Question 1

If the nominal interest rate is 5 percent and the rate of inflation is 10 percent,what is the real interest rate?

Accepted Answer

A)  -5 percent
B)  -2 percent
C)  2 percent
D)  5 percentE) None of the above
F) B) and D)

Question 2

List the three major problems in using the CPI as a measure of the cost of living.

Accepted Answer

(1)Substitution bias.The CPI ignores the...

Question 3

Scenario 6-1
Grant Smith was a doctor. In 1944, he made $12 000. His daughter, Lisa Smith, is also a doctor. Last year she made $175 000. The price index in 1944 was 17.6 and the price index last year was 192.
-Refer to the Scenario 6-1.What is Grant's 1944 income in last year's dollars?

Accepted Answer

A)  $19 128
B)  $21 240
C)  $120 682
D)  $130 909E) A) and B)
F) All of the above

Question 4

The price index in the first year is 125,in the second year is 150,and in the third year is 200.What is the inflation rate between the first and second year and between the second and third year?

Accepted Answer

A)  20 percent between the first and second year, 33 percent between the second and third year
B)  25 percent between the first and second year, 75 percent between the second and third year
C)  25 percent between the first and second year, 50 percent between the second and third year
D)  50 percent between the first and second year, 100 percent between the second and third yearE) B) and D)
F) A) and B)

Question 5

What is the goal of the consumer price index?

Accepted Answer

A)  to measure changes in the costs of production
B)  to measure changes in the cost of living
C)  to measure changes in the relative prices of consumer goods
D)  to measure changes in the production of consumer goodsE) B) and C)
F) A) and D)

Question 6

An economy only consumes two goods: food and recreation.The current shares in total expenditure are 60 percent food and 40 percent recreation.Suppose the price of food increases by 4 percent and the price of recreation increases by 2 percent.What is the change in the CPI?

Accepted Answer

The CPI is a weighted average of the rat...

Question 7

When the quality of a good improves,what happens to the purchasing power of the dollar?

Accepted Answer

A)  It increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for.
B)  It increases, so the CPI understates the change in the cost of living if the quality change is not accounted for.
C)  It decreases, so the CPI overstates the change in the cost of living if the quality change is not accounted for.
D)  It decreases, so the CPI understates the change in the cost of living if the quality change is not accounted for.E) B) and C)
F) None of the above

Question 8

Ms.Smith borrowed $1000 from her bank for one year at an interest rate of 10 percent per year.During that year the price level went up by 15 percent.Who loses and who gains because of the unexpected inflation?

Accepted Answer

A)  Ms. Smith loses 5 percent, but the bank gains 5 percent. .
B)  Ms. Smith gains 5 percent, but the bank loses 5 percent.
C)  Ms. Smith loses 10 percent, but the bank gains 5 percent.
D)  Ms. Smith gains 10 percent, but the bank loses 5 percent.E) C) and D)
F) A) and B)

Question 9

Tiffany is offered a job in Winnipeg that pays $90 000.She is offered a similar job in Montreal for $60 000.Which of the following sets of CPIs comes closest to giving both salaries the same purchasing power?

Accepted Answer

A)  90 in Winnipeg and 120 in Montreal
B)  90 in Winnipeg and 40 in Montreal
C)  60 in Winnipeg and 120 in Montreal
D)  60 in Winnipeg and 40 in MontrealE) A) and B)
F) A) and C)

Question 10

The 2012 CPI was 177 and the 1982 CPI was 96.5.How much would you need in 2012 in order to buy what you were able to buy with the $1000 in 1982?

Accepted Answer

A)  $1834.20
B)  $1777.77
C)  $1714.81
D)  $960.00E) A) and C)
F) A) and B)

Question 11

Since it accounts for changes in the prices of imports and the GDP deflator does not,the CPI is based on more goods and services than the GDP deflator.

Accepted Answer

A) True 
 B)False

Question 12

The CPI for 2013 is computed as 100 times the ratio of the price of the market basket in 2013 divided by the price of the market basket in the base year.

Accepted Answer

A) True 
 B)False

Question 13

Why are measurement problems in the consumer price index as an indicator of the cost of living important?

Accepted Answer

A)  because high rates of inflation cause voters to become unhappy
B)  because politicians have manipulated the measurement problems to their advantage
C)  because many government programs use the CPI to adjust for changes in the overall level of prices
D)  because if the price level is overstated, consumers will be taken advantage of by sellers of consumer goodsE) None of the above
F) A) and C)

Question 14

Canadians spend about 28 percent of their total expenditures on housing.If the price of housing increases by 10 percent,by how much does the CPI increase?

Accepted Answer

A)  280 percent
B)  28 percent
C)  2.8 percent
D)  0.28 percentE) A) and D)
F) B) and D)

Question 15

Suppose that the CPI is currently 400 and was 100 in 1969.Then,according to the CPI,$100 today purchases the same amount of goods and services as what amount in 1969?

Accepted Answer

A)  $25
B)  $40
C)  $60
D)  $400E) B) and C)
F) All of the above

Question 16

In sequence,what are the steps involved in calculating the consumer price index and the inflation rate?

Accepted Answer

A)  Choose a base year, determine the basket, compute the index, compute the basket's cost, and compute the inflation rate.
B)  Choose a base year, find the prices, determine the basket, compute the basket's cost, and compute the inflation rate.
C)  Determine the basket, find the prices, compute the basket's cost, choose a base year and compute the index, and compute the inflation rate.
D)  Determine the basket, find the prices, compute the index, choose a base year, and compute the inflation rate.E) None of the above
F) A) and B)

Question 17

Jay and Joyce meet George,the banker,to work out the details of a mortgage.They all expect that inflation will be 2 percent over the term of the loan,and they agree on a nominal interest rate of 6 percent.As it turns out,the inflation rate is 5 percent over the term of the loan.
a.What was the expected real interest rate?
b.What was the actual real interest rate?
c.Who benefitted and who lost because of the unexpected inflation?

Accepted Answer

a.The expected real interest rate was 4 ...

Question 18

Suppose the average price of gas in 2012 was $0.95 per litre and $0.97 in 2013.The inflation rate was 3 percent in 2013.What was the 2013 price of gas in 2012 dollars?

Accepted Answer

A)  $0.922
B)  $0.942
C)  $0.978
D)  $0.999E) A) and B)
F) All of the above

Question 19

Suppose an economy produces and consumes only two goods: houses and entertainment.The following table shows quantities consumed and prices for three years: Year 0 (the base year),Year 1,and Year 2.
  
a)Using the base year basket,compute the CPI for Year 1 and Year 2.
b)Compute the GDP deflator for Year 1 and Year 2.
c)Compute inflation rates based on CPI and the GDP deflators.

Accepted Answer

a) CPI1=(295×1000+25×700)/(280×1000+24×7...

Question 20

If the price index in the first year was 90,in the second year was 100,and in the third year was 95,what did the economy experience?

Accepted Answer

A)  10 percent inflation between the first and second years and 5 percent inflation between the second and third years
B)  10 percent inflation between the first and second years and 5 percent deflation between the second and third years
C)  11 percent inflation between the first and second years and 5 percent inflation between the second and third years
D)  11 percent inflation between the first and second years and 5 percent deflation between the second and third yearsE) A) and B)
F) A) and C)

Exam 6: Measuring the Cost of Living

Suppose that the CPI is currently 400 and was 100 in 1969.Then,according to the CPI,$100 today purchases the same amount of goods and services as what amount in 1969?

Correct Answer
verified

If the price index in the first year was 90,in the second year was 100,and in the third year was 95,what did the economy experience?

Correct Answer
verified

Tiffany is offered a job in Winnipeg that pays $90 000.She is offered a similar job in Montreal for $60 000.Which of the following sets of CPIs comes closest to giving both salaries the same purchasing power?

Correct Answer
verified

The 2012 CPI was 177 and the 1982 CPI was 96.5.How much would you need in 2012 in order to buy what you were able to buy with the $1000 in 1982?

Correct Answer
verified

If the nominal interest rate is 5 percent and the rate of inflation is 10 percent,what is the real interest rate?

Correct Answer
verified

What is the goal of the consumer price index?

Correct Answer
verified

Scenario 6-1 Grant Smith was a doctor. In 1944, he made $12 000. His daughter, Lisa Smith, is also a doctor. Last year she made $175 000. The price index in 1944 was 17.6 and the price index last year was 192. -Refer to the Scenario 6-1.What is Grant's 1944 income in last year's dollars?

Correct Answer
verified

Since it accounts for changes in the prices of imports and the GDP deflator does not,the CPI is based on more goods and services than the GDP deflator.

Correct Answer
verified

Ms.Smith borrowed $1000 from her bank for one year at an interest rate of 10 percent per year.During that year the price level went up by 15 percent.Who loses and who gains because of the unexpected inflation?

Correct Answer
verified

Correct Answer
verified
a) CPI1=(295×1000+25×700)/(280×1000+24×7...
View Answer

In sequence,what are the steps involved in calculating the consumer price index and the inflation rate?

Correct Answer
verified

Correct Answer
verified
a.The expected real interest rate was 4 ...
View Answer

When the quality of a good improves,what happens to the purchasing power of the dollar?

Correct Answer
verified

An economy only consumes two goods: food and recreation.The current shares in total expenditure are 60 percent food and 40 percent recreation.Suppose the price of food increases by 4 percent and the price of recreation increases by 2 percent.What is the change in the CPI?

Correct Answer
verified
The CPI is a weighted average of the rat...
View Answer

The price index in the first year is 125,in the second year is 150,and in the third year is 200.What is the inflation rate between the first and second year and between the second and third year?

Correct Answer
verified

Why are measurement problems in the consumer price index as an indicator of the cost of living important?

Correct Answer
verified

Suppose the average price of gas in 2012 was $0.95 per litre and $0.97 in 2013.The inflation rate was 3 percent in 2013.What was the 2013 price of gas in 2012 dollars?

Correct Answer
verified

List the three major problems in using the CPI as a measure of the cost of living.

Correct Answer
verified
(1)Substitution bias.The CPI ignores the...
View Answer

The CPI for 2013 is computed as 100 times the ratio of the price of the market basket in 2013 divided by the price of the market basket in the base year.

Correct Answer
verified

Canadians spend about 28 percent of their total expenditures on housing.If the price of housing increases by 10 percent,by how much does the CPI increase?

Correct Answer
verified

Exam 6: Measuring the Cost of Living

Suppose that the CPI is currently 400 and was 100 in 1969.Then,according to the CPI,$100 today purchases the same amount of goods and services as what amount in 1969?

Correct AnswerverifiedShow Answer

If the price index in the first year was 90,in the second year was 100,and in the third year was 95,what did the economy experience?

Correct AnswerverifiedShow Answer

Tiffany is offered a job in Winnipeg that pays $90 000.She is offered a similar job in Montreal for $60 000.Which of the following sets of CPIs comes closest to giving both salaries the same purchasing power?

Correct AnswerverifiedShow Answer

The 2012 CPI was 177 and the 1982 CPI was 96.5.How much would you need in 2012 in order to buy what you were able to buy with the $1000 in 1982?

Correct AnswerverifiedShow Answer

If the nominal interest rate is 5 percent and the rate of inflation is 10 percent,what is the real interest rate?

Correct AnswerverifiedShow Answer

What is the goal of the consumer price index?

Correct AnswerverifiedShow Answer

Scenario 6-1 Grant Smith was a doctor. In 1944, he made $12 000. His daughter, Lisa Smith, is also a doctor. Last year she made $175 000. The price index in 1944 was 17.6 and the price index last year was 192. -Refer to the Scenario 6-1.What is Grant's 1944 income in last year's dollars?

Correct AnswerverifiedShow Answer

Since it accounts for changes in the prices of imports and the GDP deflator does not,the CPI is based on more goods and services than the GDP deflator.

Correct AnswerverifiedShow Answer

Ms.Smith borrowed $1000 from her bank for one year at an interest rate of 10 percent per year.During that year the price level went up by 15 percent.Who loses and who gains because of the unexpected inflation?

Correct AnswerverifiedShow Answer

Correct Answerverifieda) CPI1=(295×1000+25×700)/(280×1000+24×7...View AnswerShow Answer

In sequence,what are the steps involved in calculating the consumer price index and the inflation rate?

Correct AnswerverifiedShow Answer

Correct Answerverifieda.The expected real interest rate was 4 ...View AnswerShow Answer

When the quality of a good improves,what happens to the purchasing power of the dollar?

Correct AnswerverifiedShow Answer

An economy only consumes two goods: food and recreation.The current shares in total expenditure are 60 percent food and 40 percent recreation.Suppose the price of food increases by 4 percent and the price of recreation increases by 2 percent.What is the change in the CPI?

Correct AnswerverifiedThe CPI is a weighted average of the rat...View AnswerShow Answer

The price index in the first year is 125,in the second year is 150,and in the third year is 200.What is the inflation rate between the first and second year and between the second and third year?

Correct AnswerverifiedShow Answer

Why are measurement problems in the consumer price index as an indicator of the cost of living important?

Correct AnswerverifiedShow Answer

Suppose the average price of gas in 2012 was $0.95 per litre and $0.97 in 2013.The inflation rate was 3 percent in 2013.What was the 2013 price of gas in 2012 dollars?

Correct AnswerverifiedShow Answer

List the three major problems in using the CPI as a measure of the cost of living.

Correct Answerverified(1)Substitution bias.The CPI ignores the...View AnswerShow Answer

The CPI for 2013 is computed as 100 times the ratio of the price of the market basket in 2013 divided by the price of the market basket in the base year.

Correct AnswerverifiedShow Answer

Canadians spend about 28 percent of their total expenditures on housing.If the price of housing increases by 10 percent,by how much does the CPI increase?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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a) CPI1=(295×1000+25×700)/(280×1000+24×7...
View Answer

Correct Answer
verified

Correct Answer
verified
a.The expected real interest rate was 4 ...
View Answer

Correct Answer
verified

Correct Answer
verified
The CPI is a weighted average of the rat...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified
(1)Substitution bias.The CPI ignores the...
View Answer

Correct Answer
verified

Correct Answer
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