Question 1

The real interest rate tells you

Accepted Answer

A)  how fast the number of dollars in your bank account rises over time.
B)  how fast the purchasing power of your bank account rises over time.
C)  the number of dollars in your bank account today.
D)  the purchasing power of your bank account today.E) A) and D)
F) B) and C)

Question 2

From 2008 to 2009,the CPI for medical care increased from 150.8 to 164.4.What was the inflation rate for medical care?

Accepted Answer

A)  4.4 percent
B)  7.6 percent
C)  9.0 percent
D)  12.1 percentE) A) and D)
F) A) and C)

Question 3

In 1970,Professor Plum earned 12,000 dinars; in 1980,he earned 24,000; and in 1990,he earned 36,000.If the CPI was 40 in 1970,60 in 1980,and 100 in 1990,then in real terms,Professor Plum's salary was highest in

Accepted Answer

A)  1980 and lowest in 1970.
B)  1980 and lowest in 1990.
C)  1990 and lowest in 1970.
D)  1990 and lowest in 1980.E) A) and D)
F) None of the above

Question 4

The consumer price index tires to measure how much consumer incomes must rise in order to maintain a constant

Accepted Answer

A)  level of real GDP.
B)  ratio of consumption to GDP.
C)  ratio of net exports to GDP.
D)  standard of living.E) B) and D)
F) B) and C)

Question 5

Indexation refers to

Accepted Answer

A)  a process of adjusting the nominal interest rate so that it is equal to the real interest rate.
B)  using a law or contract to automatically correct a dollar amount for the effects of inflation.
C)  using a price index to deflate dollar values.
D)  an adjustment made by the Bureau of Labor Statistics to the CPI so that the index is in line with the GDP deflator.E) B) and C)
F) A) and C)

Question 6

If the nominal interest rate is 8 percent and the rate of inflation is 3 percent,then the real interest rate is

Accepted Answer

A)  -5 percent.
B)  1.67 percent.
C)  5 percent.
D)  11 percent.E) A) and D)
F) All of the above

Question 7

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) B) and D)
F) B) and C)

Question 8

To which of the problems in the construction of the CPI is the creation of the mobile phone most relevant?

Accepted Answer

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

Question 9

The consumer price index is used to monitor changes in an economy's production of goods and services over time.

Accepted Answer

A) True 
 B)False

Question 10

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 account for consumer spending on housing.
B)  accounts only for consumer spending on food,clothing,and energy.
C)  fails to account for the fact that consumers spend larger percentages of their incomes on some goods and smaller percentages of their incomes on other goods.
D)  fails to account for the introduction of new goods.E) A) and D)
F) B) and D)

Question 11

Which is likely to have the larger effect on the CPI,a 2 percent increase in the price of food or a 3 percent increase in the price of diamond rings?
 Explain.

Accepted Answer

The 2 percent increase in the ...

Question 12

By far the largest category of goods and services in the CPI basket is

Accepted Answer

A)  housing.
B)  transportation.
C)  education & communication.
D)  food & beverages.E) A) and D)
F) A) and C)

Question 13

When the relative price of a good increases,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 B)
F) None of the above

Question 14

Jay and Joyce meet George,the banker,to work out the details of a mortgage.They all expect that inflation will be 2 percent over the term of the loan,and they agree on a nominal interest rate of 6 percent.As it turns out,the inflation rate is 5 percent over the term of the loan.
a.What was the expected real interest rate?
b.What was the actual real interest rate?
c.Who benefited and who lost because of the unexpected inflation?

Accepted Answer

a.
The expected real interest rate was 4...

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

The primary purpose of measuring the overall level of prices in the economy is to

Accepted Answer

A)  allow for the measurement of GDP.
B)  allow consumers to know what kinds of prices to expect in the future.
C)  allow for the comparison of dollar figures from different points in time.
D)  allow for the comparison of dollar figures from the same point in time.E) A) and D)
F) B) and D)

Question 17

The nominal interest rate tells you

Accepted Answer

A)  how fast the number of dollars in your bank account rises over time.
B)  how fast the purchasing power of your bank account rises over time.
C)  the number of dollars in your bank account today.
D)  the purchasing power of your bank account today.E) B) and C)
F) A) and C)

Question 18

Which of the following is correct?

Accepted Answer

A)  The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers.
B)  The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers.
C)  The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers.
D)  The GDP deflator is more commonly used as a gauge of inflation than the CPI is.E) None of the above
F) All of the above

Question 19

The price index was 110 in the first year,100 in the second year,and 96 in the third year.The economy experienced

Accepted Answer

A)  9.1 percent deflation between the first and second years,and 4 percent deflation between the second and third years.
B)  9.1 percent deflation between the first and second years,and 4.2 percent deflation between the second and third years.
C)  10 percent deflation between the first and second years,and 4 percent deflation between the second and third years.
D)  10 percent deflation between the first and second years,and 4.2 percent deflation between the second and third years.E) C) and D)
F) All of the above

Question 20

List the three major problems in using the CPI as a measure of the cost of living.

Accepted Answer

(1)Substitution bias.The CPI ignores the...

Exam 24: Measuring the Cost of Living

Which of the following is correct?

Correct Answer
verified

The primary purpose of measuring the overall level of prices in the economy is to

Correct Answer
verified

If the nominal interest rate is 8 percent and the rate of inflation is 3 percent,then the real interest rate is

Correct Answer
verified

List the three major problems in using the CPI as a measure of the cost of living.

Correct Answer
verified
(1)Substitution bias.The CPI ignores the...
View Answer

The consumer price index tires to measure how much consumer incomes must rise in order to maintain a constant

Correct Answer
verified

The consumer price index is used to monitor changes in an economy's production of goods and services over time.

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

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

Correct Answer
verified

The real interest rate tells you

Correct Answer
verified

Indexation refers to

Correct Answer
verified

In 1970,Professor Plum earned 12,000 dinars; in 1980,he earned 24,000; and in 1990,he earned 36,000.If the CPI was 40 in 1970,60 in 1980,and 100 in 1990,then in real terms,Professor Plum's salary was highest in

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified
a.
The expected real interest rate was 4...
View Answer

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

Correct Answer
verified

Which is likely to have the larger effect on the CPI,a 2 percent increase in the price of food or a 3 percent increase in the price of diamond rings? Explain.

Correct Answer
verified
The 2 percent increase in the ...
View Answer

From 2008 to 2009,the CPI for medical care increased from 150.8 to 164.4.What was the inflation rate for medical care?

Correct Answer
verified

The price index was 110 in the first year,100 in the second year,and 96 in the third year.The economy experienced

Correct Answer
verified

By far the largest category of goods and services in the CPI basket is

Correct Answer
verified

To which of the problems in the construction of the CPI is the creation of the mobile phone most relevant?

Correct Answer
verified

The nominal interest rate tells you

Correct Answer
verified

Exam 24: Measuring the Cost of Living

Which of the following is correct?

Correct AnswerverifiedShow Answer

The primary purpose of measuring the overall level of prices in the economy is to

Correct AnswerverifiedShow Answer

If the nominal interest rate is 8 percent and the rate of inflation is 3 percent,then the real interest rate is

Correct AnswerverifiedShow Answer

List the three major problems in using the CPI as a measure of the cost of living.

Correct Answerverified(1)Substitution bias.The CPI ignores the...View AnswerShow Answer

The consumer price index tires to measure how much consumer incomes must rise in order to maintain a constant

Correct AnswerverifiedShow Answer

The consumer price index is used to monitor changes in an economy's production of goods and services over time.

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

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

Correct AnswerverifiedShow Answer

The real interest rate tells you

Correct AnswerverifiedShow Answer

Indexation refers to

Correct AnswerverifiedShow Answer

In 1970,Professor Plum earned 12,000 dinars; in 1980,he earned 24,000; and in 1990,he earned 36,000.If the CPI was 40 in 1970,60 in 1980,and 100 in 1990,then in real terms,Professor Plum's salary was highest in

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answerverifieda.The expected real interest rate was 4...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Which is likely to have the larger effect on the CPI,a 2 percent increase in the price of food or a 3 percent increase in the price of diamond rings? Explain.

Correct AnswerverifiedThe 2 percent increase in the ...View AnswerShow Answer

From 2008 to 2009,the CPI for medical care increased from 150.8 to 164.4.What was the inflation rate for medical care?

Correct AnswerverifiedShow Answer

The price index was 110 in the first year,100 in the second year,and 96 in the third year.The economy experienced

Correct AnswerverifiedShow Answer

By far the largest category of goods and services in the CPI basket is

Correct AnswerverifiedShow Answer

To which of the problems in the construction of the CPI is the creation of the mobile phone most relevant?

Correct AnswerverifiedShow Answer

The nominal interest rate tells you

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
verified
(1)Substitution bias.The CPI ignores the...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
a.
The expected real interest rate was 4...
View Answer

Correct Answer
verified

Correct Answer
verified
The 2 percent increase in the ...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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