Question 1

The price of milk increases dramatically,causing a 0.5 percent increase in the CPI.The price increase will most likely cause the GDP deflator to increase by

Accepted Answer

A)  more than 0.5 percent.
B)  less than 0.5 percent.
C)  0.5 percent.
D)  None of the above is correct;this particular price increase will not affect the GDP deflator.

Question 2

Which is the most accurate statement about the GDP deflator and the consumer price index?

Accepted Answer

A)  The GDP deflator compares the price of a fixed basket of goods and services to the price of the basket in the base year,whereas the consumer price index compares the price of currently produced goods and services to the price of the same goods and services in the base year.
B)  The consumer price index compares the price of a fixed basket of goods and services to the price of the basket in the base year,whereas the GDP deflator compares the price of currently produced goods and services to the price of the same goods and services in the base year.
C)  Both the GDP deflator and the consumer price index compare the price of a fixed basket of goods and services to the price of the basket in the base year.
D)  Both the GDP deflator and the consumer price index compare the price of currently produced goods and services to the price of the same goods and services in the base year.

Question 3

The CPI is calculated

Accepted Answer

A)  monthly by the Department of Commerce.
B)  monthly by the Bureau of Labor Statistics.
C)  quarterly by the Department of Commerce.
D)  quarterly by the Bureau of Labor Statistics.

Question 4

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.

Question 5

Suppose a basket of goods and services has been selected to calculate the CPI and 2014 has been selected as the base year.In 2012,the basket's cost was $50;in 2014,the basket's cost was $52;and in 2016,the basket's cost was $58.The value of the CPI in 2016 was

Accepted Answer

A)  106.0.
B)  104.0.
C)  111.5.
D)  116.0.

Question 6

Suppose the quality of televisions changes over time,but the quality change goes unmeasured for the purpose of computing the consumer price index.In which of the following instances would the bias resulting from the unmeasured quality change be most severe?

Accepted Answer

A)  The quality of televisions deteriorates and televisions become more expensive relative to other goods.
B)  The quality of televisions improves and televisions become less expensive relative to other goods.
C)  The quality of televisions improves and televisions become more expensive relative to other goods.
D)  The quality of televisions deteriorates and the price of televisions relative to other prices remains unchanged.

Question 7

When we are calculating the consumer price index and the inflation rate for a certain year,

Accepted Answer

A)  the value of the consumer price index may depend on the choice of a base year,but the inflation rate does not depend on the choice of a base year.
B)  the inflation rate may depend on the choice of a base year,but the value of the consumer price index does not depend on the choice of a base year.
C)  both the value of the consumer price index and the inflation rate may depend on the choice of a base year.
D)  neither the value of the consumer price index nor the inflation rate depends on the choice of a base year.

Question 8

The CPI and the GDP deflator

Accepted Answer

A)  generally move together.
B)  generally show different patterns of movement.
C)  always show identical changes.
D)  always show different patterns of movement.

Question 9

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.

Question 10

An increase in the price of bread produced domestically will be reflected in

Accepted Answer

A)  both the GDP deflator and the consumer price index.
B)  neither the GDP deflator nor the consumer price index.
C)  the GDP deflator but not in the consumer price index.
D)  the consumer price index but not in the GDP deflator.

Question 11

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.

Question 12

Which of the following statements is correct?

Accepted Answer

A)  In order to calculate the inflation rate for the year 2011,we need to know the values of the consumer price index for the years 2009,2010,and 2011.
B)  Changes in the consumer price index are often thought to be useful in predicting changes in the producer price index.
C)  Despite its name,the "consumer price index" really measures the overall cost of the goods and services bought by consumers,business firms,and units of government.
D)  If the prices of all goods and services changed proportionately over time,then the consumer price index would reflect no substitution bias.

Question 13

To which of the problems in the construction of the CPI is the invention of pocket-sized computers most relevant?

Accepted Answer

A)  substitution bias
B)  introduction of new goods
C)  unmeasured quality change
D)  income bias

Question 14

The introduction of the video cassette recorder in the 1970s exemplified a problem in measuring the cost of living;that problem is the problem of

Accepted Answer

A)  substitution bias.
B)  product-improvement bias.
C)  introduction of new goods.
D)  unmeasured quality change.

Question 15

A 2009 Chevrolet model has more horsepower than the 2008 version and is included in the BLS basket of goods.BLS attempts to account for this change in the market basket by

Accepted Answer

A)  dropping the good from the basket.
B)  substituting in a different vehicle with the same horsepower as the 2008 model.
C)  adjusting the share of the market basket allocated to transportation.
D)  adjusting the price of the good to account for the quality change.

Question 16

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?

Accepted Answer

A)  $1.87
B)  $2.08
C)  $2.32
D)  $3.00

Question 17

Suppose a basket of goods and services has been selected to calculate the consumer price index.In 2005,the basket of goods cost $108.00;in 2006,it cost $135.00;and in 2007,it cost $168.75.Which of the following statements is correct?

Accepted Answer

A)  Using 2005 as the base year,the economy's inflation rate was higher in 2007 than it was in 2006.
B)  If 2007 is the base year,then the CPI is 33.75 in 2006.
C)  If the CPI is 156.25 in 2007,then 2005 is the base year.
D)  Using 2005 as the base year,the economy's inflation rate for 2006 was 27 percent.

Question 18

In the CPI,goods and services are weighted according to

Accepted Answer

A)  how long a market has existed for each good or service.
B)  the extent to which each good or service is regarded by the government as a necessity.
C)  how much consumers buy of each good or service.
D)  the number of firms that produce and sell each good or service.

Question 19

Changes in the quality of a good

Accepted Answer

A)  do not present a problem in the construction of the consumer price index.
B)  present a problem in the construction of the consumer price index,and that problem is sometimes referred to as substitution bias.
C)  are not accounted for,as a matter of policy,by the Bureau of Labor Statistics.
D)  can lead to either an increase or a decrease in the value of a dollar.

Question 20

The consumer price index and the GDP deflator are two alternative measures of the overall price level.Which of the following statements about the two measures is correct?

Accepted Answer

A)  The CPI involves a base year;the GDP deflator does not involve a base year.
B)  The CPI can be used to compute the inflation rate;the GDP deflator cannot be used to compute the inflation rate.
C)  The CPI reflects the prices of goods and services produced domestically;the GDP deflator reflects the prices of all goods and services bought by consumers.
D)  The CPI reflects a fixed basket of goods and services;the GDP deflator reflects current production of goods and services.

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

The consumer price index and the GDP deflator are two alternative measures of the overall price level.Which of the following statements about the two measures is correct?

Correct Answer
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Suppose a basket of goods and services has been selected to calculate the consumer price index.In 2005,the basket of goods cost $108.00;in 2006,it cost $135.00;and in 2007,it cost $168.75.Which of the following statements is correct?

Correct Answer
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The CPI is calculated

Correct Answer
verified

In the CPI,goods and services are weighted according to

Correct Answer
verified

A 2009 Chevrolet model has more horsepower than the 2008 version and is included in the BLS basket of goods.BLS attempts to account for this change in the market basket by

Correct Answer
verified

When we are calculating the consumer price index and the inflation rate for a certain year,

Correct Answer
verified

An increase in the price of bread produced domestically will be reflected in

Correct Answer
verified

Suppose the quality of televisions changes over time,but the quality change goes unmeasured for the purpose of computing the consumer price index.In which of the following instances would the bias resulting from the unmeasured quality change be most severe?

Correct Answer
verified

Which is the most accurate statement about the GDP deflator and the consumer price index?

Correct Answer
verified

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

Correct Answer
verified

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 Answer
verified

The price of milk increases dramatically,causing a 0.5 percent increase in the CPI.The price increase will most likely cause the GDP deflator to increase by

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

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

Correct Answer
verified

Suppose a basket of goods and services has been selected to calculate the CPI and 2014 has been selected as the base year.In 2012,the basket's cost was $50;in 2014,the basket's cost was $52;and in 2016,the basket's cost was $58.The value of the CPI in 2016 was

Correct Answer
verified

Correct Answer
verified

The CPI and the GDP deflator

Correct Answer
verified

Changes in the quality of a good

Correct Answer
verified

The introduction of the video cassette recorder in the 1970s exemplified a problem in measuring the cost of living;that problem is the problem of

Correct Answer
verified

To which of the problems in the construction of the CPI is the invention of pocket-sized computers most relevant?

Correct Answer
verified

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

The consumer price index and the GDP deflator are two alternative measures of the overall price level.Which of the following statements about the two measures is correct?

Correct AnswerverifiedShow Answer

Suppose a basket of goods and services has been selected to calculate the consumer price index.In 2005,the basket of goods cost $108.00;in 2006,it cost $135.00;and in 2007,it cost $168.75.Which of the following statements is correct?

Correct AnswerverifiedShow Answer

The CPI is calculated

Correct AnswerverifiedShow Answer

In the CPI,goods and services are weighted according to

Correct AnswerverifiedShow Answer

A 2009 Chevrolet model has more horsepower than the 2008 version and is included in the BLS basket of goods.BLS attempts to account for this change in the market basket by

Correct AnswerverifiedShow Answer

When we are calculating the consumer price index and the inflation rate for a certain year,

Correct AnswerverifiedShow Answer

An increase in the price of bread produced domestically will be reflected in

Correct AnswerverifiedShow Answer

Suppose the quality of televisions changes over time,but the quality change goes unmeasured for the purpose of computing the consumer price index.In which of the following instances would the bias resulting from the unmeasured quality change be most severe?

Correct AnswerverifiedShow Answer

Which is the most accurate statement about the GDP deflator and the consumer price index?

Correct AnswerverifiedShow Answer

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

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 AnswerverifiedShow Answer

The price of milk increases dramatically,causing a 0.5 percent increase in the CPI.The price increase will most likely cause the GDP deflator to increase by

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose a basket of goods and services has been selected to calculate the CPI and 2014 has been selected as the base year.In 2012,the basket's cost was $50;in 2014,the basket's cost was $52;and in 2016,the basket's cost was $58.The value of the CPI in 2016 was

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The CPI and the GDP deflator

Correct AnswerverifiedShow Answer

Changes in the quality of a good

Correct AnswerverifiedShow Answer

The introduction of the video cassette recorder in the 1970s exemplified a problem in measuring the cost of living;that problem is the problem of

Correct AnswerverifiedShow Answer

To which of the problems in the construction of the CPI is the invention of pocket-sized computers most relevant?

Correct AnswerverifiedShow Answer

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