Chapter 23 Measuring the Cost of Living

Test B
Year 1100 1101
1

Price of Parchment 20 denerie 20 denerie

Price of Robes 20 denerie 30 denerie

Suppose that the basket of goods in the CPI consisted of 3 roles of parchment and 2 robes. ased on the information in the table! "hat is the consumer price inde# for 1101 if the base $ear is 1100% a. 100 b. 10& c. 11& d. 120 '(S)*R+ d. 120 ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 1 R'(/0-+ ( I(S,R3C,I0(+ 1
2

Suppose that the basket of goods in the CPI consisted of 3 roles of parchment and 2 robes. ased on the information in the table! "hat is the inflation rate for 1101% a. 33.34 b. 2&4 c. 204 d. 1&4. '(S)*R+ c. 204 ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 1 R'(/0-+ ( I(S,R3C,I0(+ 1 Year 2000 2001
3

Peaches 511 per bushel 510 per bushel

Pecans 56 per bushel 512 per bushel

Suppose that the t$pical consumer basket consists of 10 bushels of peaches and 1& bushels of pecans and that the base $ear is 2000. ased on the information in the table! "hat is the consumer price inde# for 2001% a. 5120 b. 5170 c. 5270 d. 5280 '(S)*R+ b. 5170 ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 1 R'(/0-+ ( I(S,R3C,I0(+ 1
7

Suppose that the t$pical consumer basket consists of 10 bushels of peaches and 1& bushels of pecans. ased on the information in the table! "hat "as the inflation rate for 2001% a. 704 b. 2&4 c. 204 d. (one of the abo9e is correct. '(S)*R+ a. 704 ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 1 R'(/0-+ ( I(S,R3C,I0(+ 1

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8 Chapter 23=-easuring the Cost of >i9ing NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON LINE QUI!!ES" #OUR STUDENTS MA# HA$E ALREAD# SEEN THIS QUESTION AND ITS ANSWER"
&

Suppose the CPI in 1??0 is 12&. ,he CPI in 1??? is 1&&. )hat is the rate of inflation o9er the period% a. 27 percent b. 2& percent c. 30 percent d. &2 percent '(S)*R+ a. 27 percent ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 1 R'(/0-+ ( I(S,R3C,I0(+ 1
6

)hich of the follo"ing has the greatest "eight in the CPI% a. food and be9erages b. housing c. medical care d. 'll of the abo9e ha9e e@ual "eights in the CPI. '(S)*R+ b. housing ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 1 R'(/0-+ Y
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,he consumer price inde# is based on a. 100!000s of prices. b. 10!000s of prices. c. 1!000s of prices. d. 100s of prices. '(S)*R+ b. 10!000s of prices. ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 1 R'(/0-+ Y
8

Consider the follo"ing t"o sentences. ,he producer price inde# measures the cost of a basket of goods and ser9ices purchased b$ firms. Changes in the producer price inde# are thought to be useful in predicting consumer prices. a. oth sentences are true. b. 0nl$ the first sentence is true. c. 0nl$ the second sentence is true. d. (either sentence is true. '(S)*R+ a. oth sentences are true. ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 2 R'(/0-+ Y
?

)hich of the follo"ing is true considering substitution bias% a. )hen prices change from one $ear to the ne#t! the$ do not all change proportionatel$. b. Substitution bias tends to make the CPI o9erstate the cost of li9ing from one $ear to the ne#t. c. )hen the price of a good rises! its "eight in the consumer price inde# "ill be higher than its "eight in the basket of goods people actuall$ bu$. d. 'll of the abo9e are true. '(S)*R+ d. 'll of the abo9e are true. ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 2 R'(/0-+ Y
10

Consider the follo"ing t"o sentences. ,he creation of ne" goods makes each dollar more 9aluable. Yet because the CPI is based on a fi#ed basket of goods and ser9ices! it does not reflect this decrease in the cost of li9ing. a. oth sentences are true. b. 0nl$ the first sentence is true. c. 0nl$ the second sentence is true. d. (either sentence is true. '(S)*R+ a. oth sentences are true. ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 2 R'(/0-+ Y

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Chapter 23=-easuring the Cost of >i9ing ?

11

)hich of the follo"ing is correct% a. ,he CPI makes no adAustment for @ualit$ changes. b. Research b$ the ureau of >abor Statistics sho"s that o9er the last 18 $ears the elderl$ ha9e e#perienced more rapid increases in the costBofBli9ing than the general population. c. 'lthough there are problems measuring the costBofBli9ing accuratel$! there is no reason to belie9e that on net the CPI either o9erstates or understates the true inflation rate. d. 'll of the abo9e are correct. '(S)*R+ b. Research b$ the ureau of >abor Statistics sho"s that o9er the last 18 $ears the elderl$ ha9e e#perienced more rapid increases in the costBofBli9ing than the general population. ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 2 R'(/0-+ Y
12

If the price of apples increases more than the price of other goods! the "eight of the apples in the CPI a. increases. b. decreases. c. sta$s the same! but should increase to accuratel$ reflect the change in the costBofBli9ing. d. sta$s the same! but should decrease to accuratel$ reflect the change in the costBofBli9ing. '(S)*R+ d. sta$s the same! but should decrease to accuratel$ reflect the change in the costBofBli9ing. ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 2 R'(/0-+ Y
13

Suppose that the price of Crench "ine imported to the 3S increases! other things the same this a. increases both the CPI and the D/P in the 3nited States. b. increases the CPI but does not change the D/P deflator in the 3.S. c. increases the D/P deflator! but does not change the CPI in the 3.S. d. changes neither the CPI nor the D/P deflator in the 3.S. '(S)*R+ b. increases the CPI but does not change the D/P deflator in the 3.S. ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 3 R'(/0-+ Y
17

If the price of oil decreases! the CPI a. decreases more than the D/P deflator decreases. b. decreases less than the D/P deflator decreases. c. decreases! but the D/P deflator does not change. d. does not change! but the D/P deflator decreases. '(S)*R+ a. decreases more than the D/P deflator decreases. ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 3 R'(/0-+ Y
1&

)hich of the follo"ing is correct% a. oth the CPI and D/P deflator use fi#ed "eights. b. (either the CPI nor D/P deflator use fi#ed "eights. c. ,he CPI! but not the D/P deflator uses fi#ed "eights. d. ,he D/P deflator! but not the CPI uses fi#ed "eights. '(S)*R+ c. ,he CPI! but not the D/P deflator uses fi#ed "eights. ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 3 R'(/0-+ Y
16

,he inflation rate computed from the CPI is a. al"a$s some"hat greater than that computed from the D/P deflator. b. al"a$s some"hat less than that computed from the D/P deflator. c. sometimes greater and sometimes less! but generall$ mo9es in the opposite direction as the rate computed from the D/P deflator. d. sometimes greater and sometimes less! but generall$ mo9es "ith the rate computed from the D/P deflator. '(S)*R+ d. sometimes greater and sometimes less! but generall$ mo9es "ith the rate computed from the D/P deflator. ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 3 R'(/0-+ Y

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10 Chapter 23=-easuring the Cost of >i9ing

1<

In the late 1?<0s a. both the D/P deflator and CPI sho"ed high rates of inflationE in the 1??0s both sho"ed lo" inflation rates. b. both the D/P deflator and CPI sho"ed lo" rates of inflationE in the 1??0s both sho"ed high inflation rates. c. and the 1??0s both the D/P deflator and CPI sho"ed high rates of inflation. d. and the 1??0s both the D/P deflator and CPI sho"ed lo" rates of inflation. '(S)*R+ a. both the D/P deflator and CPI sho"ed high rates of inflation! in the 1??0s both sho"ed lo" inflation rates. ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 2 R'(/0-+ Y
18

In 1?7? S$camore! Illinois built a hospital for about 5&00!000. In 1?8< the count$ restored the courthouse for about 52.7 million. ' price inde# for nonresidential construction "as 17 in 1?7?! ?2 in 1?8<! and 117.& in 2000. 'ccording to these numbers the hospital cost about a. 53.6 million in 2000 dollars! "hich is less than the cost of the courthouse restoration in 2000 dollars. b. 53.6 million in 2000 dollars! "hich is more than the cost of the courthouse restoration in 2000 dollars. c. 57.1 million in 2000 dollars! "hich is less than the cost of the courthouse restoration in 2000 dollars. d. 57.1 million in 2000 dollars! "hich is more than the cost of the courthouse restoration in 2000 dollars. '(S)*R+ d. 57.1 million in 2000 dollars! "hich is more than the cost of the courthouse restoration in 2000 dollars. ,YP*+ - .*Y1+ * S*C,I0(+ 2 0 1*C,I2*+ 7 R'(/0-+ Y NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON LINE QUI!!ES" #OUR STUDENTS MA# HA$E ALREAD# SEEN THIS QUESTION AND ITS ANSWER"
1?

Your grandparents tell $ou that in 1?60 the$ paid 50.3& for admission to a mo9ie. ,he price inde# in 1?60 "as 30. ,he price inde# in toda$ is 1<1. )hat is the price $our grandparents paid in toda$Fs dollars% a. 51.0& b. 51.?? c. 53.01 d. 5&.?8 '(S)*R+ b. 51.?? ,YP*+ - .*Y1+ * S*C,I0(+ 2 0 1*C,I2*+ 7 R'(/0-+ Y
20

In 1?<0 Professor Cells"oop made 512!000! in 1?80 he earned 527!000! in 1??0 he earned 536!000. If the CPI "as 70 in 1?<0! 60 in 1?80! 100 in 1??0 in terms of 1??? dollars! Professor Cells"oopFs salar$ "as highest in a. 1?<0! and lo"est in 1?80. b. 1??0! and lo"est in 1?80. c. 1?80! and lo"est in 1?<0. d. 1??0! and lo"est in 1?<0. '(S)*R+ c. 1?80! and lo"est in 1?<0. ,YP*+ - .*Y1+ * S*C,I0(+ 2 0 1*C,I2*+ 7 R'(/0-+ Y NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON LINE QUI!!ES" #OUR STUDENTS MA# HA$E ALREAD# SEEN THIS QUESTION AND ITS ANSWER"
21

Inde#ation refers to a. a process of adAusting the nominal interest rate so that it is e@ual to the real interest rate. b. using a la" or contract to automaticall$ correct a dollar amount for the effects of inflation. c. using a price inde# to deflate dollar 9alues. d. an adAustment made b$ the ureau of >abor Statistics to the CPI so that the inde# is in line "ith the D/P deflator. '(S)*R+ b. using a la" or contract to automaticall$ correct a dollar amount for the effects of inflation. ,YP*+ - .*Y1+ * S*C,I0(+ 2 0 1*C,I2*+ 7 R'(/0-+ Y

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Chapter 23=-easuring the Cost of >i9ing 11

22

-a9is Corporation has an agreement "ith its "orkers to completel$ inde# the "age of their emplo$ees to inflation in the CPI. -a9is currentl$ pa$s its production line "orkers 5<.&0 an hour and is scheduled to inde# their "ages toda$. If the CPI is currentl$ about 130 and "as 120 a $ear ago -a9is should increase the hourl$ "ages of its "orkers b$ about a. <.& cents b. 10 cents c. &8 cents d. 62.& cents '(S)*R+ d. 62.& cents ,YP*+ - .*Y1+ * S*C,I0(+ 2 0 1*C,I2*+ 7 R'(/0-+ Y
23

Suppose that the real interest rate is 34 and the inflation rate is 14. a. ,he dollar 9alue of sa9ings increases at 34! and the 9alue of sa9ings in goods increases at 14. b. ,he dollar 9alue of sa9ings increases at 14! and the 9alue of sa9ings in goods increases at 24. c. ,he dollar 9alue of sa9ings increases at 24! and the 9alue of sa9ings in goods increases at 34. d. ,he dollar 9alue of sa9ings increases at 74! and the 9alue of sa9ings in goods increases at 34. '(S)*R+ d. ,he dollar 9alue of sa9ings increases at 74! and the 9alue of sa9ings in goods increases at 34. ,YP*+ - .*Y1+ / S*C,I0(+ 2 0 1*C,I2*+ & R'(/0-+ Y
27

Sluggo puts mone$ in the bank and earns a &4 nominal interest rate! if the inflation rate is 34! in one $ear Sluggo "ill ha9e a. 34 more mone$ that "ill purchase 24 more goods. b. 34 more mone$ that "ill purchase 84 more goods. c. &4 more mone$ that "ill purchase 24 more goods. d. &4 more mone$ that "ill purchase 84 more goods. '(S)*R+ c. &4 more mone$ that "ill purchase 24 more goods. ,YP*+ - .*Y1+ / S*C,I0(+ 2 0 1*C,I2*+ & R'(/0-+ Y
2&

In 1apan in 2000 nominal interest rates "ere 1.&4 and the inflation rate "as G.&4. ,he real interest rate "as a. G24. b. G14. c. 14. d. 24. '(S)*R+ d. 24. ,YP*+ - .*Y1+ / S*C,I0(+ 2 0 1*C,I2*+ & R'(/0-+ Y

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'(S)*R+ d. 120 ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 1 R'(/0-+ ( I(S,R3C,I0(+ 1

2

'(S)*R+ c. 204 ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 1 R'(/0-+ ( I(S,R3C,I0(+ 1

3

'(S)*R+ b. 5170 ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 1 R'(/0-+ (

7

I(S,R3C,I0(+ 1

'(S)*R+ a. 704 ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 1 R'(/0-+ (

&

I(S,R3C,I0(+ 1

'(S)*R+ a. 27 percent ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 1 R'(/0-+ (

6

I(S,R3C,I0(+ 1

'(S)*R+ b. housing ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 1 R'(/0-+ Y

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'(S)*R+ b. 10!000s of prices. ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 1 R'(/0-+ Y

8

'(S)*R+ a. oth sentences are true. ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 2 R'(/0-+ Y
?

'(S)*R+ d. 'll of the abo9e are true. ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 2 R'(/0-+ Y
10

'(S)*R+ a. oth sentences are true. ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 2 R'(/0-+ Y
11

'(S)*R+ b. Research b$ the ureau of >abor Statistics sho"s that o9er the last 18 $ears the elderl$ ha9e e#perienced more rapid increases in the costBofBli9ing than the general population. ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 2 R'(/0-+ Y
12

'(S)*R+ d. sta$s the same! but should decrease to accuratel$ reflect the change in the costBofBli9ing. ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 2 R'(/0-+ Y
13

'(S)*R+ b. increases the CPI but does not change the D/P deflator in the 3.S. ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 3 R'(/0-+ Y
17

'(S)*R+ a. decreases more than the D/P deflator decreases. ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 3 R'(/0-+ Y

1&

'(S)*R+ c. ,he CPI! but not the D/P deflator uses fi#ed "eights. ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 3 R'(/0-+ Y
16

'(S)*R+ d. sometimes greater and sometimes less! but generall$ mo9es "ith that computed from the D/P deflator. ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 3 R'(/0-+ Y
1<

'(S)*R+ a. both the D/P deflator and CPI sho"ed high rates of inflation! in the 1??0s both sho"ed lo" inflation rates. ,YP*+ - .*Y1+ / S*C,I0(+ 1 0 1*C,I2*+ 2 R'(/0-+ Y
18

'(S)*R+ d. 57.1 million in 2000 dollars! "hich is more than the cost of the courthouse restoration in 2000 dollars. ,YP*+ - .*Y1+ * S*C,I0(+ 2 0 1*C,I2*+ 7 R'(/0-+ Y
1?

'(S)*R+ b. 51.?? ,YP*+ - .*Y1+ * S*C,I0(+ 2 0 1*C,I2*+ 7 R'(/0-+ Y

20

'(S)*R+ c. 1?80! and lo"est in 1?<0. ,YP*+ - .*Y1+ * S*C,I0(+ 2 0 1*C,I2*+ 7 R'(/0-+ Y
21

'(S)*R+ b. using a la" or contract to automaticall$ correct a dollar amount for the effects of inflation. ,YP*+ - .*Y1+ * S*C,I0(+ 2 0 1*C,I2*+ 7 R'(/0-+ Y
22

'(S)*R+ d. 62.& cents ,YP*+ - .*Y1+ * S*C,I0(+ 2 0 1*C,I2*+ 7 R'(/0-+ Y

23

'(S)*R+ d. ,he dollar 9alue of sa9ings increases at 74! and the 9alue of sa9ings in goods increases at 34. ,YP*+ - .*Y1+ / S*C,I0(+ 2 0 1*C,I2*+ & R'(/0-+ Y
27

'(S)*R+ c. &4 more mone$ that "ill purchase 24 more goods. ,YP*+ - .*Y1+ / S*C,I0(+ 2 0 1*C,I2*+ & R'(/0-+ Y
2&

'(S)*R+ d. 24. ,YP*+ - .*Y1+ / S*C,I0(+ 2 0 1*C,I2*+ & R'(/0-+ Y