?

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The idea of purchasing power parity:

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According to the table shown, which year is most likely being used for the base year?

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The CPI basket of goods represents those goods and services purchased by urban consumers because it represents:

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Headline inflation:

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

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The CPI is based on an:

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How can we use the information from the table shown to compare the real value of the 1979 salary to that of the one earned in 2009?

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Suppose we want to know how much money your grandparents would have to earn now to have purchasing power equivalent to their income in 1969. We could:

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