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Foundations of Macroeconomics, 7e (Bade/Parkin)
Chapter 7 The CPI and the Cost of Living
7.1 The Consumer Price Index
1) The CPI stands for
A) Citizens Paying Index.
B) Corporate Pricing Index.
C) Consumer Paying Index.
D) Consumer Price Index.
E) Corporate/Consumer Payment Index.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
2) The Consumer Price Index is calculated by the
A) Bureau of Labor Statistics.
B) Department of Labor.
C) Department of Commerce.
D) Federal Reserve Bank of New York.
E) Society for Consumer Protection.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
3) The CPI is a measure of the
A) percentage change in the price level.
B) average prices of all goods.
C) average prices paid by consumers for a ixed basket of goods and services.
D) average prices of all goods and services produced.
E) average change in the output of the goods and services purchased by a typical urban
consumer.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
1
4) The Consumer Price Index (CPI) measures the changes of the
A) prices paid by consumers for a ixed market basket of consumer goods and services.
B) quantities of a ixed market basket of goods produced by businesses.
C) lowest prices paid by consumers for a ixed market basket of consumer goods and
services.
D) prices paid by all businesses for a ixed market basket of production resources.
E) prices paid by consumers and businesses for a ixed market basket of goods and
services.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
5) The Consumer Price Index measures the average prices paid by
A) businesses for a ixed market basket of resources.
B) businesses for the most frequently used basket of resources.
C) urban consumers for a ixed market basket of goods and services.
D) urban consumers for the goods and services that most frequently change in price.
E) businesses and consumers for a market basket of goods and services.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
6) For the CPI to provide an accurate measure of the prices paid by urban consumers, it is
necessary to
A) assign equal weights to all the goods and services included in the market basket
surveyed so that nothing is over-weighted.
B) have a market basket that is consistent and corresponds to what households actually
purchase.
C) have prices stated in dollars so consumers can compare what they spend.
D) change the market basket each month to relect the changes that consumers make.
E) make certain that the incomes of the consumers surveyed do not change because such a
change would afect the market basket of the goods and services they buy.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
2
7) The CPI is calculated by the Bureau of Labor Statistics on a frequency of every
A) week.
B) month.
C) quarter.
D) year.
E) decade, along with the Census.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
8) Constructing the CPI involves which of the following stages?
i. conducting the monthly price survey
ii. converting the CPI to an international index
iii. selecting CPI market basket
A) i only
B) ii only
C) iii only
D) i and iii
E) i, ii, and iii
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
9) The Consumer Expenditure Survey measures
A) households' spending patterns.
B) the wholesale price on what consumers buy so that a markup percentage can be found.
C) the maximum price buyers will pay for a good or service.
D) consumers' incomes.
E) the jobs at which consumers work.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
3
10) To measure the CPI, the BLS economic assistants check the prices of
A) about 8,000 goods and services every year.
B) about 8,000 goods and services every month.
C) about 80,000 goods and services every month.
D) about 80,000 goods and services every year.
E) only the goods and services whose prices have changed every month.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
11) To measure the CPI, the BLS economic assistants check the prices of
A) all the goods and services produced in a given year.
B) some of the consumer goods but none of the services produced in a given year.
C) about 80,000 goods and services each month.
D) about 80,000 goods and services each quarter.
E) only the prices of the goods and services whose prices have changed.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
12) The prices of the goods and services in the CPI market basket are collected
A) monthly.
B) yearly.
C) quarterly.
D) infrequently.
E) only when the CPI market basket is determined by the Consumer Expenditure Survey.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
4
13) The price survey of the goods contained in the CPI market basket is conducted
A) every ten years, along with the Census.
B) infrequently, because of its high cost.
C) every year.
D) monthly.
E) every quarter.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
14) The reference base period that the BLS uses to measure the CPI is
A) 1982-1984.
B) 1993-1995.
C) 1998-2000.
D) 1967-1969.
E) 2005.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
15) The reference base period for the CPI is
A) the previous year.
B) whatever the political party that is in control of Congress decides.
C) currently 1913.
D) currently 1982 to 1984.
E) currently 2005.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
5
16) The reference base period for the CPI has an index number of
A) 100.
B) 1.
C) 0.
D) 10.
E) 1,000.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
17) The value of the CPI for the reference base period is always
A) 100.
B) 0.
C) 1.
D) 50.
E) None of the above, because the value of the CPI is not always the same for all reference
base periods.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
18) The items included in the CPI are
A) inal goods produced in the United States.
B) inal goods and services produced in the United States.
C) goods and services consumed by the typical urban household.
D) only goods and services produced within the current year and consumed by the typical
household.
E) gods but not services consumed by the typical urban household.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Written and oral communication
6
19) The Consumer Price Index market basket contains
A) the minimal dietary requirements of an average urban household.
B) the U.S.-produced goods and services purchased by an average urban household.
C) the ideal calorie intake of each member of an average urban household.
D) the goods and services purchased by an average urban household.
E) the goods and services that the economists working for the BLS believes consumers
should buy.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
20) The Consumer Price Index measures the average of the prices paid by urban
consumers for a ________ of consumer goods and services.
A) random selection
B) changing selection
C) ixed market basket
D) subjective selection
E) least-cost market basket
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
21) The CPI market basket is determined by
A) tax return data of households.
B) supermarket purchases recorded by scanner technology.
C) proit releases of the largest companies.
D) a consumer survey.
E) surveys asking large retail companies, such as Wal-Mart, about their sales of consumer
goods and services.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
7
22) For the CPI, the market basket of goods and services is modiied
A) each time the Consumer Expenditures Survey is conducted.
B) about every 10 to 20 years.
C) each month when the Price Survey is completed.
D) each year to relect changes in consumer purchasing habits.
E) at the discretion of the President.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
23) According to the CPI basket, the largest item in the households' budgets is
A) food.
B) housing.
C) transportation.
D) education.
E) apparel.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
24) What is the good or service is given the most weight in the CPI?
A) apparel
B) food and beverages
C) housing
D) transportation
E) recreation
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
8
25) The CPI market basket
A) contains one unit of each good purchased by the average consumer.
B) weights the goods and services according to the budget of an average urban household.
C) is comprised of a representative sample of the goods that the government guesses
people buy.
D) includes only goods and not services.
E) includes only U.S.-produced goods and services.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
26) The CPI market basket
A) weights the goods and services according to the budget of an average urban household.
B) determines the best possible way of taxing the average urban household.
C) determines how the spending patterns of the average urban household change from
month to month.
D) determines how spending patterns change from urban household to urban household.
E) changes from one month to the next in order to calculate the CPI.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
27) When calculating the CPI, the Bureau of Labor Statistics
A) weights the price of goods and services in the basket relative to the importance of the
average urban household budget.
B) sums the prices of the goods and services in the average urban household consumption
basket.
C) weights the price of all goods and services produced in a year within a country's
borders.
D) multiplies by 100 the average price of goods and services in the average urban
consumer's basket.
E) makes certain to weight the goods and services equally so that no one product is over-
weighted.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
9
28) The more money an average household spends on one speciic type of good or service
per month, the
A) smaller the relative importance of that item in the CPI market basket.
B) larger the relative importance of that item in the CPI market basket.
C) costlier it will be to conduct the Consumer Expenditure Survey.
D) less signiicant an increase in the price of that good or service will be for the household.
E) more frequently its price is checked when calculating the CPI.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
29) Which of the following changes would have the largest impact on the CPI?
A) a one percent increase in the cost of housing
B) a one percent increase in the cost of transportation
C) a one percent increase in the cost of medical care
D) a one percent increase in the cost of education
E) a one percent increase in the cost of apparel
Skill: Level 2: Using deinitions
Section: Checkpoint 7.1
Status: New
AACSB: Relective thinking
30) In 2013, the reference base period for the CPI for the nation of Wobet, a typical
consumer spent $30 on potatoes and $150 on steak. Which of the following is true?
A) The quantity of steak in the basket is larger than the quantity of potatoes.
B) The quantity of potatoes in the basket is larger than the quantity of steak.
C) The quantity of the two goods in the basket is the same.
D) We cannot say exactly how many of each good are in the basket.
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
10
