CHAPTER 24: MEASURING THE COST OF LIVING
B
1. Which of the following is correct? a. The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers. b. The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers. c. The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers. d. The GDP deflator is more commonly used as a gauge of inflation than the CPI is.
D
1. Which of the following is not correct? a. The consumer price index gives economists a way of turning dollar figures into meaningful measures of purchasing power. b. The consumer price index is used to monitor changes in the cost of living over time. c. The consumer price index is used by economists to measure the inflation rate. d. The consumer price index is used to measure the quantity of goods and services that the economy is producing.
C
1. A COLA automatically raises the wage when a. GDP increases. b. taxes increase. c. the consumer price index increases. d. the producer price index increases.
B
1. Babe Ruth's 1931 salary was $80,000. Government statistics show a consumer price index of 15.2 for 1931 and 207 for 2007. Ruth's 1931 salary was equivalent to a 2007 salary of about a. $5,874. b. $1,089,474. c. $1,216,000. d. $16,560,000.
D
1. Ethel purchased a bag of groceries in 1970 for $8. She purchased the same bag of groceries in 2006 for $25. If the price index was 38.8 in 1970 and the price index was 180 in 2006, then what is the price of the 1970 bag of groceries in 2006 dollars? a. $5.39 b. $25.00 c. $29.11 d. $37.11
B
1. If the CPI was 104 in 1967 and is 390 today, then $10 in 1967 purchased the same amount of goods and services as a. $2.67 purchases today. b. $37.50 purchases today. c. $39.00 purchases today. d. $104.00 purchases today.
B
1. If the CPI was 95 in 1955 and is 475 today, then $100 today purchases the same amount of goods and services as a. $4.75 purchased in 1955. b. $20.00 purchased in 1955. c. $95.00 purchased in 1955. d. $500 purchased in 1955.
B
1. If the consumer price index was 100 in the base year and 107 in the following year, then the inflation rate was a. 1.07 percent. b. 7 percent. c. 10.7 percent. d. 107 percent.
C
1. If the nominal interest rate is 6 percent and the rate of inflation is 2 percent, then the real interest rate is a. -4 percent. b. 2 percent. c. 4 percent. d. 8 percent.
B
1. In 1931, President Herbert Hoover was paid a salary of $75,000. Government statistics show a consumer price index of 15.2 for 1931 and 207 for 2007. President Hoover's 1931 salary was equivalent to a 2007 salary of about a. $5507. b. $1,021,382. c. $1,140,000. d. $15,525,000.
B
1. In an imaginary economy, consumers buy only sandwiches and magazines. The fixed basket consists of 20 sandwiches and 30 magazines. In 2006, a sandwich cost $4 and a magazine cost $2. In 2007, a sandwich cost $5. The base year is 2006. If the inflation rate in 2007 was 16 percent, then how much did a magazine cost in 2007? a. $1.87 b. $2.08 c. $2.32 d. $3.00
B
1. In the United States, if the price of imported oil rises so that the prices of gasoline and heating oil rise, then the a. GDP deflator rises much more than does the consumer price index. b. consumer price index rises much more than does the GDP deflator. c. GDP deflator and the consumer price index rise by about the same amount. d. consumer price index rises slightly more than does the GDP deflator.
B
1. Indexation refers to a. a process of adjusting the nominal interest rate so that it is equal to the real interest rate. b. using a law or contract to automatically correct a dollar amount for the effects of inflation. c. using a price index to deflate dollar values. d. an adjustment made by the Bureau of Labor Statistics to the CPI so that the index is in line with the GDP deflator.
D
1. 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 1996 salary in 2006 dollars is a. $24,060.15. b. $42,400.00. c. $43,655.17. d. $66,500.00.
C
1. Suppose a basket of goods and services has been selected to calculate the CPI and 2002 has been selected as the base year. In 2002, the basket's cost was $50; in 2004, the basket's cost was $52; and in 2006, the basket's cost was $54.60. The value of the CPI in 2004 was a. 96.2. b. 102.0. c. 104.0. d. 152.0.
D
1. The CPI differs from the GDP deflator in that a. the CPI is an inflation index, while the GDP deflator is a price index. b. substitution bias is not a problem with the CPI, but it is a problem with the GDP deflator. c. increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the GDP deflator but not in the CPI. d. increases in the prices of domestically produced goods that are sold to the U.S. government show up in the GDP deflator but not in the CPI.
B
1. 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.
C
1. The price index was 150 in the first year, 160 in the second year, and 175 in the third year. The inflation rate was about a. 6.25 percent between the first and second years, and 8.6 percent between the second and third years. b. 6.7 percent between the first and second years, and 9.4 percent between the second and third years. c. 10 percent between the first and second years, and 15 percent between the second and third years. d. 60 percent between the first and second years, and 75 percent between the second and third years.
B
1. The real interest rate tells you a. how fast the number of dollars in your bank account rises over time. b. how fast the purchasing power of your bank account rises over time. c. the number of dollars in your bank account today. d. the purchasing power of your bank account today.
C
1. The steps involved in calculating the consumer price index and the inflation rate, in order, are as follows: a. Choose a base year, fix the basket, find the prices, compute the basket's cost, compute the index, and compute the inflation rate. b. Choose a base year, fix the basket, find the prices, compute the inflation rate, compute the basket's cost, and compute the index. c. Fix the basket, find the prices, compute the basket's cost, choose a base year and compute the index, and compute the inflation rate. d. Fix the basket, find the prices, compute the inflation rate, compute the basket's cost, and choose a base year and compute the index.
A
1. When the consumer price index rises, the typical family a. has to spend more dollars to maintain the same standard of living. b. can spend fewer dollars to maintain the same standard of living. c. finds that its standard of living is not affected. d. can offset the effects of rising prices by saving more.
C
1. Which of the following agencies calculates the CPI? a. the National Price Board b. the Department Of Weight and Measurements c. the Bureau of Labor Statistics d. the Congressional Budget Office
B
1. Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate? 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.
