Macro Econ Ch 8

24) Refer to Table 6.10. If 2000 is the base year, the inflation rate between 2000 and 2001 is approximately: A) 17.4%. B) 16.5%. C) 15.9%. D) 51.9% E) 13.9%.

E) 13.9%.

18) The table above has information about the CPI and nominal wage rate for the country of Syldavia for the years 2000-2002. . The reference base year is 2000. The inflation rate in Syldavia from 2001 to 2002 was approximately (choose the closest answer) A) 6.5% B) 5.9% C) 5% D) 9.0% E) 9.5%

E) 9.5%

35) The data in the table above shows the consumption by families in a small (poor) economy. The families consume only salt and bread. The base reference period is 2000. The CPI in 2000 is A) 124. B) 106.2. C) 100. D) 94.2.

C) 100.

10) This table shows the price-level adjustment as compared to the United States. Country Price-Level Adjustment Australia -0.50 China 0.25 Mexico 0.34 United States 0.00 According to the information given in the table shown, if someone makes $40,000 in the U.S., what would his salary need to be in Mexico to maintain the same standard of living? A) $26,400 B) $13,600 C) $40,000 D) $60,606

A) $26,400

17) The CPI in 1980 was 82, and the CPI in 2010 was 220. If you earned a salary of $100,000 in 2010, what would be a salary with equivalent purchasing power in 1980? (choose the closest answer) A) $37,273 B) $268,293 C) $82,000 D) $26,829

A) $37,273

33) The data in the table above shows the consumption by families in a small (poor) economy. The families consume only salt and bread. The base reference period is 2000. The cost of the CPI basket in 2000 is A) $40.50. B) $1.50. C) $2.50. D) $12.00

A) $40.50.

6) The CPI in 1980 was 82, and the CPI in 2006 was 202. If you earned a salary of $30,000 in 1980, what would be a salary with equivalent purchasing power in 2006? A) $73,902 B) $32,180 C) $49,268 D) $43,360

A) $73,902

13) Refer to Table 8-3. Assume the market basket for the consumer price index has three products Cokes, hamburgers, and CDs with the following values in 2000 and 2006 for price and quantity: The Consumer Price Index for 2006 equals (approximately) A) 121. B) 118. C) 93. D) 100. E) 108.

A) 121.

27) The table above has information about the CPI and nominal wage rate for the country of Syldavia for the years 2000-2002. The reference base year is 2000. In which year was the real wage rate the highest? A) 2000 B) 2001 C) 2002

A) 2000

39) The table above has information about the CPI and nominal wage rate for the country of Syldavia for the years 2000-2002. The reference base year is 2000. In which year was the real wage rate the highest? A) 2000 B) 2001 C) 2002 D) The real wage is the same in 2001 and 2002. It is higher in these years than in 2000.

A) 2000

2) Which of the following describes the accuracy of the Consumer Price Index? A) Changes in the CPI overstate the true rate of inflation. B) Changes in the CPI accurately reflect the true rate of inflation. C) Changes in the CPI are unrelated to the true rate of inflation. D) Changes in the CPI understate the true rate of inflation.

A) Changes in the CPI overstate the true rate of inflation.

9) This table shows the price-level adjustment as compared to the United States. Country Price -Level Adjustment Australia -0.50 China 0.25 Mexico 0.34 United States 0.00 According to the information in the table shown, if someone were to make $35,000, she would be able to buy the most goods and services if she lived in: A) Mexico. B) Australia. C) the United States. D) China.

A) Mexico.

1) Which of the following best describes the relationship between the price level and the inflation rate? A) The inflation rate is the percentage change in the price level from one period to the next. B) Low price levels imply low inflation rates. C) High price levels imply high inflation rates. D) All of the above are correct.

A) The inflation rate is the percentage change in the price level from one period to the next.

7) Between 2007 and 2008, the CPI of a small nation rose from 182 to 185. If household incomes rose by 3% during that period of time, which of the following is true? A) The purchasing power of household income rose between 2007 and 2008. B) The purchasing power of household income remained constant between 2007 and 2008. C) The purchasing power of household income fell between 2007 and 2008. D) The CPI cannot be used to determine how the purchasing power of household income changes over time.

A) The purchasing power of household income rose between 2007 and 2008.

23) If the Consumer Price Index increases from month to month we know that A) the average price level of consumer goods and services is increasing. B) total spending on consumer goods and services is inccreasing. C) total production of consumer goods and services is increasing. D) All of the above

A) the average price level of consumer goods and services is increasing.

20) In 1970, the CPI was 39 and in 2000 it was 172. A local phone call cost $0.10 in 1970. What is the price of this phone call in 2000 dollars? (round to the nearest penny) A) $1.42 B) $0.44 C) $1.72 D) $0.39 E) $0.22

B) $0.44

36) The data in the table above shows the consumption by families in a small (poor) economy. The families consume only salt and bread. The base reference period is 2000. The CPI in 2001 is A) 100. B) 106.2. C) 124. D) 94.2.

B) 106.2.

25) Refer to Table 6.10. If 2000 is the base year, the CPI in 2001 is: A) 151.9 B) 113.9 C) 115.9% D) 117.4 E) 115.9

B) 113.9

21) Refer to Table 8-3. Assume the market basket for the consumer price index has three products Cokes, hamburgers, and CDs with the following values in 2000 and 2006 for price and quantity: The Consumer Price Index for 2006 equals (approximately) A) 118 B) 121. C) 75. D) 93. E) 108.

B) 121.

15) Between 2007 and 2008, the CPI of a small nation rose from 180 to 185, and household incomes rose by 3% during that period of time. The cost of living in this economy increased by _____ (choose the closest answer), and the purchasing power of household income ______ between 2007 and 2008. A) 5% ; rose B) 2.8% ; rose C) 1.02% ; didnʹt change D) 1.02% ; fell E) 5% ; fell

B) 2.8% ; rose

47) The table above has information about the CPI and nominal wage rate for the country of Syldavia for the years 2000-2002. The reference base year is 2000. In which year was the real wage rate the highest? A) 2000 B) 2001 C) 2002

B) 2001

26) Suppose that the CPI measures the inflation rate as 4%. Which of the following is most likely to be the actual rate of inflation in the economy? A) 4% B) 3% C) 5%

B) 3%

37) The data in the table above shows the consumption by families in a small (poor) economy. The families consume only salt and bread. The base reference period is 2000. The inflation rate between 2000 and 2001 is A) 52.5 percent. B) 6.2 percent. C) 5.25 percent. D) 106.2 percent.

B) 6.2 percent.

42) Inflation is measured by examining the percent change in the ________ from one year to the next. A) price of gas B) CPI C) nominal GDP D) GDP growth

B) CPI

12) Which of the following correctly describes the relationship between the price level and the inflation rate? A) High price levels imply that the inflation rate is rising. B) Positive rates of inflation imply that the price level is rising. C) Low price levels imply low inflation rates. D) High price levels imply high inflation rates.

B) Positive rates of inflation imply that the price level is rising.

28) The table above has information about the CPI and nominal wage rate for the country of Syldavia for the years 2000-2002. Which of the following statements is TRUE? A) The highest price level was in 2002 B) The inflation rate was negative (ʺdeflationʺ) during 2002. C) The price level rose continuously from 2000 to 2001 to 2002 D) The price level rose from 2001 to 2002 E) More than one of the above is correct

B) The inflation rate was negative (ʺdeflationʺ) during 2002.

19) The table above has information about the CPI and nominal wage rate for the country of Syldavia for the years 2000-2002. Which of the following statements is TRUE? A) Real wages did not change between 2000 and 2001 B) The nominal wage had more purchasing power in 2001 than it had in 2000 C) The price level rose from 2000 to 2001 D) The price level did not change from 2000 to 2001 E) More than one of the above is correct

B) The nominal wage had more purchasing power in 2001 than it had in 2000

45) Suppose that the price of imported oil rises dramatically. Ceteris paribus, the inflation rate measured by the CPI will be _______ the inflation rate measured by the GDP deflator. A) less than B) greater than C) equal to

B) greater than

16) The CPI is used as a cost of living index to adjust the incomes of government workers. Given what we know about the biases in the CPI, incomes that are adjusted using the CPI will typically A) increase by the actual change in the cost of living. B) increase by more than the actual change in the cost of living. C) increase by less than the actual change in the cost of living.

B) increase by more than the actual change in the cost of living.

44) Just as indexing allows us to compare the cost of living across different periods of time, the ________ is used to allow us to compare the cost of living across different locations. A) consumer purchasing index B) purchasing power index C) retail power parity D) producer price index

B) purchasing power index

38) If a country has a CPI of 105.0 in 2000 and a CPI of 102.0 in 2001, this set of CPIs suggests that A) there was an error when calculating the CPI in 2001. B) the average prices of goods and services decreased between 2000 and 2001. C) the average quantity of goods and services decreased between 2000 and 2001. D) the average prices of goods and services increased between 2000 and 2001.

B) the average prices of goods and services decreased between 2000 and 2001.

41) In 1980, the CPI was 85 and in 2014 it was 222. A cup of coffee cost $0.40 in 1980. What is the approximate price of this cup of coffee in 2014 dollars? A) $0.34 B) $0.15 C) $0.88 D) $8.88 E) $1.04

E) $1.04

8) Refer to Table 8-8. Looking at the table above, real average hourly earnings in 2005 (expressed in ʺbase year dollarsʺ) were A) $11.37 B) $10.24 C) $5.63 D) $3.67

C) $5.63

14) Refer to Table 8-3. Assume the market basket for the consumer price index has three products Cokes, hamburgers, and CDs with the following values in 2000 and 2006 for price and quantity: The Consumer Price Index for 2000 equals (approximately) A) 93. B) 118. C) 100. D) 108. E) 121.

C) 100.

40) The table above has information about the CPI and nominal wage rate for the country of Syldavia for the years 2000-2002. Which of the following statements is TRUE? A) Real wages did not change between 2001 and 2002 B) The nominal wage had more purchasing power in 2001 than it had in 2002 C) The price level rose from 2000 to 2001 D) The price level rose from 2001 to 2002 E) More than one of the above is correct

C) The price level rose from 2000 to 2001

31) Core inflation is measured because the prices of: A) durable goods fluctuate more frequently than the prices of nondurable goods; therefore, removing them from the basket prevents potential distortion. B) retail consumption items fluctuate frequently and can distort actual changes in the cost of living. C) food and energy costs fluctuate frequently and can distort actual changes in the cost of living. D) nondurable goods fluctuate more frequently than the prices of durable goods; therefore, removing them from the basket prevents potential distortion.

C) food and energy costs fluctuate frequently and can distort actual changes in the cost of living.

43) Now that Social Security payments are indexed, the: A) payments are not adjusted enough, so retirees can buy less with their payments over time. B) real value is adjusted to maintain a constant nominal value. C) nominal value is adjusted to maintain a constant real value. D) payments are adjusted so retirees can buy more with their payments over time.

C) nominal value is adjusted to maintain a constant real value.

29) Refer to Table 9-2. Assume the market basket for the consumer price index has two products bread and milk with the above values in 2006 and 2013 for price and quantity. The Consumer Price Index for 2013 equals approximately A) 118. B) 100. C) 16. D) 85. E) 116.

E) 116.

34) The data in the table above shows the consumption by families in a small (poor) economy. The families consume only salt and bread. The base reference period is 2000. The cost of the CPI basket in 2001 is A) $40.50. B) $3.10. C) $4.10. D) $43.00.

D) $43.00.

46) The data in the table above shows the consumption by typical families in a small economy. The families consume only salt and bread. The base reference period is 2017. The CPI in 2018 is approximately A) 100. B) 74. C) 43. D) 134. E) 109.

D) 134.

30) In practice, the three measurements of inflation, the CPI, PPI, and GDP deflator: A) all measure inflation, but focus on different parts of the economy. B) are all positively correlated. C) all closely track each other. D) All of these statements are true.

D) All of these statements are true.

5) Transactions costs are: A) often cited as a reason why purchasing power parity doesnʹt hold. B) the time and energy involved with creating an exchange. C) usually higher when transactions take place internationally. D) All of these statements are true.

D) All of these statements are true.

49) Which of the following correctly describes the relationship between the price level and the inflation rate? A) Low price levels imply low inflation rates. B) High price levels imply high inflation rates. C) Positive rates of inflation imply that price levels are high. D) Negative rates of inflation imply that prices are falling. E) High price levels imply that the inflation rate is rising.

D) Negative rates of inflation imply that prices are falling.

22) The substitution bias in the consumer price index refers to the idea that consumers ________ the quantity of products they buy in response to price, and the CPI does not reflect this and ________ the cost of the market basket. A) do not change; over-estimates B) do not change; under-estimates C) change; under-estimates D) change; over-estimates

D) change; over-estimates

11) In constructing the CPI, the BLS has to deal with ʺsubstitution biasʺ which is defined the bias in the CPI resulting from A) quality changes in existing products that cause prices to increase. B) new goods being introduced that are substitutes for older goods. C) consumersʹ substitution of discount stores for full service stores to avoid the higher prices in the full service stores. D) consumersʹ substitution away from goods that become relatively more expensive and toward goods that become relatively cheaper.

D) consumersʹ substitution away from goods that become relatively more expensive and toward goods that become relatively cheaper.

32) Suppose that a personʹs nominal income rises by 5 percent and the price level rises from 125 to 130. The personʹs real income will: A) fall by about 1 percent. B) rise by about 4 percent. C) remain constant. D) rise by about 1 percent.

D) rise by about 1 percent.

48) In 1970, the CPI was 50 and in 2017 it was 240. A cup of coffee cost $0.20 in 1970. What is the approximate price of this cup of coffee expressed in 2017 dollars? A) $0.48 B) $0.04 C) $4.80 D) $1.48 E) $0.96

E) $0.96

3) Refer to Table 8-6. Suppose an economy has only three goods and the typical family purchases the amounts given in the table above. If 2000 is the base year, then what is the CPI for 2008? A) 40.08 B) 180 C) 100 D) 188 E) None of the above

E) None of the above

4) Suppose that the prices of dairy products have risen less than prices in general over the last several years. To which problem in the construction of the CPI is this most relevant? A) outlet bias B) quality bias C) the Milk Cow Blues bias D) new product bias E) substitution bias

E) substitution bias