86) Looking at the annual inlation rates in the United States from 2000 to 2013, we see
that they
A) were above 10 percent throughout the period.
B) were at or below 5 percent throughout the period and was negative for a year.
C) started low, but increased to over 9 percent by the end of the period.
D) started out above 10 percent but fell to 5 percent by the end of the period.
E) were negative for most of the years during this period.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
87) In the United States between 1973 and 2013, the inlation rate
A) increased every year.
B) only decreased during the late 1990s.
C) only increased during the late 1970s and 1980.
D) peaked during the late 1970s and 1980 and was at its generally lowest in the 1990s and
2000s.
E) has been relatively constant at approximately 4 percent to 6 percent per year.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
88) Looking at the historical values for annual inlation in the United States as measured by
the Consumer Price Index, it is clear that inlation was
A) higher on average during the 1990s than during the 1970s.
B) higher on average during the 2000s than during the 1970s.
C) never less than 0 percent at any time during the last 50 years.
D) higher on average during the 1970s than during the 1980s.
E) was never greater than 10 percent at any time during the last 50 years.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: New
AACSB: Relective thinking
31
89) Since 1305, of the following centuries the inlation rate has been the highest during the
A) 17th century.
B) 16th century.
C) 20th century.
D) 14th century.
E) 15th century.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
90) If we look back at inlation data since 1300, we see that
A) during the 20th century we have inally solved the problem of high inlation.
B) the Industrial Revolution caused the highest inlation rates.
C) the discovery of America caused prices to fall drastically.
D) inlation has been highest in the 20th and 21st centuries.
E) the most rapid inlation occurred prior to 1600.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
91) According to the historical record of inlation since the 1300s, the inlation rate
A) became highest in the twentieth century.
B) was at its lowest after Columbus arrived to America.
C) was at its highest during the Industrial Revolution.
D) has always been consistently high.
E) was higher in the 1300s than in the 1900s.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
32
92) Since 1300, the inlation rate has been greater than 2 percent per year and reaching its
highest peaks
A) primarily before 1400.
B) primarily between 1400 and 1500.
C) primarily between 1500 and 1700.
D) primarily between 1700 and 1900.
E) primarily after 1900.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
93) The Consumer Price Index (CPI) measures
A) the prices of a few consumer goods and services.
B) the prices of those consumer goods and services that increased in price.
C) the average of the prices paid by urban consumers for a ixed market basket of goods
and services.
D) consumer conidence in the economy.
E) the average of the costs paid by businesses to produce a ixed market basket of
consumer goods and services.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
94) The CPI is reported once every
A) year.
B) quarter.
C) month.
D) week.
E) other year.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
33
95) If a country had a CPI of 105.0 last year and a CPI of 102.0 this year, then
A) the average prices of goods and services increased between last year and this year.
B) the average prices of goods and services decreased between last year and this year.
C) the average quality of goods and services decreased between last year and this year.
D) there was an error when calculating the CPI this year.
E) the quantity of consumer goods and services produced decreased between last year and
this year.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
96) The period for which the Consumer Price Index is deined to equal 100 is called the
A) reference base period.
B) base period.
C) starting point.
D) zero period.
E) beginning period.
Skill: Level 1: Deinition
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
97) In the United States, the good or service given the most weight in the CPI basket when
calculating the CPI is
A) food and beverages.
B) taxes.
C) housing.
D) medical care.
E) recreation.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
34
98) Suppose the market basket of consumer goods and services costs $180 using the base
period prices, and the same basket of goods and services costs $300 using the current
period prices. The CPI for the current year period equals
A) 166.7.
B) 66.7.
C) 160.0.
D) 60.0.
E) 300.0.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
99) Suppose the CPI last year was 82.3 and this year is 90.9. Based on this information, we
can calculate that the inlation rate in 1981 was
A) 10.4 percent.
B) 8.6 percent.
C) 90.9 percent.
D) 82.3 percent.
E) 9.09 percent.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
100) In the United States, the inlation rate since 1999 generally was
A) higher than between 1979 to 1981.
B) higher than in the 1980s.
C) lower than between 1979 to 1981.
D) much higher than between 1985 to 1995.
E) negative.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.1
Status: Old
AACSB: Relective thinking
35
7.2 The CPI and Other Price Level Measures
1) If we compare the CPI to a perfect cost of living index, we ind that they are
A) the same thing.
B) diferent because the cost of living has nothing to do with prices.
C) diferent because the CPI does not measure prices.
D) diferent because the CPI uses a ixed basket and has some measurement diiculties.
E) not the same because the CPI has a ixed reference base period.
Skill: Level 1: Deinition
Section: Checkpoint 7.2
Status: Old
AACSB: Relective thinking
2) Economists agree that the CPI
A) is a near perfect measure of the cost of living.
B) has no relation to the cost of living.
C) is a possibly biased measure of the cost of living.
D) almost always shows the cost of living rising less rapidly than is the case in reality.
E) overstates inlation by about 4.1 percentage points a year.
Skill: Level 1: Deinition
Section: Checkpoint 7.2
Status: Old
AACSB: Relective thinking
3) When economists speak of the CPI bias, they are referring to
A) the tendency for the CPI to overstate price changes.
B) the tendency for the CPI to understate price changes.
C) the tendency for the CPI to understate inlation.
D) errors in measuring the prices used in the CPI.
E) the tendency for government oicials to impose their values on the data.
Skill: Level 1: Deinition
Section: Checkpoint 7.2
Status: Old
AACSB: Relective thinking
36
4) Which of the following is NOT a source of bias in the CPI?
i. quality change bias
ii. new goods bias
iii. quantity change bias
A) i only
B) ii only
C) iii only
D) i and ii
E) ii and iii
Skill: Level 1: Deinition
Section: Checkpoint 7.2
Status: Old
AACSB: Relective thinking
5) Which of the following makes the Consumer Price Index a less accurate measure of the
cost of living?
i. The monthly price survey conducted to collect information about prices is very
unreliable.
ii. The existence of a new goods bias in the calculation of the CPI
iii. The existence of a quality change bias in the calculation of the CPI
A) i only
B) ii only
C) ii and iii
D) i and ii
E) i, ii, and iii
Skill: Level 1: Deinition
Section: Checkpoint 7.2
Status: Old
AACSB: Relective thinking
6) Which of the following is a bias in the CPI?
i. new goods bias
ii. index change bias
iii. commodity substitution bias
A) i only
B) ii only
C) iii only
D) i and iii
E) i, ii, and iii
Skill: Level 1: Deinition
Section: Checkpoint 7.2
Status: Old
AACSB: Relective thinking
7) The CPI is biased because it
A) takes into account the changes in product quality.
B) takes into account the changes in technology.
C) does not always take into account the changes in product quality.
D) accurately measures the cost of living but not the cost of producing.
E) does not include services.
37
Skill: Level 2: Using deinitions
Section: Checkpoint 7.2
Status: Old
AACSB: Relective thinking
8) If the CPI is used as a cost of living index, incomes that are adjusted to relect the
changes in the CPI will
A) increase by more than the actual change in the cost of living.
B) decrease by more than the actual change in the cost of living.
C) increase by more than the actual change in quantities.
D) decrease by more than the actual change in quantities.
E) generally rise by about 2 percent a year because the standard of living generally rises by
about 2 percent a year.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.2
Status: Old
AACSB: Relective thinking
9) The presence of new goods that are of higher quality than the old goods leads the BLS to
A) update the market basket every time a new good is available.
B) do nothing because at least some people still buy the old goods.
C) try to separate price diferences from improvements in quality.
D) actually understate the cost of living when calculating the CPI.
E) immediately update the reference base period used in calculating the CPI.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.2
Status: Old
AACSB: Relective thinking
38
10) When a good gets better from one year to the next, the CPI has a what is called
A) new goods bias.
B) quality change bias.
C) commodity substitution bias.
D) outlet substitution bias.
E) magnitude of change bias.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.2
Status: Old
AACSB: Relective thinking
11) An example of the quality change bias, and not a new goods bias, in the calculation of
the CPI is a price increase in
A) Coke versus Pepsi.
B) DVDs purchased on Craigslist, an online classiied website.
C) a 2013 GPS unit versus a 2008 GPS unit.
D) etexts versus used books .
E) pants purchased by a irst-time shopper at Aeropostale.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.2
Status: Old
AACSB: Relective thinking
12) The quality change bias is most likely to put ________ into the CPI and so ________ the
inlation rate.
A) a downward bias; understate
B) an upward bias; understate
C) an upward bias; overstate
D) a downward bias; overstate
E) a random bias; randomly overstate or understate
Skill: Level 1: Deinition
Section: Checkpoint 7.2
Status: Old
AACSB: Relective thinking
39
13) When discussing the CPI, the term “commodity substitution bias” refers to changes in
A) prices that lead business to change the items they buy.
B) quantities that lead households to change the items they buy.
C) prices that lead households to change the items they buy.
D) income that lead households to change the items they buy.
E) stores so that consumers switch from one store to another.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.2
Status: Old
AACSB: Relective thinking
14) The commodity substitution bias is most likely to put ________ into the CPI and so
________ the inlation rate.
A) a downward bias; understate
B) an upward bias; understate
C) an upward bias; overstate
D) a downward bias; overstate
E) a random bias; randomly overstate or understate
Skill: Level 1: Deinition
Section: Checkpoint 7.2
Status: Old
AACSB: Relective thinking
15) The CPI overstates inlation because the average consumer buys
A) the same basket of goods every week.
B) more of those goods whose relative price has risen.
C) less of those goods whose relative price has risen.
D) lower quality goods if they have a choice.
E) a generally random assortment of goods and services each week because what is
purchased depends on what the consumer needs.
Skill: Level 1: Deinition
Section: Checkpoint 7.2
Status: Old
AACSB: Relective thinking
40