Midterm Test (Chapter 6)

Refer to Table 24-14. The value of the Consumer Price Index in 2011 was approximately a. 224.9. b. 226.9. c. 227.5. d. 228.4.

a. 224.9.

The price tag on a tennis ball in 1975 read $0.10, and the price tag on a tennis ball in 2005 read $1.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3. Refer to Scenario 24-1. In 1975 dollars, a 1975 tennis ball cost $0.10 and a 2005 tennis ball cost a. $0.27, so tennis balls were cheaper in 1975. b. $0.27, so tennis balls were cheaper in 2005. c. $3.66, so tennis balls were cheaper in 1975. d. $3.66, so tennis balls were cheaper in 2005.

a. $0.27, so tennis balls were cheaper in 1975.

Janelle earned a salary of $40,000 in 1996 and $65,000 in 2006. The consumer price index was 160 in 1996 and 266 in 2006. Janelle's 2006 salary in 1996 dollars is a. $39,097.74. b. $43,062.50. c. $68,900.00. d. $108,062.50.

a. $39,097.74.

If the nominal interest rate is 4 percent and the real interest rate is 7 percent, then the inflation rate is a. -3 percent. b. 0.75 percent. c. 3 percent. d. 11 percent.

a. -3 percent.

From 2009 to 2010, the CPI for education increased from 279.3 to 281.8. What was the inflation rate for education between 2009 and 2010? a. 0.9% b. 9.0% c. 2.5% d. 90%

a. 0.9%

Refer to Table 24-7. If the base year is 2009, then the economy's inflation rate is 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.

a. 10 percent in 2010 and 6.36 percent in 2011.

A worker received $5 for a daily wage in 1930, which has the equivalent value of $63.24 today. If the CPI was 17 in 1930 what is the value of the CPI today, rounded to the nearest whole number? a. 215 b. 134 c. 17 d. 1.3

a. 215

Refer to Table 24-4. If 2013 is the base year, then the consumer price index was a. 80.8 in 2012, 100 in 2013, and 107.7 in 2014. b. 80.5 in 2012, 100 in 2013, and 107.3 in 2014. c. 247.5 in 2012, 307.5 in 2013, and 330 in 2014. d. 210 in 2012, 260 in 2013, and 280 in 2014.

a. 80.8 in 2012, 100 in 2013, and 107.7 in 2014.

Most, but not all, athletic apparel sold in the United States is imported from other nations. If the price of athletic apparel increases, the GDP deflator will: a. increase less than will the consumer price index. b. increase more than will the consumer price index. c. not increase, but the consumer price index will increase. d. increase, but the consumer price index will not increase.

a. increase less than will the consumer price index.

Samantha goes to the grocery store to make her monthly purchase of ginger ale. As she enters the soft drink section, she notices that the price of ginger ale has increased 15 percent, so she decides to buy some peppermint tea instead. To which problem in the construction of the CPI is this situation most relevant? a. substitution bias b. introduction of new goods c. unmeasured quality change d. income effect

a. substitution bias

Suppose that over the past year, the nominal interest rate was 5 percent, the CPI was 150.3 at the end of the year, and the CPI was 144.2 at the beginning of the year. It follows that a. the dollar value of savings increased at 5 percent, and the purchasing power of savings increased at 0.8 percent. b. the dollar value of savings increased at 5 percent, and the purchasing power of savings increased at 9.2 percent. c. the dollar value of savings increased at 0.8 percent, and the purchasing power of savings increased at 5 percent. d. the dollar value of savings increased at 9.2 percent, and the purchasing power of savings increased at 5 percent.

a. the dollar value of savings increased at 5 percent, and the purchasing power of savings increased at 0.8 percent.

Suppose that over the past year, the real interest rate was 3 percent, the CPI was 126.2 at the beginning of the year, and the CPI was 129.5 at the end of the year. It follows that a. the dollar value of savings increased at 5.6 percent, and the purchasing power of savings increased at 3 percent. b. the dollar value of savings increased at 0.4 percent, and the purchasing power of savings increased at 3 percent. c. the dollar value of savings increased at 3 percent, and the purchasing power of savings increased at 5.6 percent. d. the dollar value of savings increased at 3 percent, and the purchasing power of savings increased at 0.4 percent.

a. the dollar value of savings increased at 5.6 percent, and the purchasing power of savings increased at 3 percent.

Refer to Table 24-12. Suppose the consumer price index is 15.5 percent higher in 2011 than in 2009. Then Will's food expenditures for 2010 in 2011 dollars amount to a. $6,352. b. $6,380. c. $6,426. d. $6,651.

b. $6,380.

Refer to Table 24-14. The inflation rate in 2013 was approximately a. 0.8%. b. 1.5%. c. 2.3%. d. 3.4%.

b. 1.5%.

If the consumer price index changes from 125 in September to 150 in October, what is the rate of inflation? a. 45.5% b. 20.0% c. 16.7% d. 9.1%

b. 20.0%

Refer to Table 24-7. Between 2010 and 2011, the cost of living increased by a. 5.30 percent. b. 6.36 percent. c. 7.78 percent. d. We need to know the base year in order to answer this question.

b. 6.36 percent.

Refer to Table 24-12. Suppose Will's 2009 food expenditures in 2011 dollars amount to $5,750. Then the inflation rate for 2011 is about a. 9.08 percent. b. 9.52 percent. c. 10.24 percent. d. 10.78 percent.

b. 9.52 percent.

The GDP deflator reflects the a. level of prices in the base year relative to the current level of prices. b. current level of prices relative to the level of prices in the base year. c. level of real output in the base year relative to the current level of real output. d. current level of real output relative to the level of real output in the base year.

b. current level of prices relative to the level of prices in the base year.

The consumer price index is used to a. monitor changes in the level of wholesale prices in the economy. b. monitor changes in the cost of living over time. c. monitor changes in the level of real GDP over time. d. monitor changes in the stock market.

b. monitor changes in the cost of living over time.

The CPI is a measure of the overall cost of a. the inputs purchased by a typical producer. b. the goods and services purchased by a typical consumer. c. the goods and services produced in the economy. d. the stocks on the New York Stock Exchange.

b. the goods and services purchased by a typical consumer.

Harry spent $39,000 in 2009 and $42,000 in 2014 on goods and services. The consumer price index was 220 for 2009 and 231 for 2014. Harry's 2009 spending in 2014 dollars is about a. $43,290. b. $37,143. c. $40,950. d. $40,857.

c. $40,950.

Refer to Table 24-2. If 2012 is the base year, then the CPI for 2013 was a. 95.7. b. 100.0. c. 104.4. d. 110.0.

c. 104.4.

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $77; in 2013, the basket's cost was $82; and in 2014, the basket's cost was $90. The value of the CPI in 2014 was a. 109.8 and the inflation rate was 9.8%. b. 109.8 and the inflation rate was 16.9%. c. 116.9 and the inflation rate was 9.8%. d. 116.9 and the inflation rate was 16.9%.

c. 116.9 and the inflation rate was 9.8%.

Refer to Table 24-3. If 2012 is the base year, then the CPI for 2013 was a. 100.0. b. 116.0. c. 132.8. d. 154.0.

c. 132.8.

Refer to Table 24-4. The inflation rate was a. 24.3 percent in 2013 and 22.5 percent in 2014. b. 23.8 percent in 2013 and 9.5 percent in 2014. c. 23.8 percent in 2013 and 7.7 percent in 2014. d. 24.3 percent in 2013 and 7.3 percent in 2014.

c. 23.8 percent in 2013 and 7.7 percent in 2014.

Refer to Table 24-8. If the base year is 2014, then the consumer price index was a. 80 in 2013, 100 in 2014, and 60 in 2015. b. 98 in 2013, 100 in 2014, and 96 in 2015. c. 90 in 2013, 100 in 2014, and 80 in 2015. d. 180 in 2013, 200 in 2014, and 160 in 2015.

c. 90 in 2013, 100 in 2014, and 80 in 2015.

Refer to Table 24-10. If 2009 is the base year, then the consumer price index was a. 83.00 in 2008, 100.00 in 2009, and 132.50 in 2010. b. 89.97 in 2008, 100.00 in 2009, and 117.43 in 2010. c. 90.88 in 2008, 100.00 in 2009, and 117.43 in 2010. d. 169.50 in 2008, 186.50 in 2009, and 219.00 in 2010.

c. 90.88 in 2008, 100.00 in 2009, and 117.43 in 2010.

Which of the following is correct? a. Nominal and real interest rates always move together. b. Nominal and real interest rates never move together. c. Nominal and real interest rates do not always move together. d. Nominal and real interest rates always move in opposite directions.

c. Nominal and real interest rates do not always move together.

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. There are no good substitutes for movies currently. c. Prices, including those for movie tickets, have been rising over time. d. Movies and DVD are complements.

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

Consider a small economy in which consumers buy only two goods: pretzels and cookies. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that a. the percentage change in the price of pretzels is equal to the percentage change in the price of cookies from year to year. b. the number of pretzels bought by the typical consumer is equal to the number of cookies bought by the typical consumer in each year. c. neither the number of pretzels nor the number of cookies bought by the typical consumer changes from year to year. d. neither the price of pretzels nor the price of cookies changes from year to year.

c. neither the number of pretzels nor the number of cookies bought by the typical consumer changes from year to year.

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

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

Refer to Table 24-12. Suppose Will's 2009 food expenditures in 2011 dollars amounted to $5,670. Suppose also that the real interest rate in 2011 was 3 percent. Then, in 2011, a. the inflation rate was 8 percent and the nominal interest rate was 5 percent. b. the inflation rate was 9 percent and the nominal interest rate was 6 percent. c. the inflation rate was 8 percent and the nominal interest rate was 11 percent. d. the inflation rate was 9 percent and the nominal interest rate was 12 percent.

c. the inflation rate was 8 percent and the nominal interest rate was 11 percent.

Quinn has job offers in Wrexington and across the country in Charlieville. The Wrexington job would pay a salary of $50,000 per year, and the Charlieville job would pay a salary of $40,000 per year. The CPI in Wrexington is 150, and the CPI in Charlieville is 90. Refer to Scenario 24-4. The Charlieville salary in Wrexington dollars is a. $24,000.00. b. $26,666.67. c. $60,000.00 d. $66,666.67.

d. $66,666.67.

Refer to Table 24-7. If the base year is 2010, then the economy's inflation rate is a. 2 percent in 2010 and 7 percent in 2011. b. 4.5 percent in 2010 and 5.2 percent in 2011. c. 9 percent in 2010 and 5.5 percent in 2011. d. 10 percent in 2010 and 6.36 percent in 2011.

d. 10 percent in 2010 and 6.36 percent in 2011.

Refer to Table 24-5. If the base year is 2004, then the CPI in 2004 was a. 0. b. 1. c. 80. d. 100.

d. 100.

Suppose you know the value of the consumer price index (CPI) in year 1 as well as the inflation rate in year 2. Which of the following equations is valid for the CPI in year 2? a. CPI in year 2 = (100 x CPI in year 1) / (Inflation rate in year 1 x 100) b. CPI in year 2 = (CPI in year 2 / 100) / (Inflation rate in year 2 + 100) c. CPI in year 2 = [(Inflation rate in year 2 / CPI in year 1) + CPI in year 1] / 100 d. CPI in year 2 = [(CPI in year 1 x Inflation rate in year 2 ) + (100 x CPI in year 1] / 100

d. CPI in year 2 = [(CPI in year 1 x Inflation rate in year 2 ) + (100 x CPI in year 1] / 100

Which of the following statements is true? a. Even if we know the values of the consumer price index for the years 2009 and 2010, we cannot calculate the inflation rate for 2010 if we do not know which year is the base year. b. If we know the base year is 1990, and if we know the value of the consumer price index for the year 2010, then we have all the information we need to calculate the inflation rate for 2010. c. If we know the base year is 2000, and if we know the value of the consumer price index for the year 1995, then we have all the information we need to calculate the inflation rate for 1995. d. If we know the base year is 2000, and if we know the value of the consumer price index for the year 1995, then we have all the information we need to calculate the percentage change in the cost of living between 1995 and 2000.

d. If we know the base year is 2000, and if we know the value of the consumer price index for the year 1995, then we have all the information we need to calculate the percentage change in the cost of living between 1995 and 2000.

Which of the following statements is correct about the relationship between inflation and interest rates? a. There is no relationship between inflation and interest rates. b. The interest rate is determined by the rate of inflation. c. In order to fully understand inflation, we need to know how to correct for the effects of interest rates. d. In order to fully understand interest rates, we need to know how to correct for the effects of inflation.

d. In order to fully understand interest rates, we need to know how to correct for the effects of inflation.

The consumer price index and the GDP deflator are two alternative measures of the overall price level. Which of the following statements about the two measures is correct? a. The CPI involves a base year; the GDP deflator does not involve a base year. b. The CPI can be used to compute the inflation rate; the GDP deflator cannot be used to compute the inflation rate. c. The CPI reflects the prices of goods and services produced domestically; the GDP deflator reflects the prices of all goods and services bought by consumers. d. The CPI reflects a fixed basket of goods and services; the GDP deflator reflects current production of goods and services.

d. The CPI reflects a fixed basket of goods and services; the GDP deflator reflects current production of goods and services.

Categories of U.S. consumer spending, ranked from largest to smallest, are a. housing, food & beverages, education & communication, and transportation. b. education & communication, housing, food & beverages, and transportation. c. food & beverages, housing, transportation, and medical care. d. housing, transportation, food & beverages, and medical care.

d. housing, transportation, food & beverages, and medical care.