Question 1

Suppose that U.S. mining companies purchase German-made ore trucks at a reduced price. By itself, what effect will this purchase have on the GDP deflator and on the consumer price index?

Accepted Answer

A)  The consumer price index and the GDP deflator will both fall.
B)  The consumer price index and the GDP deflator will both be unaffected.
C)  The consumer price index will fall, and the GDP deflator will be unaffected.
D)  The consumer price index will be unaffected, and the GDP deflator will fall.E) A) and C)
F) B) and C)

Question 2

Which of the following is not an example of a price index computed by the Bureau of Labor Statistics?

Accepted Answer

A)  the Los Angeles price index
B)  the energy price index
C)  the producer price index
D)  the stock price indexE) All of the above
F) C) and D)

Question 3

Ethel purchased a bag of groceries in 1970 for $8. She purchased the same bag of groceries in 2006 for $25. If the price index was 38.8 in 1970 and the price index was 180 in 2006, then what is the price of the 1970 bag of groceries in 2006 dollars?

Accepted Answer

A)  $5.39
B)  $25.00
C)  $29.11
D)  $37.11E) None of the above
F) B) and C)

Question 4

A COLA automatically raises the wage when

Accepted Answer

A)  GDP increases.
B)  taxes increase.
C)  the consumer price index increases.
D)  the producer price index increases.E) A) and B)
F) C) and D)

Question 5

Suppose that over the past year, the real interest rate was 5 percent and the inflation rate was 3 percent. It follows that

Accepted Answer

A)  the dollar value of savings increased at 5 percent, and the purchasing power of savings increased at 2 percent.
B)  the dollar value of savings increased at 5 percent, and the purchasing power of savings increased at 8 percent.
C)  the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 2 percent.
D)  the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 5 percent.E) C) and D)
F) None of the above

Question 6

To which of the problems in the construction of the CPI is the invention of pocket-sized computers most relevant?

Accepted Answer

A)  substitution bias
B)  introduction of new goods
C)  unmeasured quality change
D)  income biasE) A) and D)
F) B) and C)

Question 7

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

Accepted Answer

A)  -2 percent.
B)  0.4 percent.
C)  2 percent.
D)  12 percent.E) A) and D)
F) All of the above

Question 8

In addition to the consumer price index, the Bureau of Labor Statistics also calculates the

Accepted Answer

A)  macroeconomic price index.
B)  producer price index.
C)  rental unit price index.
D)  terms of trade.E) None of the above
F) B) and D)

Question 9

Suppose the price of a gallon of ice cream rises from $4 to $5 and the price of a can of coffee rises from $2 to $2.50. If the CPI rises from 150 to 177, then people likely will buy

Accepted Answer

A)  more ice cream and more coffee.
B)  more ice cream and less coffee.
C)  less ice cream and more coffee.
D)  less ice cream and less coffee.E) A) and B)
F) A) and C)

Question 10

Suppose the price index was 105 in 2007, 115.5 in 2008, and the inflation rate was lower between 2008 and 2009 than it was between 2007 and 2008. This means that

Accepted Answer

A)  the price index in 2009 was lower than 115.5.
B)  the price index in 2009 was lower than 126.
C)  the price index in 2009 was lower than 127.05.
D)  the inflation rate between 2008 and 2009 was lower than 1.1 percent.E) A) and C)
F) A) and B)

Question 11

An increase in the price of Irish whiskey imported into the United States 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) None of the above
F) B) and C)

Question 12

Sophia puts money in the bank and earns a 5 percent nominal interest rate. If the inflation rate is 2 percent, then after one year,

Accepted Answer

A)  Sophia will have 3 percent more money, which will purchase 5 percent more goods.
B)  Sophia will have 3 percent more money, which will purchase 7 percent more goods.
C)  Sophia will have 5 percent more money, which will purchase 3 percent more goods.
D)  Sophia will have 5 percent more money, which will purchase 7 percent more goods.E) All of the above
F) A) and B)

Question 13

Suppose that over the past year, the real interest rate was 3 percent and the inflation rate was -1 percent. It follows that

Accepted Answer

A)  the dollar value of savings increased at 2 percent, and the purchasing power of savings increased at 3 percent.
B)  the dollar value of savings increased at 2 percent, and the purchasing power of savings increased at 4 percent.
C)  the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 2 percent.
D)  the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 3 percent.E) C) and D)
F) All of the above

Question 14

An increase in the price of dairy products produced domestically will be reflected in

Accepted Answer

A)  both the GDP deflator and the consumer price index.
B)  neither the GDP deflator nor the consumer price index.
C)  the GDP deflator but not in the consumer price index.
D)  the consumer price index but not in the GDP deflator.E) A) and B)
F) B) and D)

Question 15

Assume that consumers consider rice and potatoes to be substitutes, so that when the price of rice rises, consumers purchase less rice and more potatoes. When the CPI is computed following the increase in the price of rice, it takes into account

Accepted Answer

A)  the increase in the price of rice.
B)  the decrease in the quantity of rice purchased and the increase in the quantity of potatoes purchased.
C)  Both (a)  and (b)  are correct.
D)  None of the above is correct.E) A) and B)
F) A) and C)

Question 16

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 17

Data from the Bureau of Labor Statistics show that the largest category of consumer spending is housing.

Accepted Answer

A) True 
 B)False

Question 18

If the nominal interest rate is 5 percent and the rate of inflation is 9 percent, then the real interest rate is

Accepted Answer

A)  -4 percent.
B)  -0.44 percent.
C)  4 percent.
D)  14 percent.E) A) and B)
F) A) and D)

Question 19

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) A) and C)
F) A) and D)

Question 20

Which of the following statements about real and nominal interest rates is correct?

Accepted Answer

A)  Real interest rates can be either positive or negative, but nominal interest rates must be positive.
B)  Real interest rates and nominal interest rates must be positive.
C)  Real interest rates must be positive, but nominal interest rates can be either positive or negative.
D)  Real interest rates and nominal interest rates can be either positive or negative.E) C) and D)
F) None of the above

Exam 11: Measuring the Cost of Living

To which of the problems in the construction of the CPI is the invention of pocket-sized computers most relevant?

Correct AnswerverifiedShow Answer

If the nominal interest rate is 5 percent and the rate of inflation is 9 percent, then the real interest rate is

Correct AnswerverifiedShow Answer

In addition to the consumer price index, the Bureau of Labor Statistics also calculates the

Correct AnswerverifiedShow Answer

Suppose that over the past year, the real interest rate was 5 percent and the inflation rate was 3 percent. It follows that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose that U.S. mining companies purchase German-made ore trucks at a reduced price. By itself, what effect will this purchase have on the GDP deflator and on the consumer price index?

Correct AnswerverifiedShow Answer

A COLA automatically raises the wage when

Correct AnswerverifiedShow Answer

Assume that consumers consider rice and potatoes to be substitutes, so that when the price of rice rises, consumers purchase less rice and more potatoes. When the CPI is computed following the increase in the price of rice, it takes into account

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

Ethel purchased a bag of groceries in 1970 for $8. She purchased the same bag of groceries in 2006 for $25. If the price index was 38.8 in 1970 and the price index was 180 in 2006, then what is the price of the 1970 bag of groceries in 2006 dollars?

Correct AnswerverifiedShow Answer

Suppose that over the past year, the real interest rate was 3 percent and the inflation rate was -1 percent. It follows that

Correct AnswerverifiedShow Answer

An increase in the price of dairy products produced domestically will be reflected in

Correct AnswerverifiedShow Answer

Which of the following is not an example of a price index computed by the Bureau of Labor Statistics?

Correct AnswerverifiedShow Answer

An increase in the price of Irish whiskey imported into the United States will be reflected in

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

Data from the Bureau of Labor Statistics show that the largest category of consumer spending is housing.

Correct AnswerverifiedShow Answer

Suppose the price of a gallon of ice cream rises from $4 to $5 and the price of a can of coffee rises from $2 to $2.50. If the CPI rises from 150 to 177, then people likely will buy

Correct AnswerverifiedShow Answer

Sophia puts money in the bank and earns a 5 percent nominal interest rate. If the inflation rate is 2 percent, then after one year,

Correct AnswerverifiedShow Answer

Which of the following statements about real and nominal interest rates is correct?

Correct AnswerverifiedShow Answer

Suppose the price index was 105 in 2007, 115.5 in 2008, and the inflation rate was lower between 2008 and 2009 than it was between 2007 and 2008. This means that

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