Question 1

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 2

Table 6-5
The table below pertains to Napandsnack, an economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs.
 
-Refer to Table 6-5. If the base year is 2010, then the economy's inflation rate in 2010 was

Accepted Answer

A)   10.5 percent.
B)   15.0 percent.
C)   20.0 percent.
D)   25.00 percent.

Question 3

In the United States, real interest rates were

Accepted Answer

A)   high in the 1970s and 1990s.
B)   low in the 1970s and 1990s.
C)   high in the 1970s and low in the 1990s.
D)   low in the 1970s and high in the 1990s.

Question 4

If the CPI was 108.00 in 1942 and is 336.96 today, then $10 in 1942 purchased the same amount of goods and services as

Accepted Answer

A)   $2.57 purchases today.
B)   $28.89 purchases today.
C)   $31.20 purchases today.
D)   $38.89 purchases today.

Question 5

Iggie took a university teaching job as an assistant professor in 1974 at a salary of $10,000. By 2003, she had been promoted to full professor, with a salary of $50,000. If the price index was 50 in 1974 and 180 in 2003, then what is Iggie's 2003 salary in 1974 dollars?

Accepted Answer

A)   $13,888.89
B)   $40,000
C)   $65,000
D)   $180,000

Question 6

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 7

In the calculation of the CPI, books are given greater weight than magazines if

Accepted Answer

A)   consumers buy more books than magazines.
B)   the price of books is higher than the price of magazines.
C)   it costs more to produce books than it costs to produce magazines.
D)   books are more readily available than magazines to the typical consumer.

Question 8

If the price of Spanish olives imported into the United States decreases, then

Accepted Answer

A)   both the GDP deflator and the consumer price index will decrease.
B)   neither the GDP deflator nor the consumer price index will decrease.
C)   the GDP deflator will decrease, but the consumer price index will not decrease.
D)   the consumer price index will decrease, but the GDP deflator will not decrease.

Question 9

Table 6-3
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 6-3. The cost of the basket

Accepted Answer

A)   increased by $10 from 2006 to 2007.
B)   increased by $42 from 2006 to 2007.
C)   increased by $70 from 2006 to 2007.
D)   increased by $150 from 2006 to 2007.

Question 10

The inflation rate you are likely to hear on the nightly news is calculated from

Accepted Answer

A)   the GDP deflator.
B)   the CPI.
C)   the Dow Jones Industrial Average.
D)   the unemployment rate.

Question 11

An increase in the price of Irish whiskey imported into the United States will be reflected in

Accepted Answer

A)   both the U.S. GDP deflator and the U.S. CPI.
B)   neither the U.S. GDP deflator nor the U.S. CPI.
C)   the U.S. GDP deflator, but not the U.S. CPI.
D)   the U.S. CPI, but not the U.S. GDP deflator.

Question 12

Changes in the quality of a good

Accepted Answer

A)   do not present a problem in the construction of the consumer price index.
B)   present a problem in the construction of the consumer price index, and that problem is sometimes referred to as substitution bias.
C)   are not accounted for, as a matter of policy, by the Bureau of Labor Statistics.
D)   can lead to either an increase or a decrease in the value of a dollar.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Sophia puts money in the bank and earns a 5 percent nominal interest rate. If the inflation rate is 2 percent, then after one year,

Accepted Answer

A)   Sophia will have 3 percent more money, which will purchase 5 percent more goods.
B)   Sophia will have 3 percent more money, which will purchase 7 percent more goods.
C)   Sophia will have 5 percent more money, which will purchase 3 percent more goods.
D)   Sophia will have 5 percent more money, which will purchase 7 percent more goods.

Question 15

Of Social Security benefits and federal income tax brackets, which is indexed?

Accepted Answer

A)   Both are indexed.
B)   Only Social Security benefits are indexed.
C)   Only federal income tax brackets are indexed.
D)   Neither is indexed.

Question 16

A decrease in the price of large tractors imported into the United States from Russia

Accepted Answer

A)   leaves the GDP deflator unchanged but decreases the consumer price index.
B)   decreases the GDP deflator but leaves the consumer price index unchanged.
C)   decreases both the GDP deflator and the consumer price index.
D)   leaves both the GDP deflator and the consumer price index unchanged.

Question 17

In a particular economy, the price index was 270 in 2005 and 300 in 2006. Which of the following statements is correct?

Accepted Answer

A)   The economy experienced a rising price level between 2005 and 2006.
B)   The economy experienced a higher inflation rate between 2005 and 2006 than it had experienced between 2004 and 2005.
C)   The inflation rate between 2005 and 2006 was 30 percent.
D)   All of the above are correct.

Question 18

If the value of the consumer price index is 110 in 2005 and 121 in 2006, then the inflation rate is 11 percent for 2006.

Accepted Answer

A) True 
 B)False

Question 19

The real interest rate is the interest rate corrected for inflation.

Accepted Answer

A) True 
 B)False

Question 20

If the real interest rate is 5 percent and the inflation rate is 2 percent, then the nominal interest rate is 7 percent.

Accepted Answer

A) True 
 B)False

Exam 6: Measuring the Cost of Living

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

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

An increase in the price of Irish whiskey imported into the United States will be reflected in

Correct AnswerverifiedShow Answer

Sophia puts money in the bank and earns a 5 percent nominal interest rate. If the inflation rate is 2 percent, then after one year,

Correct AnswerverifiedShow Answer

If the real interest rate is 5 percent and the inflation rate is 2 percent, then the nominal interest rate is 7 percent.

Correct AnswerverifiedShow Answer

In the calculation of the CPI, books are given greater weight than magazines if

Correct AnswerverifiedShow Answer

The real interest rate is the interest rate corrected for inflation.

Correct AnswerverifiedShow Answer

In a particular economy, the price index was 270 in 2005 and 300 in 2006. Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Iggie took a university teaching job as an assistant professor in 1974 at a salary of $10,000. By 2003, she had been promoted to full professor, with a salary of $50,000. If the price index was 50 in 1974 and 180 in 2003, then what is Iggie's 2003 salary in 1974 dollars?

Correct AnswerverifiedShow Answer

The inflation rate you are likely to hear on the nightly news is calculated from

Correct AnswerverifiedShow Answer

Changes in the quality of a good

Correct AnswerverifiedShow Answer

A decrease in the price of large tractors imported into the United States from Russia

Correct AnswerverifiedShow Answer

If the CPI was 108.00 in 1942 and is 336.96 today, then $10 in 1942 purchased the same amount of goods and services as

Correct AnswerverifiedShow Answer

If the price of Spanish olives imported into the United States decreases, then

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Table 6-3 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 6-3. The cost of the basket

Correct AnswerverifiedShow Answer

If the value of the consumer price index is 110 in 2005 and 121 in 2006, then the inflation rate is 11 percent for 2006.

Correct AnswerverifiedShow Answer

In the United States, real interest rates were

Correct AnswerverifiedShow Answer

Table 6-5 The table below pertains to Napandsnack, an economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs. -Refer to Table 6-5. If the base year is 2010, then the economy's inflation rate in 2010 was

Correct AnswerverifiedShow Answer

Of Social Security benefits and federal income tax brackets, which is indexed?

Correct AnswerverifiedShow Answer

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