BUS 201 HW Ch 24

For purposes of calculating the CPI, the housing category of consumer spending includes the cost of Select one: a. shelter. b. fuel and other utilities. c. household furnishings and operation. d. All of the above are correct.

D

If the cost of transportation increases by 20 percent, then, other things the same, the CPI is likely to increase by about Select one: a. 0.3 percent. b. 1.6 percent. c. 3.2 percent. d. 10 percent.

Not B

As long as prices are rising over time, then Select one: a. the nominal interest rate exceeds the real interest rate. b. the real interest rate exceeds the nominal interest rate. c. the real interest rate is positive. d. the nominal interest rate is a better indicator than the real interest rate of how fast the purchasing power of your bank account is changing over time.

A

By not taking into account the possibility of consumer substitution, the CPI Select one: a. understates the cost of living. b. overstates the cost of living. c. may overstate or understate the cost of living, depending on how quickly prices rise. d. may overstate or understate the cost of living, regardless of how quickly prices rise.

B

If the CPI was 95 in 1955 and is 475 today, then $100 today purchases the same amount of goods and services as Select one: a. $4.75 purchased in 1955. b. $20.00 purchased in 1955. c. $95.00 purchased in 1955. d. $500 purchased in 1955.

B

The consumer price index is subject to substitution bias because Select one: a. some pairs of goods are complements rather than substitutes. b. some goods are inferior rather than normal. c. the law of demand applies to most, if not all, goods. Correct d. the index does not take into account the likelihood that consumers substitute newly-introduced goods for more-established goods.

C

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 Select one: a. new goods and services are always of higher quality than existing goods and services. b. new goods and services cost less than existing goods and services. c. new goods and services cost more than existing goods and services. d. when a new good is introduced, it gives consumers greater choice, thus reducing the amount they must spend to maintain their standard of living.

D