Question 1

Which of the following is not correct?

Accepted Answer

A)   If the inflation rate exceeds the nominal interest rate,then the purchasing power of an interest-earning deposit falls over time.
B)   If there is deflation,then the purchasing power of an interest-earning deposit rises by more than the nominal interest rate over time.
C)   The higher the rate of inflation,the smaller the increase in the purchasing power of an interest-earning deposit.
D)   The purchasing power of an interest-earning deposit can increase or decrease over time,but it cannot stay the same.E) A) and B)
F) C) and D)

Question 2

In the U.S.,when the price of oil rises,the CPI rises by much more than does the GDP deflator.

Accepted Answer

A) True 
 B)False

Question 3

In 1931,President Herbert Hoover was paid a salary of $75,000.Government statistics show a consumer price index of 15.2 for 1931 and 214.5 for 2009.President Hoover's 1931 salary was equivalent to a 2009 salary of about

Accepted Answer

A)   $5,507.
B)   $1,058,388.
C)   $1,140,000.
D)   $15,525,000.E) C) and D)
F) A) and B)

Question 4

Suppose OPEC succeeds in raising world oil prices by 300 percent.This price increase causes inventors to look at alternative sources of fuel for internal-combustion engines.A hydrogen-powered engine is developed which is cheaper to operate than gasoline engines.Which problems in the construction of the CPI does this situation represent?

Accepted Answer

A)   substitution bias and introduction of new goods
B)   introduction of new goods and unmeasured quality change
C)   substitution bias and unmeasured quality change
D)   income bias and substitution biasE) C) and D)
F) None of the above

Question 5

In 1969,Malcolm bought a Pontiac Firebird for $2,500.If the price index was 36.7 in 1969 and the price index was 180 in 2009,then what is the price of the Firebird in 2009 dollars?

Accepted Answer

A)   $509.72
B)   $6,866.49
C)   $9,761.58
D)   $12,261.58E) C) and D)
F) A) and B)

Question 6

Which of the following pairs of values of the consumer price index (CPI) is consistent with an inflation rate of 14 percent for 2011?

Accepted Answer

A)   CPI in 2011 = 150; CPI in 2012 = 164
B)   CPI in 2011 = 150; CPI in 2012 = 171
C)   CPI in 2010 = 150; CPI in 2011 = 164
D)   CPI in 2010 = 150; CPI in 2011 = 171E) B) and C)
F) A) and D)

Question 7

The nominal interest rate tells you how fast the number of dollars in your bank account rises over time.

Accepted Answer

A) True 
 B)False

Question 8

Suppose that over the past year,the real interest rate was 6 percent and the inflation rate was 4 percent.It follows that

Accepted Answer

A)   the dollar value of savings increased at 6 percent,and the purchasing power of savings increased at 2 percent.
B)   the dollar value of savings increased at 6 percent,and the purchasing power of savings increased at 10 percent.
C)   the dollar value of savings increased at 10 percent,and the purchasing power of savings increased at 2 percent.
D)   the dollar value of savings increased at 10 percent,and the purchasing power of savings increased at 6 percent.E) A) and C)
F) C) and D)

Question 9

It is possible to observe a positive nominal interest rate together with a negative real interest rate.

Accepted Answer

A) True 
 B)False

Question 10

If the nominal interest rate is 5 percent and the real interest rate is 2 percent,then the inflation rate is 3 percent.

Accepted Answer

A) True 
 B)False

Question 11

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent.A year later,Bob withdraws his $105.If inflation was 2 percent during the year the money was deposited,then Bob's purchasing power has increased by 3 percent.

Accepted Answer

A) True 
 B)False

Question 12

Scenario 16-4
Quinn has job offers in Wrexington and across the country in Charlieville.The Wrexington job would pay a salary of $50,000 per year,and the Charlieville job would pay a salary of $40,000 per year.The CPI in Wrexington is 150,and the CPI in Charlieville is 90.
-Refer to Scenario 16-4.The Charlieville salary in Wrexington dollars is

Accepted Answer

A)   $24,000.00.
B)   $26,666.67.
C)   $60,000.00
D)   $66,666.67.E) B) and C)
F) B) and D)

Question 13

Price changes from year to year are not proportional,and consumers respond to these changes by altering their spending patterns.The problem this creates for inflation calculations is called

Accepted Answer

A)   deflation.
B)   inflation.
C)   unmeasured quality change.
D)   substitution bias.E) A) and D)
F) A) and C)

Question 14

The inflation rate is the absolute change in the price level from the previous period.

Accepted Answer

A) True 
 B)False

Question 15

An increase in the price of bread 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 C)
F) A) and B)

Question 16

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 D)
F) A) and C)

Question 17

In a simple economy,people consume only 2 goods,food and clothing.The market basket of goods used to compute the CPI consists of 50 units of food and 10 units of clothing.
Food
Clothing
2002 price per unit
$4
$10
2003 price per unit
$6
$20
a.
What are the percentage increases in the price of food and in the price of clothing?
b.
What is the percentage increase in the CPI?
c.
Do these price changes affect all consumers to the same extent? Explain.

Accepted Answer

a. The price of food increased by 50 per...

Question 18

Table 16-3
The table below pertains to Studious,an economy in which the typical consumer's basket consists of 5 books and 10 calculators.
 
-Refer to Table 16-3.The inflation rate was

Accepted Answer

A)   22.6 percent in 2007 and 12.9 percent in 2008.
B)   25.9 percent in 2007 and 14.8 percent in 2008.
C)   35 percent in 2007 and 14.8 percent in 2008.
D)   35 percent in 2007 and 20 percent in 2008.E) A) and B)
F) A) and C)

Question 19

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

Question 20

Suppose the price of a quart of milk rises from $1.00 to $1.20 and the price of a T-shirt rises from $8.00 to $9.60.If the CPI rises from 150 to 195,then people likely will buy

Accepted Answer

A)   more milk and more T-shirts.
B)   more milk and fewer T-shirts.
C)   less milk and more T-shirts.
D)   less milk and fewer T-shirts.E) None of the above
F) B) and D)

Exam 16: Measuring the Cost of Living

The inflation rate is the absolute change in the price level from the previous period.

Correct Answer
verified

Which of the following pairs of values of the consumer price index (CPI) is consistent with an inflation rate of 14 percent for 2011?

Correct Answer
verified

In 1969,Malcolm bought a Pontiac Firebird for $2,500.If the price index was 36.7 in 1969 and the price index was 180 in 2009,then what is the price of the Firebird in 2009 dollars?

Correct Answer
verified

Which of the following is not correct?

Correct Answer
verified

Suppose that over the past year,the real interest rate was 6 percent and the inflation rate was 4 percent.It follows that

Correct Answer
verified

In the U.S.,when the price of oil rises,the CPI rises by much more than does the GDP deflator.

Correct Answer
verified

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

Correct Answer
verified

It is possible to observe a positive nominal interest rate together with a negative real interest rate.

Correct Answer
verified

The nominal interest rate tells you how fast the number of dollars in your bank account rises over time.

Correct Answer
verified

Suppose the price of a quart of milk rises from $1.00 to $1.20 and the price of a T-shirt rises from $8.00 to $9.60.If the CPI rises from 150 to 195,then people likely will buy

Correct Answer
verified

If the nominal interest rate is 5 percent and the real interest rate is 2 percent,then the inflation rate is 3 percent.

Correct Answer
verified

Price changes from year to year are not proportional,and consumers respond to these changes by altering their spending patterns.The problem this creates for inflation calculations is called

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Table 16-3 The table below pertains to Studious,an economy in which the typical consumer's basket consists of 5 books and 10 calculators. -Refer to Table 16-3.The inflation rate was

Correct Answer
verified

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent.A year later,Bob withdraws his $105.If inflation was 2 percent during the year the money was deposited,then Bob's purchasing power has increased by 3 percent.

Correct Answer
verified

Correct Answer
verified

An increase in the price of bread produced domestically will be reflected in

Correct Answer
verified

In 1931,President Herbert Hoover was paid a salary of $75,000.Government statistics show a consumer price index of 15.2 for 1931 and 214.5 for 2009.President Hoover's 1931 salary was equivalent to a 2009 salary of about

Correct Answer
verified

Correct Answer
verified
a. The price of food increased by 50 per...
View Answer

Exam 16: Measuring the Cost of Living

The inflation rate is the absolute change in the price level from the previous period.

Correct AnswerverifiedShow Answer

Which of the following pairs of values of the consumer price index (CPI) is consistent with an inflation rate of 14 percent for 2011?

Correct AnswerverifiedShow Answer

In 1969,Malcolm bought a Pontiac Firebird for $2,500.If the price index was 36.7 in 1969 and the price index was 180 in 2009,then what is the price of the Firebird in 2009 dollars?

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

Suppose that over the past year,the real interest rate was 6 percent and the inflation rate was 4 percent.It follows that

Correct AnswerverifiedShow Answer

In the U.S.,when the price of oil rises,the CPI rises by much more than does the GDP deflator.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

It is possible to observe a positive nominal interest rate together with a negative real interest rate.

Correct AnswerverifiedShow Answer

The nominal interest rate tells you how fast the number of dollars in your bank account rises over time.

Correct AnswerverifiedShow Answer

Suppose the price of a quart of milk rises from $1.00 to $1.20 and the price of a T-shirt rises from $8.00 to $9.60.If the CPI rises from 150 to 195,then people likely will buy

Correct AnswerverifiedShow Answer

If the nominal interest rate is 5 percent and the real interest rate is 2 percent,then the inflation rate is 3 percent.

Correct AnswerverifiedShow Answer

Price changes from year to year are not proportional,and consumers respond to these changes by altering their spending patterns.The problem this creates for inflation calculations is called

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Table 16-3 The table below pertains to Studious,an economy in which the typical consumer's basket consists of 5 books and 10 calculators. -Refer to Table 16-3.The inflation rate was

Correct AnswerverifiedShow Answer

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent.A year later,Bob withdraws his $105.If inflation was 2 percent during the year the money was deposited,then Bob's purchasing power has increased by 3 percent.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An increase in the price of bread produced domestically will be reflected in

Correct AnswerverifiedShow Answer

In 1931,President Herbert Hoover was paid a salary of $75,000.Government statistics show a consumer price index of 15.2 for 1931 and 214.5 for 2009.President Hoover's 1931 salary was equivalent to a 2009 salary of about

Correct AnswerverifiedShow Answer

Correct Answerverifieda. The price of food increased by 50 per...View AnswerShow Answer

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Correct Answer
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a. The price of food increased by 50 per...
View Answer