Question 1

The GDP deflator does not differ from the CPI in its measurement of inflation in that it:

Accepted Answer

A)   measures the price changes of all goods, not just those in a typical consumer's basket.
B)   uses the total quantities that are produced, not the ratio of what a typical consumer might consume.
C)   does not include imports, which may have a real effect on the typical consumer's cost of living.
D)   is the most widely used measure of price level changes for goods and services for consumers.E) A) and D)
F) B) and D)

Question 2

Product innovation:

Accepted Answer

A)   presents a problem for those calculating the CPI because they use a fixed basket of goods.
B)   is accurately reflected in the basket of goods.
C)   doesn't cause the CPI to be overestimated.
D)   is not an issue for the CPI since it uses a fixed basket of goods and services.E) B) and C)
F) A) and D)

Question 3

Nontradables are goods or services that:

Accepted Answer

A)   can't be taken from place to place very easily or at all.
B)   are cultural specific and not typically traded for that reason.
C)   can't legally cross a country's borders.
D)   are not allowed to leave a country.E) A) and C)
F) A) and B)

Question 4

Regardless of the index we use:

Accepted Answer

A)   inflation is measured as a percent increase in the index from one year to the next.
B)   we get the same measurements for inflation, so each is equally useful.
C)   the measurement of inflation is the same, so we use the one easiest to calculate.
D)   we should get an accurate picture of how all consumer goods and services prices changed from year to year.E) A) and D)
F) C) and D)

Question 5

Your father tells you he earned a salary of $45,000 a year in 1980. This salary figure is the:

Accepted Answer

A)   nominal value of his salary in 1980.
B)   real value of his salary in 1980.
C)   value of his salary adjusted to 2009 dollars.
D)   value of his salary adjusted for inflation.E) None of the above
F) All of the above

Question 6

Social Security payments were:

Accepted Answer

A)   not originally adjusted for inflation, causing the real value to retirees to increase over time.
B)   not originally adjusted for inflation, causing the real value to retirees to decrease over time.
C)   originally adjusted for inflation, causing the real value to retirees to increase over time.
D)   originally adjusted for inflation, causing the real value to retirees to decrease over time.E) B) and D)
F) None of the above

Question 7

Transactions costs prevent purchasing power parity from holding because:

Accepted Answer

A)   they make creating exchanges too costly in some places.
B)   they include the expense of transporting the goods to be sold in another country.
C)   the price of a good sold in another country must include the cost of getting it there, which can be high and cause a large price differential.
D)   All of these statements are true.E) A) and D)
F) None of the above D

Question 8

Using the information in the table shown, what can be said about the rate of inflation?

Accepted Answer

A)   Deflation occurred before 2007, then inflation occurred.
B)   Deflation occurred until 2009, then inflation occurred.
C)   Inflation occurred every year from 2005 to 2009.
D)   Inflation was the largest from 2005 to 2006.E) A) and C)
F) B) and C)

Question 9

The Big Mac index:

Accepted Answer

A)   is measured by The Economist.
B)   is a simple measure that indicates differing costs of living in different countries.
C)   converts the price of a Big Mac worldwide to dollars, and compares it to how much they cost in the U.S.
D)   All of these statements are true.E) B) and D)
F) B) and C)

Question 10

Core inflation is measured because the prices of:

Accepted Answer

A)   food and energy costs fluctuate frequently and can distort actual changes in the cost of living.
B)   retail consumption items fluctuate frequently and can distort actual changes in the cost of living.
C)   nondurable goods fluctuate more frequently than the prices of durable goods; therefore, removing them from the basket prevents potential distortion.
D)   durable goods fluctuate more frequently than the prices of nondurable goods; therefore, removing them from the basket prevents potential distortion.E) None of the above
F) B) and D)

Question 11

Comparing the cost of the same basket of goods in different locations:

Accepted Answer

A)   can create a price index to evaluate purchasing power across different locations.
B)   is based on the theory of purchasing power parity.
C)   can be used for international price comparisons.
D)   All of these statements are true.E) A) and B)
F) A) and C)

Question 12

When Social Security checks were first issued the nominal amount:

Accepted Answer

A)   stayed the same for the life of the payments.
B)   regularly increased by 5 % every 3 months.
C)   regularly increased by 10 % every 3 years.
D)   stayed 3% above the poverty level for all recipients.E) B) and C)
F) A) and D)

Question 13

This table shows the price-level adjustment as compared to the United States.  According to the information in the table shown, if someone were earning $30,000 in the United States, approximately what would they have to earn in China to have the same standard of living?

Accepted Answer

A)   $40,000
B)   $7,500
C)   $22,500
D)   $15,000E) B) and C)
F) A) and D)

Question 14

In 1976, the cost of a movie was $4. In 2012, it's $9. If the CPI for 1976 is 56, and 228 for 2012, then we could say the cost of a 1976 movie in 2012 would be:

Accepted Answer

A)   $16.29, so the cost of movies has not increased as much as general inflation.
B)   $16.29, so the cost of movies is relatively more in 2012 than it was in 1976.
C)   $2.21, so the cost of movies has not increased as much as general inflation.
D)   $2.21, so the cost of movies is relatively more in 2012 than it was in 1976.E) A) and C)
F) A) and D)

Question 15

The "urban consumers" that the CPI is based on includes anyone living in a city of:

Accepted Answer

A)   2,500 or more.
B)   50,000 or more.
C)   100,000 or more.
D)   150,000 or more.E) B) and C)
F) A) and D)

Question 16

Which of the following reasons can explain why purchasing power parity doesn't hold?

Accepted Answer

A)   Transactions costs
B)   Political pressures
C)   Fixed prices
D)   All of these are reasons why purchasing power parity doesn't hold.E) A) and C)
F) A) and B)

Question 17

When the market basket is tracked over time the goods within the basket:

Accepted Answer

A)   remain the same, so only changing prices are captured.
B)   reflect the typical consumer each year, so it captures how consumers are affected each year.
C)   reflect the typical consumer each year, but prices are held constant, so it captures if we are consuming more or less as an economy.
D)   remain the same, but some prices are held constant on items that are important to consumers.E) None of the above
F) B) and D)

Question 18

In practice, the three measurements of inflation, the CPI, PPI, and GDP deflator:

Accepted Answer

A)   all closely track each other.
B)   are all positively correlated.
C)   all measure inflation, but focus on different parts of the economy.
D)   All of these statements are true.E) C) and D)
F) B) and D)

Question 19

A market basket:

Accepted Answer

A)   is a tool devised to track how changing prices affect consumers.
B)   includes all the goods and services produced in an economy.
C)   includes all the goods and services consumed in an economy, including imports.
D)   includes all the goods and services consumed in an economy, including net exports.E) A) and C)
F) C) and D) A

Question 20

The urban consumers that the CPI is based on does not include:

Accepted Answer

A)   the unemployed.
B)   the retired.
C)   persons in prison.
D)   the CPI does not include any of these.E) None of the above
F) C) and D) C

Exam 8: The Cost of Living

The GDP deflator does not differ from the CPI in its measurement of inflation in that it:

Correct AnswerverifiedShow Answer

Product innovation:

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Nontradables are goods or services that:

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Regardless of the index we use:

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Your father tells you he earned a salary of $45,000 a year in 1980. This salary figure is the:

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Social Security payments were:

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Transactions costs prevent purchasing power parity from holding because:

Correct AnswerverifiedD

Using the information in the table shown, what can be said about the rate of inflation?

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The Big Mac index:

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Core inflation is measured because the prices of:

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Comparing the cost of the same basket of goods in different locations:

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When Social Security checks were first issued the nominal amount:

Correct AnswerverifiedShow Answer

This table shows the price-level adjustment as compared to the United States. According to the information in the table shown, if someone were earning $30,000 in the United States, approximately what would they have to earn in China to have the same standard of living?

Correct AnswerverifiedShow Answer

In 1976, the cost of a movie was $4. In 2012, it's $9. If the CPI for 1976 is 56, and 228 for 2012, then we could say the cost of a 1976 movie in 2012 would be:

Correct AnswerverifiedShow Answer

The "urban consumers" that the CPI is based on includes anyone living in a city of:

Correct AnswerverifiedShow Answer

Which of the following reasons can explain why purchasing power parity doesn't hold?

Correct AnswerverifiedShow Answer

When the market basket is tracked over time the goods within the basket:

Correct AnswerverifiedShow Answer

In practice, the three measurements of inflation, the CPI, PPI, and GDP deflator:

Correct AnswerverifiedShow Answer

A market basket:

Correct AnswerverifiedA

The urban consumers that the CPI is based on does not include:

Correct AnswerverifiedC

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