Macro Chapter 5 quiz

Assume that consumers consider rice and potatoes to be substitutes, so that when the price of rice rises, consumers purchase less rice and more potatoes. When the CPI is computed following the increase in the price of rice, it takes into account a. the increase in the price of rice. b. the decrease in the quantity of rice purchased and the increase in the quantity of potatoes purchased. c. Both (a) and (b) are correct. d. None of the above is correct.

a. the increase in the price of rice.

Assume an economy experienced a positive rate of inflation between 2003 and 2004 and again between 2004 and 2005. However, the inflation rate was higher between 2004 and 2005 than it was between 2003 and 2004. Which of the following scenarios is consistent with this assumption? a. The CPI was 100 in 2003, 90 in 2004, and 88 in 2005. b. The CPI was 100 in 2003, 120 in 2004, and 135 in 2005. c. The CPI was 100 in 2003, 105 in 2004, and 130 in 2005. d. The CPI was 100 in 2003, 110 in 2004, and 105 in 2005.

c. The CPI was 100 in 2003, 105 in 2004, and 130 in 2005.

In an imaginary economy, consumers buy only razors and cologne. The fixed basket consists of 6 razors and 4 bottles of cologne. A razor cost $20 in 2009 and $25 in 2010. A bottle of cologne cost $30 in 2009 and $40 in 2010. Using 2009 as the base year, which of the following statements is correct? a. For the typical consumer, the number of dollars spent on razors is equal to the number of dollars spent on cologne in each of the two years. b. The consumer price index is 310 in 2010. c. The rate of inflation is 29.17% in 2010. d. None of the above is correct.

c. The rate of inflation is 29.17% in 2010.

Arlo is offered a job in Des Moines, where the CPI is 80, and a job in New York, where the CPI is 125. Arlo's job offer in Des Moines is for $42,000. How much does the New York job have to pay in order for the two salaries to represent the same purchasing power? a. $189,000 b. $42,000 c. $68,880 d. $65,625

d. $65,625

Scenario 24-3 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 2013. The price index was 17.6 in 1944 and 218.4 in 2013. Refer to Scenario 24-3. In real terms, Sue Holloway's income amounts to about what percentage of Josh Holloway's income? a. 114.7 percent b. 11.0 percent c. 65.2 percent d. 70.9 percent

d. 70.9 percent

A Korean steel company produces steel in the United States, with some of its steel being exported to other nations and some of it being sold within the United States. If the prices of this steel increase, then a. the GDP deflator and the CPI will both be unchanged. b. the GDP deflator will be unchanged and the CPI will increase. c. the GDP deflator will increase and the CPI will be unchanged. d. the GDP deflator and the CPI will both increase.

d. the GDP deflator and the CPI will both increase.

For some racquet sports, there have been increases in the size of the racquets; also, the methods and materials used for making racquets have improved. To which problem in the construction of the CPI is this situation most relevant? a. income bias b. substitution bias c. introduction of new goods d. unmeasured quality change

d. unmeasured quality change

Which of the following statements about real and nominal interest rates is correct? a. When the inflation rate is positive, the nominal interest rate is necessarily greater than the real interest rate. b. 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. c. If the nominal interest rate is 4 percent and the inflation rate is 3 percent, then the real interest rate is 7 percent. d. 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.

a. When the inflation rate is positive, the nominal interest rate is necessarily greater than the real interest rate.

Because the CPI is based on a fixed basket of goods, the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living. This is so because a. when a new good is introduced, it gives consumers greater choice, thus reducing the amount they must spend to maintain their standard of living. b. new goods and services are always of higher quality than existing goods and services. c. new goods and services cost less than existing goods and services. d. new goods and services cost more than existing goods and services.

a. when a new good is introduced, it gives consumers greater choice, thus reducing the amount they must spend to maintain their standard of living.

When ranking movies by nominal box office receipts, what important fact is overlooked? a. More people go to movies now than in the past. b. Prices, including those for movie tickets, have been rising over time. c. There are no good substitutes for movies currently. d. Movies and DVD are complements.

b. Prices, including those for movie tickets, have been rising over time.

When looking at a graph of nominal and real interest rates you notice the graph for nominal rates and the graph for real rates cross each other many times. From this you conclude a. GDP was always increasing for the time frame represented on the graph. b. consumer prices sometimes rose and sometimes fell in the time frame represented on the graph. c. consumer prices were always rising in the time frame represented on the graph. d. the economy never experienced a recession in the time frame represented on the graph.

b. consumer prices sometimes rose and sometimes fell in the time frame represented on the graph.

A decrease in the price of domestically produced industrial robots will be reflected in a. the consumer price index but not in the GDP deflator. b. the GDP deflator but not in the consumer price index. c. both the GDP deflator and the consumer price index. d. neither the GDP deflator nor the consumer price index.

b. the GDP deflator but not in the consumer price index.

Henri earned a salary of $50,000 in 2001 and $60,000 in 2012. The consumer price index was 177 in 2001 and 225 in 2012. Henri's 2001 salary in 2012 dollars is a. $39,333.33. b. $89,333.33. c. $63,559.32. d. $74,000.00.

c. $63,559.32.

An important difference between the GDP deflator and the consumer price index is that a. the GDP deflator reflects the prices of all final goods and services produced by a nation's citizens, whereas the consumer price index reflects the prices of all final goods and services bought by consumers. b. the GDP deflator reflects the prices of goods and services bought by producers, whereas the consumer price index reflects the prices of goods and services bought by consumers. c. the GDP deflator reflects the prices of all final goods and services bought by producers and consumers, whereas the consumer price index reflects the prices of all final goods and services bought by consumers. d. the GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of goods and services bought by consumers.

d. the GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of goods and services bought by consumers.