Econ 102 Sample Test 2 Chapter 9

In 2016, consumers in Dexter consumed only books and pens. The prices and quantities for 2016 and 2017 are listed in the table above. The reference base period for Dexter's CPI is 2016. What is the cost of the CPI basket in 2017? (A) $540 (B) $430 (C) $335 (D) $320

(A) $540

If the CPI was 122.3 at the end of last year and 124.5 at the end of this year, the inflation rate over these two years was (A) 1.8 percent (B) 18.0 percent (C) 2.5 percent (D) 22.5 percent

(A) 1.8 percent

The information in the table above gives the 2016 reference base period CPI basket and prices used to construct the CPI for a small nation. It also has the 2017 prices. What is the value of the CPI for the reference-based period, 2016? (A) 100 (B) 140 (C) 75 (D) 133

(A) 100

If this year the price level is 135 and the last year it was 125, the inflation rate is (A) 12 percent (B) 8 percent (C) 10 percent (D) none of the above

(A) 12 percent

Last year's price level was 120 and since then there has been a 5 percent inflation. This year's price level is (A) 126 (B) 130 (C) 125 (D) none of the above

(A) 126

The CPI basket contains 400 oranges and 800 pens. In the base year, the price of an orange is $1.00 and the price of a pen is $0.75. This year, urban consumers each buy 300 oranges at $2.00 each and 850 pens at $1.00 each. The CPI this year is (A) 160 (B) 140 (C) 62.5 (D) 1.60

(A) 160

In the table above, what inflation rate belongs in space A? (A) 17.0 percent (B) 8.3 percent (C) -4.0 percent (D) 6.8 percent

(A) 17.0 percent

If the CPI basket of goods cost $200 in the reference-based period and $450 in a later year, the CPI in the last year equals (A) 225 (B) 300 (C) 250 (D) 450

(A) 225

If the CPI was 132.5 at the end of last year and 140.2 at the end of this year, the inflation rate over these two years was (A) 5.8 percent (B) 7.7 percent (C) 5.4 percent (D) 4.4 percent

(A) 5.8 percent

In the table above, what inflation rate belongs in Space B? (A) 6.8 percent (B) 17.0 percent (C) -4.0 percent (D) 8.3 percent

(A) 6.8 percent

The consumer price index (CPI) (A) compares the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period (B) is the ratio of the average price of a typical basket of goods to the cost of producing those goods (C) measures the increase in the prices of the goods included in GDP (D) compares the cost of the typical basket of goods consumed in period 1 to the cost of a basket of goods typically consumed in period 2

(A) compared the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period

If the CPI is 120, this means that (A) prices are 20 percent higher than in the reference base period (B) prices are 0.12 times higher than in the reference base period (C) prices are 120 percent higher than in the reference base period (D) the inflation rate must be positive

(A) prices are 20 percent higher than in the reference base period

Substitution bias in the CPI refers to the fact that the CPI (A) takes no account of the substitution of goods by consumers when relative prices change (B) substitutes quality changes whenever they occur without taking account of the cost of the quality changes (C) substitutes relative prices for absolute prices of goods (D) takes into account the substitution of goods by consumers when relative prices change

(A) takes no account of the substitution of goods by consumers when relative prices change

Which of the following measurements of inflation strips out volatile food and fuel prices? (A) the core PCE (B) the PCE deflator (C) the GDP deflator (D) the chained CPI

(A) the core PCE

Suppose that the price level was 100 in 2014, 110 in 2015, and 130 in 2016. Over these three years (A) the inflation rate was positive and accelerating (B) deflation occurred at an accelerating rate (C) prices were stable (D) the inflation rate was positive but slowing

(A) the inflation rate was positive and accelerating

Assume the inflation rate falls from 4 percent to 2 percent. This means that (A) the price level is increasing more slowly (B) the economy is experiencing deflation (C) real GDP is decreasing (D) the price level has fallen

(A) the price level is increasing more slowly

The technique currently used to calculate the CPI implicitly assumes that over time consumers buy (A) the same relative quantities of goods as in a base year (B) relatively more of goods whose relative prices are rising (C) goods and services whose quality improves at the rate of growth of real income (D) relatively less of goods whose relative prices are rising

(A) the same relative quantities of goods as in a base year

In the above table, the inflation rate between 2013 and 2014 is approximately (A) 110 percent (B) 10 percent (C) 9 percent (D) 100 percent

(B) 10 percent

If the Consumer Price Index last year was 110 and 115 this year, the inflation rate is approximately (A) 15.0 percent (B) 4.5 percent (C) 5.0 percent (D) 10.0 percent

(B) 4.5 percent

Suppose the CPI last year is 121 and the CPI this year is 137. The CORRECT method to calculate the inflation rate is (A) 137 x 121 = 158 (B) [(137 - 121)/ 121] x 100 = 13.2 (C) (137 -121)/100 = 0.16 (D) (137/121) x 100 = 113.2

(B) [(137-121)/121] x 100 = 13.2

The commodity substitution bias is that (A) government spending is a good substitute for investment expenditures (B) consumers decrease the quantity they buy for goods whose relative prices rise and increase the quantity of goods whose relative price falls (C) consumers substitute high-quality goods for low-quality goods (D) national saving and foreign borrowing are interchangeable

(B) consumers decrease the quantity they buy for goods whose relative prices rise and increase the quantity of goods whose relative price falls

If this year the price level is 135 and last year it was 125, the inflation rate is (A) the inflation rate between these years has been positive (B) deflation is occurring (C) no relative price changes are occurring (D) the inflation rate is accelerating

(B) deflation us occurring

An increase in the price level is defined as (A) an expansion (B) inflation (C) a growth boom (D) a recession

(B) inflation

If the price level for the last three months has been 112, 125, and 126, we would say (A) inflation has been constant over the three months (B) inflation was more rapid between the first and second month than between the second and third month (C) inflation has steadily increased over the three months (D) inflation was less rapid between the first and second month than between the second and third month

(B) inflation was more rapid between the first and second month than between the second and third month

The bias in the CPI typically (A) understates inflation (B) overstates inflation (C) about half of the time overstates and about half the time understates the inflation rate (D) cannot be measured or estimated

(B) overstates inflation

The currently used method for calculating the CPI (A) has no effect on government expenditures (B) probably overstates inflation (C) accounts for people increasing consumption of a good that falls in the relative price (D) None of the above answers are correct

(B) probably overstates inflation

Which of the following measurements of inflation tracks the rate at which infrequently changed prices are changing? (A) The PCE deflator (B) the sticky-price CPI (C) the core PCE (D) the chained CPI

(B) the sticky-price CPI

The cost of inflation to society includes (A) the lost spending when people do not have enough money (B) unpredictable changes in the value of money (C) higher interest rates paid by borrowers (D) higher interest rates paid by the government on its debt

(B) unpredictable changes in the value of money

At the end of last year, the CPI equaled 120. At the end of this year, the CPI equals 132. What is the inflation rate over this year? (A) 12 percent (B) 6 percent (C) 10 percent (D) None of the above answers are correct because more information is needed to calculate the inflation rate

(C) 10 percent

In the table above, what price level belongs in space D (A) 140 (B) 145 (C) 130 (D) 125

(C) 130

The information in the table above gives the 2016 reference base period CPI basket and prices use to construct the CPI for a small nation. It also has the 2017 prices. What is the value of the CPI for 2017? (A) 133 (B) 75 (C) 140 (D) 100

(C) 140

If the basket of the goods and services used to calculate the CPI cost $200 in the reference base period and $450 in a later year, the CPI for the latter year equals (A) 450 (B) 325 (C) 225 (D) 200

(C) 225

At the end of last year the Consumer Price Index was equal to 157.5 and at the end of this year it was equal to 163.8. What is the inflation rate over this time period (A) 10.01 percent (B) 3.85 percent (C) 4.0 percent (D) 6.3 percent

(C) 4.0 percent

The cost of inflation to society includes (1) the opportunity costs of resources used by people to protect themselves against inflation (2) the diversion of productive resources to forecasting inflation (A) 1 only (B) 2 only (C) both 1 and 2 (D) neither 1 or 2

(C) both 1 and 2

If the inflation rate is negative, the price level in an economy is (A) rising rapidly (B) rising slowly (C) falling (D) constant

(C) falling

Unpredictable changes in the value of money, which brings about gains and losses, are consequences of unpredictable changes in (A) productivity (B) unemployment rate (C) inflation (D) real GDP

(C) inflation

If a new and better good replaced an older and less expensive good, then the price level measured by the CPI (A) is the same as the actual price level because it measures the prices of the actual goods (B) is the lower than the actual price level (C) is higher than the actual price level (D) might be either higher or lower than the actual price

(C) is higher than the actual price level

Because of the biases in calculating the CPI, actual inflation is (A) accurately measured (B) more than the measured inflation rate (C) less than the measured inflation rate (D) None of the above because the differences vary from one year to the next

(C) less than the measured inflation rate

The biases in the CPI include the (A) old goods, unemployment, and inflation biases (B) old goods, new goods, and quality change biases (C) new goods, quality change, and substitution biases (D) substitution, new goods, and old goods biases

(C) new goods, quality change, and substitution biases

In July 2014, the CPI inflation rate was 0.3 percent while the core CPI inflation rate was 0.1 percent. The difference between these two measurements of inflation indicates (A) a negative underlying inflation rate (B) prices for food and fuel were increasing less rapidly than prices for other goods (C) prices for food and fuel were increasing more rapidly than prices for other goods (D) the underlying inflation rate was higher than the overall inflation rate

(C) prices for food and fuel were increasing more rapidly than prices for other goods

If the CPI this year is 220 and was 200 in last year, the annual inflation rate between the two years is (A) 20 percent (B) 5 percent (C) 2 percent (D) 10 percent

(D) 10 percent

Of the following sequences of price levels, which CORRECTLY represents a 5 percent inflation rate? (A) 100,105,110,115 (B) 100,105,105,105 (C) 100,100,100,100 (D) 100,105,110.25,115.76

(D) 100,105,110.25,115.76

Suppose the price level this year is 150 and the price level last year was 125. The inflation rate between last year and this year was (A) 1.6 percent (B) 16.6 percent (C) 2 percent (D) 20 percent

(D) 20 percent

Suppose that last year the Consumer Price Index was 124; this year it is 130.7. What was the inflation rate between these years? (A) 30.7 percent (B) 6.7 percent (C) 5.1 percent (D) 5.4 percent

(D) 5.4 percent

Inflation is a problem when (A) it causes the value of money to vary unpredictably (B) it is unpredictable (C) it causes resources to be diverted from productive uses (D) All of the above answers are correct

(D) All of the above answers are correct

Which of the following means that the CPI overstates the actual inflation rate? (A) quality change bias (B) new goods bias (C) outlet substitution bias (D) All of the above cause the CPI to overstate inflation

(D) All of the above cause the CPI to overstate inflation

As currently calculated, the CPI tends to overstate the true inflation rate because (A) the market basket fails to weigh housing costs sufficiently (B) the market basket selected is inappropriate (C) we cannot know what the true inflation rate is (D) it fails to correctly measure quality changes for some products

(D) it fails to correctly measure quality changes for some products

In the United States, the inflation rate has (A) risen constantly over the past 30 years (B) fallen as a result of OPEC oil price hikes (C) remained almost constant over the past 25 years (D) risen and fallen since the 1970s

(D) risen and fallen since the 1970's

In China, suppose that the price level was 100 in 2014, 110 in 2015, and 120 in 2016. Over these three years (A) inflation did not occur (B) prices were stable (C) the inflation rate accelerated (D) the inflation was positive

(D) the inflation was positive

Hyperinflation is defined as (A) very low inflation rates (B) declining inflation rates (C) rising but low inflation rates (D) very high inflation rates

(D) very high inflation rates