Question 1

The steps involved in calculating the consumer price index and the inflation rate,in order,are as follows:

Accepted Answer

A)   Choose a base year,update the basket,find the prices,estimate 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.E) All of the above
F) None of the above

Question 2

Scenario 16-1
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 16-1.The price of a 1975 tennis ball in 2005 dollars is

Accepted Answer

A)   $0.03.
B)   $0.27.
C)   $0.37.
D)   $1.00.E) A) and B)
F) B) and C)

Question 3

Each week,the Bureau of Labor Statistics computes and reports the consumer price index.

Accepted Answer

A) True 
 B)False  False

Question 4

The CPI is a measure of the overall cost of the goods and services bought by

Accepted Answer

A)   a typical firm.
B)   the government.
C)   a typical consumer.
D)   All of the above are correct.E) None of the above
F) All of the above

Question 5

The consumer price index is used to

Accepted Answer

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.E) None of the above
F) C) and D) B

Question 6

If the cost of housing increases by 10 percent,then,other things the same,the CPI is likely to increase by about

Accepted Answer

A)   1.7 percent.
B)   3.3 percent.
C)   4.2 percent.
D)   10 percent.E) B) and C)
F) B) and D)

Question 7

If the price of Spanish olives imported into the United States decreases,then

Accepted Answer

A)   both the GDP deflator and the consumer price index will decrease.
B)   neither the GDP deflator nor the consumer price index will decrease.
C)   the GDP deflator will decrease,but the consumer price index will not decrease.
D)   the consumer price index will decrease,but the GDP deflator will not decrease.E) None of the above
F) B) and C)

Question 8

In the calculation of the CPI,books are given greater weight than magazines if

Accepted Answer

A)   consumers buy more books than magazines.
B)   the price of books is higher than the price of magazines.
C)   it costs more to produce books than it costs to produce magazines.
D)   books are more readily available than magazines to the typical consumer.E) None of the above
F) A) and D)

Question 9

Table 16-1
The table below pertains to Pieway,an economy in which the typical consumer's basket consists of 10 bushels of peaches and 15 bushels of pecans.
 
-Refer to Table 16-1.The cost of the basket in 2005 was

Accepted Answer

A)   $200.
B)   $210.
C)   $240.
D)   $245.E) A) and C)
F) B) and C)

Question 10

Table 16-6.The table below applies to an economy with only two goods - hamburgers and hot dogs.The fixed basket consists of 4 hamburgers and 8 hot dogs.
 
-Refer to Table 16-6.If the base year is 2009,then the economy's inflation rate is

Accepted Answer

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.E) C) and D)
F) B) and C)

Question 11

The inflation rate is calculated

Accepted Answer

A)   by determining the change in the price index from the preceding period.
B)   by adding up the price increases of all goods and services.
C)   by computing a simple average of the price increases for all goods and services.
D)   by determining the percentage increase in the price index from the preceding period.E) B) and D)
F) C) and D)

Question 12

For purposes of calculating the CPI,the transportation category of consumer spending includes the cost of

Accepted Answer

A)   subways.
B)   gasoline.
C)   both subways and gasoline.
D)   neither subways nor gasoline.E) A) and D)
F) C) and D)

Question 13

Table 16-12.Will's expenditures on food for three consecutive years,along with other values,are presented in the table below.
 
-Refer to Table 16-12.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

Accepted Answer

A)   $6,352.
B)   $6,380.
C)   $6,426.
D)   $6,651.E) A) and C)
F) C) and D)

Question 14

Assume an economy experienced a positive rate of inflation between 2003 and 2004 and again between 2004 and 2005.However,the inflation rate was lower between 2004 and 2005 than it was between 2003 and 2004.Which of the following scenarios is consistent with this assumption?

Accepted Answer

A)   The CPI was 100 in 2003,110 in 2004,and 105 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 2003,90 in 2004,and 88 in 2005.E) C) and D)
F) B) and C) B

Question 15

The problems with using the consumer price index as a measure of the cost of living are important because

Accepted Answer

A)   even the appearance of high rates of inflation cause voters to become disenchanted.
B)   politicians have manipulated the measurement problems to their advantage.
C)   many government programs use the CPI to adjust for changes in the overall level of prices.
D)   if the price level is overstated,consumers will be taken advantage of by sellers of consumer goods.E) A) and B)
F) A) and C)

Question 16

By not taking into account the possibility of consumer substitution,the CPI

Accepted Answer

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.E) A) and B)
F) None of the above

Question 17

The price index that measures the cost of a basket of goods and services bought by firms is called the

Accepted Answer

A)   industrial price index.
B)   producer price index.
C)   core price index.
D)   GDP deflator.E) None of the above
F) B) and D)

Question 18

If the consumer price index is 120 in 2009 and 139.2 in 2010,then the rate of inflation for 2010 is 39.2 percent.

Accepted Answer

A) True 
 B)False

Question 19

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 $57.25.The value of the CPI in 2006 was

Accepted Answer

A)   91.6.
B)   104.6.
C)   109.2.
D)   114.5.E) B) and D)
F) None of the above

Question 20

Suppose the CPI was 108 in 1967,and suppose one must spend $936 today to obtain the same basket of goods and services that could be bought for $200 in 1967.Then today's CPI is

Accepted Answer

A)   116.67.
B)   131.08.
C)   397.44.
D)   505.44.E) A) and B)
F) A) and C)

Exam 16: Measuring the Cost of Living

The steps involved in calculating the consumer price index and the inflation rate,in order,are as follows:

Correct AnswerverifiedShow Answer

Scenario 16-1 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 16-1.The price of a 1975 tennis ball in 2005 dollars is

Correct AnswerverifiedShow Answer

Each week,the Bureau of Labor Statistics computes and reports the consumer price index.

Correct AnswerverifiedFalse

The CPI is a measure of the overall cost of the goods and services bought by

Correct AnswerverifiedShow Answer

The consumer price index is used to

Correct AnswerverifiedB

If the cost of housing increases by 10 percent,then,other things the same,the CPI is likely to increase by about

Correct AnswerverifiedShow Answer

If the price of Spanish olives imported into the United States decreases,then

Correct AnswerverifiedShow Answer

In the calculation of the CPI,books are given greater weight than magazines if

Correct AnswerverifiedShow Answer

Table 16-1 The table below pertains to Pieway,an economy in which the typical consumer's basket consists of 10 bushels of peaches and 15 bushels of pecans. -Refer to Table 16-1.The cost of the basket in 2005 was

Correct AnswerverifiedShow Answer

Table 16-6.The table below applies to an economy with only two goods - hamburgers and hot dogs.The fixed basket consists of 4 hamburgers and 8 hot dogs. -Refer to Table 16-6.If the base year is 2009,then the economy's inflation rate is

Correct AnswerverifiedShow Answer

The inflation rate is calculated

Correct AnswerverifiedShow Answer

For purposes of calculating the CPI,the transportation category of consumer spending includes the cost of

Correct AnswerverifiedShow Answer

Table 16-12.Will's expenditures on food for three consecutive years,along with other values,are presented in the table below. -Refer to Table 16-12.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

Correct AnswerverifiedShow Answer

Assume an economy experienced a positive rate of inflation between 2003 and 2004 and again between 2004 and 2005.However,the inflation rate was lower between 2004 and 2005 than it was between 2003 and 2004.Which of the following scenarios is consistent with this assumption?

Correct AnswerverifiedB

The problems with using the consumer price index as a measure of the cost of living are important because

Correct AnswerverifiedShow Answer

By not taking into account the possibility of consumer substitution,the CPI

Correct AnswerverifiedShow Answer

The price index that measures the cost of a basket of goods and services bought by firms is called the

Correct AnswerverifiedShow Answer

If the consumer price index is 120 in 2009 and 139.2 in 2010,then the rate of inflation for 2010 is 39.2 percent.

Correct AnswerverifiedShow Answer

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 $57.25.The value of the CPI in 2006 was

Correct AnswerverifiedShow Answer

Suppose the CPI was 108 in 1967,and suppose one must spend $936 today to obtain the same basket of goods and services that could be bought for $200 in 1967.Then today's CPI is

Correct AnswerverifiedShow Answer

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B

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