Question 1

Suppose prices of personal computers fall significantly and consumers respond by buying more personal computers. The consumer price index

Accepted Answer

A)  reflects this price decrease accurately.
B)  understates this price decrease due to the substitution bias.
C)  overstates this price decrease due to the income bias.
D)  overstates this price decrease due to the substitution bias.

Question 2

Inflation can be measured using either the GDP deflator or the consumer price index.

Accepted Answer

A) True 
 B)False

Question 3

In comparison to the situation in the late 1970s, the United States experienced lower nominal interest rates and higher real interest rates in the late 1990s.

Accepted Answer

A) True 
 B)False

Question 4

Scenario 11-3
Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2008. The price index was 17.6 in 1944 and 184 in 2008.
-Refer to Scenario 11-3. In real terms, Sue Holloway's income amounts to about what percentage of Josh Holloway's income?

Accepted Answer

A)  5.71 percent
B)  9.6 percent
C)  59.7 percent
D)  67.4 percent

Question 5

When looking at a graph of nominal and real interest rates you notice that nominal rates always lie above real rates. From this you conclude

Accepted Answer

A)  there were serious episodes of deflation in the time frame represented on the graph.
B)  consumer prices were always rising in the time frame represented on the graph.
C)  the economy never experienced a recession in the time frame represented on the graph.
D)  GDP was always increasing for the time frame represented on the graph.

Question 6

When the price of Italian wine rises, this change is reflected in the U.S. CPI but not in the U.S. GDP deflator.

Accepted Answer

A) True 
 B)False

Question 7

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 8

Which of the following is not correct?

Accepted Answer

A)  The consumer price index gives economists a way of turning dollar figures into meaningful measures of purchasing power.
B)  The consumer price index is used to monitor changes in the cost of living over time.
C)  The consumer price index is used by economists to measure the inflation rate.
D)  The consumer price index is used to measure the quantity of goods and services that the economy is producing.

Question 9

In 1972, one could buy model rocket engines for $1.50 each. If those same engines cost $2.50 each today, then which pair of CPIs would make the engine prices in today's dollars the same for both years?

Accepted Answer

A)  60 in 1972 and 95 today
B)  60 in 1972 and 120 today
C)  90 in 1972 and 150 today
D)  96 in 1972 and 154 today

Question 10

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

Accepted Answer

A)  When the nominal interest rate is rising, the real interest rate is necessarily rising; when the nominal interest rate is falling, the real interest rate is necessarily falling.
B)  If the nominal interest rate is 4 percent and the inflation rate is 3 percent, then the real interest rate is 7 percent.
C)  An increase in the real interest rate is necessarily accompanied by either an increase in the nominal interest rate, an increase in the inflation rate, or both.
D)  When the inflation rate is positive, the nominal interest rate is necessarily greater than the real interest rate.

Question 11

Table 11-6. The table below applies to an economy with only two goods - hamburgers and hot dogs. The fixed basket consists of 4 hamburgers and 8 hot dogs.   Year  Priee of hamburegers  Prife of hat doges 2009$5.00$3.0020105.503.3020115.613.63\begin{array} { l c c } \hline 	ext { Year } & 	ext { Priee of hamburegers } & 	ext { Prife of hat doges } \\hline 2009 & \$ 5.00 & \$ 3.00 \2010 & 5.50 & 3.30 \2011 & 5.61 & 3.63 \\hline\end{array} Year 200920102011​ Priee of hamburegers $5.005.505.61​ Prife of hat doges $3.003.303.63​​ 
-Refer to Table 11-6. If the base year is 2009, then the economy's inflation rate is

Accepted Answer

A)  10 percent in 2010 and 6.36 percent in 2011.
B)  10 percent in 2010 and 17 percent in 2011.
C)  9.2 percent in 2010 and 6 percent in 2011.
D)  8.22 percent in 2010 and 5 percent in 2011.

Question 12

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If deflation was 7 percent during the year the money was deposited, then Bob's purchasing power has increased by 12 percent.

Accepted Answer

A) True 
 B)False

Question 13

Table 11-11. Megan's salary for three consecutive years, along with other values, are presented in the table below. 
-Refer to Table 11-11. Megan's 2008 salary in 2010 dollars is

Accepted Answer

A)  $51,458.
B)  $62,226.
C)  $69,960.
D)  $75,554.

Question 14

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 5 percent during the year the money was deposited, then Bob's purchasing power has not changed.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?

Accepted Answer

A)  The real interest rate is the nominal interest rate times the rate of inflation.
B)  The real interest rate is the nominal interest rate minus the rate of inflation.
C)  The real interest rate is the nominal interest rate plus the rate of inflation.
D)  The real interest rate is the nominal interest rate divided by the rate of inflation.

Question 16

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 = 171

Question 17

In the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the largest?

Accepted Answer

A)  education & communication
B)  food & beverages
C)  medical care
D)  recreation

Question 18

If the nominal interest rates rises, then the inflation rate must have increased.

Accepted Answer

A) True 
 B)False

Question 19

In the basket of goods that is used to compute the consumer price index, the three largest categories of consumer spending are

Accepted Answer

A)  housing, transportation, and recreation.
B)  housing, transportation, and food & beverages.
C)  housing, food & beverages, and education & communication.
D)  housing, medical care, and education & communication.

Question 20

The CPI was 120 in 2008 and 126 in 2009. Phil borrowed money in 2008 and repaid the loan in 2009. If the nominal interest rate on the loan was 8 percent, then the real interest rate was

Accepted Answer

A)  -2 percent.
B)  3 percent.
C)  5 percent.
D)  13 percent.

Exam 11: Measuring the Cost of Living

Table 11-11. Megan's salary for three consecutive years, along with other values, are presented in the table below. -Refer to Table 11-11. Megan's 2008 salary in 2010 dollars is

Correct Answer
verified

In 1972, one could buy model rocket engines for $1.50 each. If those same engines cost $2.50 each today, then which pair of CPIs would make the engine prices in today's dollars the same for both years?

Correct Answer
verified

In comparison to the situation in the late 1970s, the United States experienced lower nominal interest rates and higher real interest rates in the late 1990s.

Correct Answer
verified

In the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the largest?

Correct Answer
verified

Suppose prices of personal computers fall significantly and consumers respond by buying more personal computers. The consumer price index

Correct Answer
verified

Inflation can be measured using either the GDP deflator or the consumer price index.

Correct Answer
verified

Correct Answer
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Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?

Correct Answer
verified

When looking at a graph of nominal and real interest rates you notice that nominal rates always lie above real rates. From this you conclude

Correct Answer
verified

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

If the nominal interest rates rises, then the inflation rate must have increased.

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 5 percent during the year the money was deposited, then Bob's purchasing power has not changed.

Correct Answer
verified

The CPI was 120 in 2008 and 126 in 2009. Phil borrowed money in 2008 and repaid the loan in 2009. If the nominal interest rate on the loan was 8 percent, then the real interest rate was

Correct Answer
verified

In the basket of goods that is used to compute the consumer price index, the three largest categories of consumer spending are

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

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

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 deflation was 7 percent during the year the money was deposited, then Bob's purchasing power has increased by 12 percent.

Correct Answer
verified

When the price of Italian wine rises, this change is reflected in the U.S. CPI but not in the U.S. GDP deflator.

Correct Answer
verified

Which of the following is not correct?

Correct Answer
verified

Exam 11: Measuring the Cost of Living

Table 11-11. Megan's salary for three consecutive years, along with other values, are presented in the table below. -Refer to Table 11-11. Megan's 2008 salary in 2010 dollars is

Correct AnswerverifiedShow Answer

In 1972, one could buy model rocket engines for $1.50 each. If those same engines cost $2.50 each today, then which pair of CPIs would make the engine prices in today's dollars the same for both years?

Correct AnswerverifiedShow Answer

In comparison to the situation in the late 1970s, the United States experienced lower nominal interest rates and higher real interest rates in the late 1990s.

Correct AnswerverifiedShow Answer

In the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the largest?

Correct AnswerverifiedShow Answer

Suppose prices of personal computers fall significantly and consumers respond by buying more personal computers. The consumer price index

Correct AnswerverifiedShow Answer

Inflation can be measured using either the GDP deflator or the consumer price index.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?

Correct AnswerverifiedShow Answer

When looking at a graph of nominal and real interest rates you notice that nominal rates always lie above real rates. From this you conclude

Correct AnswerverifiedShow Answer

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

If the nominal interest rates rises, then the inflation rate must have increased.

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 5 percent during the year the money was deposited, then Bob's purchasing power has not changed.

Correct AnswerverifiedShow Answer

The CPI was 120 in 2008 and 126 in 2009. Phil borrowed money in 2008 and repaid the loan in 2009. If the nominal interest rate on the loan was 8 percent, then the real interest rate was

Correct AnswerverifiedShow Answer

In the basket of goods that is used to compute the consumer price index, the three largest categories of consumer spending are

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

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

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 deflation was 7 percent during the year the money was deposited, then Bob's purchasing power has increased by 12 percent.

Correct AnswerverifiedShow Answer

When the price of Italian wine rises, this change is reflected in the U.S. CPI but not in the U.S. GDP deflator.

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

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