Question 1

When computing the cost of the basket of goods and services purchased by a typical consumer,which of the following changes from year to year?

Accepted Answer

A)  the quantities of the goods and services purchased
B)  the prices of the goods and services
C)  the goods and services making up the basket
D)  All of the above are correct.E) B) and D)
F) None of the above B

Question 2

Consumer price index = $\frac{\text{Price of basket of goods and services in base year}}{\text{Price of basket in current year}}$* 100.

Accepted Answer

A) True 
 B)False  False

Question 3

For an imaginary economy,the consumer price index was 115.00 in 2004,126.50 in 2005,and 136.62 in 2006.Which of the following statements is correct?

Accepted Answer

A)  For this economy,the base year must be 2004.
B)  If the basket of goods that is used to calculate the CPI cost $75.00 in the base year,then that basket of goods cost $115.00 in 2004.
C)  This economy's rate of inflation for 2006 is 10.12 percent.
D)  None of the above is correct.E) A) and B)
F) A) and C)

Question 4

If the current year CPI is 140,then the price level has increased 40 percent since the base year.

Accepted Answer

A) True 
 B)False

Question 5

Jake loaned Elwood 5,000 dollars for one year at a nominal interest rate of 10 percent.After Elwood repaid the loan in full,Jake complained that he could buy 4 percent fewer goods with the money Elwood gave him than he could before he loaned Elwood the money.From this,we can conclude that the rate of inflation during the year was

Accepted Answer

A)  -4 percent.
B)  4 percent.
C)  6 percent.
D)  14 percent.E) B) and D)
F) B) and C)

Question 6

The CPI is a measure of the overall cost of the goods and services bought by

Accepted Answer

A)  a typical consumer,and the CPI is computed and reported by the Department of the Treasury.
B)  typical consumers and typical business firms,and the CPI is computed and reported by the Department of the Treasury.
C)  a typical consumer,and the CPI is computed and reported by the Bureau of Labor Statistics.
D)  typical consumers and typical business firms,and the CPI is computed and reported by the Bureau of Labor Statistics.E) A) and B)
F) C) and D) C

Question 7

If the real interest rate is 5 percent and the inflation rate is 2 percent,then the nominal interest rate is 7 percent.

Accepted Answer

A) True 
 B)False

Question 8

The consumer price index is used to

Accepted Answer

A)  monitor changes in the level of wholesale prices in the economy.
B)  monitor changes in the cost of living over time.
C)  monitor changes in the level of real GDP over time.
D)  monitor changes in the stock market.E) All of the above
F) A) and B)

Question 9

The inflation rate is calculated

Accepted Answer

A)  by determining the change in the price index from the preceding period.
B)  by adding up the price increases of all goods and services.
C)  by computing a simple average of the price increases for all goods and services.
D)  by determining the percentage increase in the price index from the preceding period.E) B) and D)
F) All of the above

Question 10

By not taking into account the possibility of consumer substitution,the CPI

Accepted Answer

A)  understates the cost of living.
B)  overstates the cost of living.
C)  may overstate or understate the cost of living,depending on how quickly prices rise.
D)  may overstate or understate the cost of living,regardless of how quickly prices rise.E) B) and C)
F) All of the above

Question 11

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

Accepted Answer

A)  0.3 percent.
B)  1.7 percent.
C)  3.4 percent.
D)  10 percent.E) A) and B)
F) C) and D)

Question 12

Which of the following statements is correct about the relationship between inflation and interest rates?

Accepted Answer

A)  There is no relationship between inflation and interest rates.
B)  The interest rate is determined by the rate of inflation.
C)  In order to fully understand inflation,we need to know how to correct for the effects of interest rates.
D)  In order to fully understand interest rates,we need to know how to correct for the effects of inflation.E) A) and C)
F) None of the above

Question 13

In the calculation of the CPI,books are given greater weight than magazines if

Accepted Answer

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

Question 14

As long as prices are rising over time,then

Accepted Answer

A)  the nominal interest rate exceeds the real interest rate.
B)  the real interest rate exceeds the nominal interest rate.
C)  the real interest rate is positive.
D)  the nominal interest rate is a better indicator than the real interest rate of how fast the purchasing power of your bank account is changing over time.E) A) and B)
F) None of the above

Question 15

Which of the following changes in the price index produces the greatest rate of inflation: 80 to 100,100 to 120,or 150 to 170?

Accepted Answer

A)  80 to 100
B)  100 to 120
C)  150 to 170
D)  All of these changes produce the same rate of inflation.E) A) and B)
F) None of the above

Question 16

The substitution bias in the consumer price index refers to the

Accepted Answer

A)  substitution by consumers toward new goods and away from old goods.
B)  substitution by consumers toward a smaller number of high-quality goods and away from a larger number of low-quality goods.
C)  substitution by consumers toward goods that have become relatively less expensive and away from goods that have become relatively more expensive.
D)  substitution of new prices for old prices in the CPI basket of goods and services from one year to the next.E) A) and B)
F) A) and C)

Question 17

Which of the following is correct?

Accepted Answer

A)  Nominal and real interest rates always move together.
B)  Nominal and real interest rates never move together.
C)  Nominal and real interest rates do not always move together.
D)  Nominal and real interest rates always move in opposite directions.E) A) and B)
F) All of the above

Question 18

If the consumer price index was 100 in the base year and 107 in the following year,then the inflation rate was

Accepted Answer

A)  1.07 percent.
B)  7 percent.
C)  10.7 percent.
D)  107 percent.E) C) and D)
F) A) and B)

Question 19

When the consumer price index is computed,the base year is always the first year among the years being considered.

Accepted Answer

A) True 
 B)False

Question 20

If the consumer price index is 120 in 2009 and 139.2 in 2010,then the rate of inflation for 2010 is 39.2 percent.

Accepted Answer

A) True 
 B)False

Exam 24: Measuring the Cost of Living

When computing the cost of the basket of goods and services purchased by a typical consumer,which of the following changes from year to year?

Correct Answer
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B

Consumer price index = $\frac{\text{Price of basket of goods and services in base year}}{\text{Price of basket in current year}}$ * 100.

Correct Answer
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False

For an imaginary economy,the consumer price index was 115.00 in 2004,126.50 in 2005,and 136.62 in 2006.Which of the following statements is correct?

Correct Answer
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If the current year CPI is 140,then the price level has increased 40 percent since the base year.

Correct Answer
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Correct Answer
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The CPI is a measure of the overall cost of the goods and services bought by

Correct Answer
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C

If the real interest rate is 5 percent and the inflation rate is 2 percent,then the nominal interest rate is 7 percent.

Correct Answer
verified

The consumer price index is used to

Correct Answer
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The inflation rate is calculated

Correct Answer
verified

By not taking into account the possibility of consumer substitution,the CPI

Correct Answer
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If the cost of transportation increases by 20 percent,then,other things the same,the CPI is likely to increase by about

Correct Answer
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Which of the following statements is correct about the relationship between inflation and interest rates?

Correct Answer
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In the calculation of the CPI,books are given greater weight than magazines if

Correct Answer
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As long as prices are rising over time,then

Correct Answer
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Which of the following changes in the price index produces the greatest rate of inflation: 80 to 100,100 to 120,or 150 to 170?

Correct Answer
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The substitution bias in the consumer price index refers to the

Correct Answer
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Which of the following is correct?

Correct Answer
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If the consumer price index was 100 in the base year and 107 in the following year,then the inflation rate was

Correct Answer
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When the consumer price index is computed,the base year is always the first year among the years being considered.

Correct Answer
verified

If the consumer price index is 120 in 2009 and 139.2 in 2010,then the rate of inflation for 2010 is 39.2 percent.

Correct Answer
verified

Exam 24: Measuring the Cost of Living

When computing the cost of the basket of goods and services purchased by a typical consumer,which of the following changes from year to year?

Correct AnswerverifiedB

Consumer price index = Price of basket of goods and services in base yearPrice of basket in current year\frac{\text{Price of basket of goods and services in base year}}{\text{Price of basket in current year}}Price of basket in current yearPrice of basket of goods and services in base year​ * 100.

Correct AnswerverifiedFalse

For an imaginary economy,the consumer price index was 115.00 in 2004,126.50 in 2005,and 136.62 in 2006.Which of the following statements is correct?

Correct AnswerverifiedShow Answer

If the current year CPI is 140,then the price level has increased 40 percent since the base year.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The CPI is a measure of the overall cost of the goods and services bought by

Correct AnswerverifiedC

If the real interest rate is 5 percent and the inflation rate is 2 percent,then the nominal interest rate is 7 percent.

Correct AnswerverifiedShow Answer

The consumer price index is used to

Correct AnswerverifiedShow Answer

The inflation rate is calculated

Correct AnswerverifiedShow Answer

By not taking into account the possibility of consumer substitution,the CPI

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following statements is correct about the relationship between inflation and interest rates?

Correct AnswerverifiedShow Answer

In the calculation of the CPI,books are given greater weight than magazines if

Correct AnswerverifiedShow Answer

As long as prices are rising over time,then

Correct AnswerverifiedShow Answer

Which of the following changes in the price index produces the greatest rate of inflation: 80 to 100,100 to 120,or 150 to 170?

Correct AnswerverifiedShow Answer

The substitution bias in the consumer price index refers to the

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

If the consumer price index was 100 in the base year and 107 in the following year,then the inflation rate was

Correct AnswerverifiedShow Answer

When the consumer price index is computed,the base year is always the first year among the years being considered.

Correct AnswerverifiedShow Answer

If the consumer price index is 120 in 2009 and 139.2 in 2010,then the rate of inflation for 2010 is 39.2 percent.

Correct AnswerverifiedShow Answer

Correct Answer
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B

Consumer price index = $\frac{\text{Price of basket of goods and services in base year}}{\text{Price of basket in current year}}$ * 100.

Correct Answer
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False

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C

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