Question 1

Table 24-5
The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. 
-Refer to Table 24-5. If the base year is 2004, then the CPI in 2004 was

Accepted Answer

A)   0.
B)   1.
C)   80.
D)   100.E) A) and C)
F) A) and D)

Question 2

The Bureau of Labor Statistics is part of the U.S. Department of Labor.

Accepted Answer

A) True 
 B)False

Question 3

Suppose the quality of televisions changes over time, but the quality change goes unmeasured for the purpose of computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality change be most severe?

Accepted Answer

A)   The quality of televisions deteriorates and televisions become more expensive relative to other goods.
B)   The quality of televisions improves and televisions become less expensive relative to other goods.
C)   The quality of televisions improves and televisions become more expensive relative to other goods.
D)   The quality of televisions deteriorates and the price of televisions relative to other prices remains unchanged.E) None of the above
F) A) and B)

Question 4

The term inflation is used to describe a situation in which

Accepted Answer

A)   the overall level of prices in the economy is increasing.
B)   incomes in the economy are increasing.
C)   stock-market prices are rising.
D)   the economy is growing rapidly.E) B) and C)
F) All of the above

Question 5

Suppose the price index was 100 in 2014, 109 in 2015, and the inflation rate was lower between 2015 and 2016 than it was between 2014 and 2015. This means that

Accepted Answer

A)   the price index in 2016 was lower than 109.0.
B)   the price index in 2016 was lower than 118.9.
C)   the price index in 2016 was lower than 118.0.
D)   the inflation rate between 2015 and 2016 was lower than 1.09 percent.E) A) and C)
F) A) and B)

Question 6

The price index was 170 in the first year, 180 in the second year, and 195 in the third year. The inflation rate was about

Accepted Answer

A)   5.6 percent between the first and second years, and 7.7 percent between the second and third years.
B)   5.9 percent between the first and second years, and 8.3 percent between the second and third years.
C)   10 percent between the first and second years, and 15 percent between the second and third years.
D)   80 percent between the first and second years, and 95 percent between the second and third years.E) B) and D)
F) None of the above

Question 7

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

Question 8

Scenario 24-2
The price tag on a golf ball in 1975 read $0.20, and the price tag on a golf ball in 2005 read $2.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3.
-Refer to Scenario 24-2. In 1975 dollars, a 1975 golf ball cost $0.20 and a 2005 golf ball cost

Accepted Answer

A)   $0.55, so golf balls were cheaper in 1975.
B)   $0.55, so golf balls were cheaper in 2005.
C)   $7.32, so golf balls were cheaper in 1975.
D)   $7.32, so golf balls were cheaper in 2005.E) B) and C)
F) A) and B)

Question 9

One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI

Accepted Answer

A)   fails to measure all changes in the quality of goods.
B)   displays a housing bias.
C)   accounts for changes in prices of some goods, but prices of certain goods are assumed to remain constant.
D)   All of the above are correct.E) All of the above
F) C) and D)

Question 10

The CPI is a measure of the overall cost of

Accepted Answer

A)   the inputs purchased by a typical producer.
B)   the goods and services purchased by a typical consumer.
C)   the goods and services produced in the economy.
D)   the stocks on the New York Stock Exchange.E) C) and D)
F) All of the above

Question 11

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 12

Many economists believe the bias in the CPI is now only about half as large as it once was.

Accepted Answer

A) True 
 B)False

Question 13

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 14

With respect to the consumer price index, the substitution bias arises because

Accepted Answer

A)   prices of goods and services do not change in the same proportion from year to year.
B)   consumers are slow to adjust their buying patterns from year to year in response to price changes.
C)   consumers are eager to buy new products as they are introduced, despite their lack of full information about the quality of those products until they buy and use them.
D)   All of the above are correct.E) None of the above
F) All of the above

Question 15

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) All of the above
F) None of the above

Question 16

Ms. Lane borrowed $1,000 from her bank for one year at an interest rate of 10 percent. During that year, the price level went up by 15 percent. Which of the following statements is correct?

Accepted Answer

A)   Ms. Lane will repay the bank fewer dollars than she initially borrowed.
B)   Ms. Lane's repayment will give the bank less purchasing power than it originally loaned her.
C)   Ms. Lane's repayment will give the bank greater purchasing power than it originally loaned her.
D)   Ms. Lane's repayment will give the bank the same purchasing power that it originally loaned her.E) All of the above
F) A) and B)

Question 17

Table 24-8
The table below relates to the economy of Mainland, where the typical consumer's market basket consists of 2 televisions and 300 hamburgers. 
-Refer to Table 24-8. If the base year is 2014, then the consumer price index was

Accepted Answer

A)   80 in 2013, 100 in 2014, and 60 in 2015.
B)   98 in 2013, 100 in 2014, and 96 in 2015.
C)   90 in 2013, 100 in 2014, and 80 in 2015.
D)   180 in 2013, 200 in 2014, and 160 in 2015.E) A) and C)
F) None of the above

Question 18

Table 24-5
The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. 
-Refer to Table 24-5. If the base year is 2004, then the CPI in 2005 was

Accepted Answer

A)   88.9.
B)   90.
C)   100.
D)   112.5.E) A) and C)
F) B) and C)

Question 19

Jake loaned Elwood $5,000 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 $5,000. 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 C)
F) C) and D)

Question 20

The price index was 136 in one year and 142 in the next year. What was the inflation rate between the two years?

Accepted Answer

A)   1.04 percent
B)   4.41 percent
C)   6.00 percent
D)   42.00 percentE) B) and C)
F) All of the above

Exam 24: Measuring the Cost of Living

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
verified

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

Correct Answer
verified

Many economists believe the bias in the CPI is now only about half as large as it once was.

Correct Answer
verified

The term inflation is used to describe a situation in which

Correct Answer
verified

With respect to the consumer price index, the substitution bias arises because

Correct Answer
verified

Table 24-5 The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. -Refer to Table 24-5. If the base year is 2004, then the CPI in 2004 was

Correct Answer
verified

The CPI is a measure of the overall cost of

Correct Answer
verified

Suppose the price index was 100 in 2014, 109 in 2015, and the inflation rate was lower between 2015 and 2016 than it was between 2014 and 2015. This means that

Correct Answer
verified

Table 24-5 The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. -Refer to Table 24-5. If the base year is 2004, then the CPI in 2005 was

Correct Answer
verified

The price index was 136 in one year and 142 in the next year. What was the inflation rate between the two years?

Correct Answer
verified

Suppose the quality of televisions changes over time, but the quality change goes unmeasured for the purpose of computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality change be most severe?

Correct Answer
verified

The Bureau of Labor Statistics is part of the U.S. Department of Labor.

Correct Answer
verified

Table 24-8 The table below relates to the economy of Mainland, where the typical consumer's market basket consists of 2 televisions and 300 hamburgers. -Refer to Table 24-8. If the base year is 2014, then the consumer price index was

Correct Answer
verified

One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI

Correct Answer
verified

Scenario 24-2 The price tag on a golf ball in 1975 read $0.20, and the price tag on a golf ball in 2005 read $2.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3. -Refer to Scenario 24-2. In 1975 dollars, a 1975 golf ball cost $0.20 and a 2005 golf ball cost

Correct Answer
verified

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

Correct Answer
verified

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 Answer
verified

The price index was 170 in the first year, 180 in the second year, and 195 in the third year. The inflation rate was about

Correct Answer
verified

Correct Answer
verified

Ms. Lane borrowed $1,000 from her bank for one year at an interest rate of 10 percent. During that year, the price level went up by 15 percent. Which of the following statements is correct?

Correct Answer
verified

Exam 24: Measuring the Cost of Living

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

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

Correct AnswerverifiedShow Answer

Many economists believe the bias in the CPI is now only about half as large as it once was.

Correct AnswerverifiedShow Answer

The term inflation is used to describe a situation in which

Correct AnswerverifiedShow Answer

With respect to the consumer price index, the substitution bias arises because

Correct AnswerverifiedShow Answer

Table 24-5 The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. -Refer to Table 24-5. If the base year is 2004, then the CPI in 2004 was

Correct AnswerverifiedShow Answer

The CPI is a measure of the overall cost of

Correct AnswerverifiedShow Answer

Suppose the price index was 100 in 2014, 109 in 2015, and the inflation rate was lower between 2015 and 2016 than it was between 2014 and 2015. This means that

Correct AnswerverifiedShow Answer

Table 24-5 The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. -Refer to Table 24-5. If the base year is 2004, then the CPI in 2005 was

Correct AnswerverifiedShow Answer

The price index was 136 in one year and 142 in the next year. What was the inflation rate between the two years?

Correct AnswerverifiedShow Answer

Suppose the quality of televisions changes over time, but the quality change goes unmeasured for the purpose of computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality change be most severe?

Correct AnswerverifiedShow Answer

The Bureau of Labor Statistics is part of the U.S. Department of Labor.

Correct AnswerverifiedShow Answer

Table 24-8 The table below relates to the economy of Mainland, where the typical consumer's market basket consists of 2 televisions and 300 hamburgers. -Refer to Table 24-8. If the base year is 2014, then the consumer price index was

Correct AnswerverifiedShow Answer

One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI

Correct AnswerverifiedShow Answer

Scenario 24-2 The price tag on a golf ball in 1975 read $0.20, and the price tag on a golf ball in 2005 read $2.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3. -Refer to Scenario 24-2. In 1975 dollars, a 1975 golf ball cost $0.20 and a 2005 golf ball cost

Correct AnswerverifiedShow Answer

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

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

The price index was 170 in the first year, 180 in the second year, and 195 in the third year. The inflation rate was about

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Ms. Lane borrowed $1,000 from her bank for one year at an interest rate of 10 percent. During that year, the price level went up by 15 percent. Which of the following statements is correct?

Correct AnswerverifiedShow Answer

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