Question 1

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) B) and C)
F) A) and D)

Question 2

With respect to the consumer price index,which of the following does not serve as an example of how the substitution bias arises? Between 2010 and 2011,the price of a pound of peanuts

Accepted Answer

A)  rises from $0.80 to $1.00 while the price of a loaf of bread rises from $2.00 to $2.50.
B)  rises from $1.00 to $1.30 while the price of a loaf of bread rises from $2.00 to $2.30.
C)  remains constant,while the price of a loaf of bread rises from $2.00 to $2.30.
D)  falls from $1.00 to $0.80 while the price of a loaf of bread falls from $2.00 to $1.80.E) All of the above
F) B) and C)

Question 3

In the calculation of the CPI,tea is given greater weight than beer if

Accepted Answer

A)  the price of tea is higher than the price of beer.
B)  it costs more to produce tea than it costs to produce beer.
C)  tea is more readily available than beer to the typical consumer.
D)  consumers buy more tea than beer.E) A) and D)
F) A) and B) D

Question 4

If 2010 is the base year,then the inflation rate in 2015 equals

Accepted Answer

A)   
B)   
C)   
D)   E) A) and D)
F) A) and C) D

Question 5

For the purpose of calculating the consumer price index,the basket of goods

Accepted Answer

A)  is kept the same from year to year so that the effects of price changes are isolated from the effect of any quantity changes that might be occurring at the same time.
B)  is kept the same from year to year;otherwise,the value of the index would remain constant from year to year.
C)  varies from year to year;otherwise,the value of the index would remain constant from year to year.
D)  varies from year to year so that consumers' buying patterns are updated in a timely fashion.E) B) and C)
F) None of the above

Question 6

In a particular economy,the price index was 120 in 2012 and 130 in 2013.Which of the following statements is correct?

Accepted Answer

A)  The economy experienced a rising price level between 2012 and 2013.
B)  The economy experienced a higher inflation rate between 2012 and 2013 than it had experienced between 2011 and 2012.
C)  The inflation rate between 2012 and 2013 was 10 percent.
D)  The base year is 2011.E) A) and B)
F) A) and C)

Question 7

Which of the following changes in the price index produces the greatest rate of inflation: 12 to 15,20 to 24,or 30 to 35?

Accepted Answer

A)  12 to 15
B)  20 to 24
C)  30 to 35
D)  All of these changes produce the same rate of inflation.E) All of the above
F) A) and B)

Question 8

Which of the following agencies calculates the CPI?

Accepted Answer

A)  the National Price Board
B)  the Department Of Weight and Measurements
C)  the Bureau of Labor Statistics
D)  the Congressional Budget OfficeE) B) and C)
F) B) and D)

Question 9

What basket of goods and services is used to construct the CPI?

Accepted Answer

A)  a random sample of all goods and services produced in the economy
B)  the goods and services that are typically bought by consumers as determined by government surveys
C)  only food,clothing,transportation,entertainment,and education
D)  the least expensive and the most expensive goods and services in each major category of consumer expendituresE) All of the above
F) C) and D)

Question 10

If the quality of a good improves while its price remains the same,then the value of a dollar

Accepted Answer

A)  rises and the cost of living increases.
B)  rises and the cost of living decreases.
C)  falls and the cost of living increases.
D)  falls and the cost of living decreases.E) None of the above
F) B) and C)

Question 11

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?

Accepted Answer

A)  0.9%
B)  9.0%
C)  2.5%
D)  90%E) A) and B)
F) A) and C)

Question 12

The consumer price index is

Accepted Answer

A)  not very useful as a measure of the cost of living.
B)  a perfect measure of the cost of living.
C)  a useful measure,but not a perfect measure,of the cost of living.
D)  not used as a measure of the cost of living.E) C) and D)
F) B) and C)

Question 13

When the quality of a good improves while its price remains the same,the purchasing power of the dollar

Accepted Answer

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

Question 14

If the price of domestically produced power tools increases,then

Accepted Answer

A)  the consumer price index and the GDP deflator will both increase.
B)  the consumer price index will increase,and the GDP deflator will be unaffected.
C)  the consumer price index will be unaffected,and the GDP deflator will increase.
D)  the consumer price index and the GDP deflator will both be unaffected.E) B) and C)
F) A) and B)

Question 15

Suppose the price of a quart of milk rises from $1.00 to $1.20 and the price of a T-shirt rises from $8.00 to $9.60.If the CPI rises from 150 to 195,then people likely will buy

Accepted Answer

A)  more milk and more T-shirts.
B)  more milk and fewer T-shirts.
C)  less milk and more T-shirts.
D)  less milk and fewer T-shirts.E) B) and D)
F) A) and C) A

Question 16

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) A) and B)
F) A) and C)

Question 17

For an imaginary economy,the value of the consumer price index was 140 in 2013,and the inflation rate was 5.0 percent between 2013 and 2014.The consumer price index in 2014 was

Accepted Answer

A)  145.0.
B)  147.0.
C)  135.0.
D)  133.3.E) A) and B)
F) B) and D)

Question 18

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) A) and C)
F) A) and B)

Question 19

In the basket of goods that is used to compute the consumer price index,which of the following categories of consumer spending is the smallest?

Accepted Answer

A)  food & beverages
B)  recreation
C)  housing
D)  apparelE) All of the above
F) B) and C)

Question 20

Which of the following is the correct formula for calculating the consumer price index?

Accepted Answer

A)   
B)   
C)   
D)   E) B) and D)
F) B) and C)

Exam 11: Measuring the Cost of Living: The Consumer Price Index

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

Correct AnswerverifiedShow Answer

With respect to the consumer price index,which of the following does not serve as an example of how the substitution bias arises? Between 2010 and 2011,the price of a pound of peanuts

Correct AnswerverifiedShow Answer

In the calculation of the CPI,tea is given greater weight than beer if

Correct AnswerverifiedD

If 2010 is the base year,then the inflation rate in 2015 equals

Correct AnswerverifiedD

For the purpose of calculating the consumer price index,the basket of goods

Correct AnswerverifiedShow Answer

In a particular economy,the price index was 120 in 2012 and 130 in 2013.Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Which of the following changes in the price index produces the greatest rate of inflation: 12 to 15,20 to 24,or 30 to 35?

Correct AnswerverifiedShow Answer

Which of the following agencies calculates the CPI?

Correct AnswerverifiedShow Answer

What basket of goods and services is used to construct the CPI?

Correct AnswerverifiedShow Answer

If the quality of a good improves while its price remains the same,then the value of a dollar

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

The consumer price index is

Correct AnswerverifiedShow Answer

When the quality of a good improves while its price remains the same,the purchasing power of the dollar

Correct AnswerverifiedShow Answer

If the price of domestically produced power tools increases,then

Correct AnswerverifiedShow Answer

Suppose the price of a quart of milk rises from $1.00 to $1.20 and the price of a T-shirt rises from $8.00 to $9.60.If the CPI rises from 150 to 195,then people likely will buy

Correct AnswerverifiedA

The inflation rate is calculated

Correct AnswerverifiedShow Answer

For an imaginary economy,the value of the consumer price index was 140 in 2013,and the inflation rate was 5.0 percent between 2013 and 2014.The consumer price index in 2014 was

Correct AnswerverifiedShow Answer

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

In the basket of goods that is used to compute the consumer price index,which of the following categories of consumer spending is the smallest?

Correct AnswerverifiedShow Answer

Which of the following is the correct formula for calculating the consumer price index?

Correct AnswerverifiedShow Answer

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