45) An example of the new goods bias in the calculation of the CPI is a price increase in
A) butter relative to margarine.
B) an iPod player relative to a Walkman.
C) a 2013 Honda Civic Si Coupe relative to a 2013 Honda Civic Si Sedan.
D) textbooks bought through the campus bookstore relative to textbooks bought through
Amazon.com.
E) a Caribbean cruise for a couple who has never been on a cruise before.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.2
Status: Old
AACSB: Relective thinking
46) The price of dishwashers has remained relatively constant while the quality of
dishwashers has improved. The CPI
A) is adjusted monthly to relect the improvement in quality.
B) is increased monthly to relect the increased quality of dishwashers.
C) has an upward bias if it is not adjusted to take account of the higher quality.
D) has an upward bias because it does not relect the increased production of dishwashers.
E) should not take account of any quality changes because it is a price index not a quality
index.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.2
Status: Old
AACSB: Relective thinking
47) Joe buys chicken and beef. If the price of beef rises and the price of chicken does not
change, Joe will buy ________ for the CPI.
A) more beef and create a new goods bias
B) more chicken and create a commodity substitution bias
C) the same quantity of beef and chicken and create a commodity substitution bias
D) less chicken and beef and create a quality change bias
E) more chicken and eliminate the commodity substitution bias
Skill: Level 1: Deinition
Section: Checkpoint 7.2
Status: Old
AACSB: Relective thinking
51
48) The CPI bias was estimated by the Congressional Advisory Commission on the
Consumer Price Index as
A) understating the actual inlation rate by about 5 percentage points a year.
B) understating the actual inlation rate by more than 5 percentage points a year.
C) overstating the actual inlation rate by about 1 percentage point a year.
D) overstating the actual inlation rate by more than 5 percentage points a year.
E) understating the actual inlation rate by about 1 percentage point a year.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.2
Status: Old
AACSB: Relective thinking
49) A consequence of the CPI bias is that it
A) decreases government outlays.
B) increases international trade.
C) reduces outlet substitution bias.
D) distorts private contracts.
E) means that it is impossible to measure the inlation rate.
Skill: Level 1: Deinition
Section: Checkpoint 7.2
Status: Old
AACSB: Relective thinking
50) The fact that the CPI is a biased measure of the inlation rate means government
outlays will
A) increase at a faster rate than the actual inlation rate.
B) increase at the same rate as the actual inlation rate.
C) increase at a slower rate than the actual inlation rate.
D) sometimes increase faster and sometimes increase slower than the actual inlation rate
depending on whether the actual inlation rate exceeds 1.1 percent per year or is less than
1.1 percent per year.
E) None of the above because the bias in inlation measured using the CPI has nothing to
do with government outlays.
Skill: Level 1: Deinition
Section: Checkpoint 7.2
Status: Old
AACSB: Relective thinking
52
51) The GDP delator is a measure of
A) taxes and subsidies.
B) changes in quantities.
C) prices.
D) depreciation.
E) changes in nominal GDP.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.2
Status: Old
AACSB: Relective thinking
7.3 Nominal and Real Values
1) The diference between nominal and real is
A) nominal is measured in current dollars and real is measured in dollars of a given year.
B) real is measured in current dollars and nominal is measured in dollars of a given year.
C) nominal is a number stated in dollars and real is stated with an index number.
D) real is a number stated in dollars and nominal is stated with an index number.
E) both nominal and real are measured with index numbers, only the nominal index is
greater than 100 and the real index is less than 100.
Skill: Level 1: Deinition
Section: Checkpoint 7.3
Status: Old
AACSB: Relective thinking
2) When the nominal price of a good increases over time, the real cost of buying the good
A) must increase.
B) decreases because income also increases over time.
C) does not change because income also increases over time.
D) might increase, decrease, or stay the same depending on how much the CPI changed.
E) might increase, decrease, or stay the same depending on how much income changed.
Skill: Level 1: Deinition
Section: Checkpoint 7.3
Status: Old
AACSB: Relective thinking
53
3) To compare the price of a loaf of bread produced in 1993 with the price of a loaf
produced in this year, you should compare the value of the bread in
A) real prices.
B) nominal prices.
C) real quantity.
D) nominal quantity.
E) CPI quantity.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.3
Status: Old
AACSB: Relective thinking
4) To compare the real price of gas in 1975 to the real price in 2013, we need to know
A) just the two nominal prices in both years.
B) the two prices in both years and the inlation rate in 2013.
C) the two prices in both years and the CPI in both years.
D) the two prices in both years and the two interest rates in both years.
E) the two prices in both years and the two inlation rates in both years.
Skill: Level 1: Deinition
Section: Checkpoint 7.3
Status: Old
AACSB: Relective thinking
5) Suppose the CPI in 1983 is 100 and the CPI this year is 172. These values for the CPI
mean that
A) inlation between the two years was 172 percent.
B) typically, a good whose price was $100 in 1983 had a price of $172 this year.
C) typically, a good whose price was $172 in 1983 had a price of $100 this year.
D) typically, a good whose price was $100 in 1983 had a price of $139 this year.
E) typically, a good whose price was $100 in 1983 had a price of $58 this year.
Skill: Level 4: Applying models
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
54
6) February 2010, the price of gasoline in the Florida was $2.629 per gallon and the CPI
was 202.4 with a base period of 1982 to 1984. What was the real price of gasoline per
gallon in base period dollars?
A) $2.629 per gallon
B) $1.00 per gallon
C) $1.29 per gallon
D) $5.32 per gallon
E) $1.809 per gallon
Skill: Level 3: Using models
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
7) If the price of a soda was 15 cents in 1970, when the CPI was 50, and 50 cents in 2007
when the CPI was 172, then the real price of
A) a soda has risen 567 percent.
B) a soda has risen 350 percent.
C) the 1970 soda in 2007 dollars is 52 cents.
D) the 2007 soda in 1970 dollars is $3.44.
E) the soda was 15 cents in 1970 and 50 cents in 2007.
Skill: Level 3: Using models
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
8) If average annual tuition at public 4-year colleges was $1,908 in 1990, when the CPI was
130.7, and $8,655 in 2012 when the CPI was 229.6, then the real cost of annual tuition
A) rose by 158 percent during that period.
B) rose by 354 percent during that period.
C) rose by 75.7 percent during that period.
D) fell by 158 percent during that period.
E) fell by 354 percent during that period.
Skill: Level 3: Using models
Section: Checkpoint 7.3
Status: New
AACSB: Analytical thinking
55
9) If the price of a soda was 15 cents in 1970, when the CPI was 50, and 50 cents in 2007,
when the CPI was 172, then
A) prices on average have increased 567 percent.
B) prices on average have increased 244 percent.
C) the price of the soda was greater in real value in 1970 than in 2007.
D) the price of a soda has increased a greater percentage than the CPI.
E) the real price of a soda is the same in 1970 and 2007.
Skill: Level 3: Using models
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
10) In June 1960, the price of gasoline in the Midwest was $0.169 per gallon and the CPI
was 29.6 with a base period of 1982 to 1984. What was the real price of gasoline per gallon
in base period dollars?
A) $0.05 per gallon
B) $0.057 per gallon
C) $0.169 per gallon
D) $0.571 per gallon
E) $0.296 per gallon
Skill: Level 3: Using models
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
11) In 2001, Pablo earned $200 per week at his job. In 2011, Pablo earned $240 per week.
If the CPI in 2001 was 100 and the CPI in 2011 was 152, then
A) Pablo was better of in 2011 because his weekly wage was higher.
B) the 2001 wage measured in 2011 dollars is $157.89.
C) the 2011 wage measured in 2001 dollars is $157.89.
D) the 2001 wage measured in 2011 dollars is $131.58.
E) the 2001 wage measured in 2011 dollars is $100.
Skill: Level 3: Using models
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
56
12) During 1990, a Hershey candy bar cost $.85. By 2007, the same Hershey candy bar
cost $1.25. If the CPI was 130.7 in 1990 and 180.5 in 2007, the price of the 1990 Hershey
candy bar in 2007 prices is
A) greater than the price of the 2007 Hershey candy bar.
B) less than the price of the 2007 Hershey candy bar.
C) equivalent to the price of the 2007 Hershey candy bar.
D) perhaps greater than, perhaps less, or perhaps the same depending on whether the CPI
in 2007 has been adjusted to relect 2007 prices.
E) not able to be determined given the information in the question.
Skill: Level 3: Using models
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
13) A ham and cheese sandwich at the local deli costs $4.99 in 2005. If the CPI in 2005 was
90.0 and the CPI today is 121.0, the equivalent price for the ham and cheese sandwich
today is
A) $4.99.
B) $5.54.
C) $5.29.
D) $6.71.
E) $6.04.
Skill: Level 3: Using models
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
14) If prices have increased since the base period, then
A) real GDP is smaller than nominal GDP.
B) real GDP is larger than nominal GDP.
C) real GDP is equal to nominal GDP.
D) there is no way to adjust nominal GDP so that it equals real GDP.
E) real GDP can no longer be compared to nominal GDP.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.3
Status: Old
AACSB: Relective thinking
57
15) If prices have decreased since the base period, then
A) real GDP is smaller than nominal GDP.
B) real GDP is larger than nominal GDP.
C) real GDP is equal to nominal GDP.
D) there is no way to adjust nominal GDP so that it equals real GDP.
E) real GDP can no longer be compared to nominal GDP.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.3
Status: Old
AACSB: Relective thinking
16) During this year, nominal GDP in Syldavia was $720 billion and real GDP was $720
billion. The GDP price index in Syldavia in this year was
A) 0, because nominal GDP equaled real GDP.
B) 100.
C) 720.
D) -1.
E) 720 billion.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
17) Real GDP is $1,400 billion and nominal GDP is $1,800. The GDP price index equals
A) 100.0.
B) 77.0.
C) 128.6.
D) 2.86.
E) 222.2.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
58
18) The GDP price index can be interpreted as
A) (nominal GDP ÷ real GDP) × 100.
B) (real GDP ÷ nominal GDP) × 100.
C) (nominal GDP + real GDP) ÷ 100.
D) (nominal GDP – real GDP) ÷ 100.
E) (real GDP – nominal GDP) ÷ 100.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
19) If for a given year nominal GDP is $2000 billion and real GDP is $1500 billion, then the
GDP price index is
A) 133.
B) 1.33.
C) 100.
D) 0.75.
E) 750.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
20) If nominal GDP is $2,000 billion and the GDP price index is 120, then real GDP is
________ billion.
A) $2,000
B) $1667
C) $16.67
D) $240
E) $6
Skill: Level 2: Using deinitions
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
59
21) If the GDP price index is 125 and nominal GDP is $130 billion, then real GDP equals
________ billion.
A) $104.00
B) $162.50
C) $96
D) $1.04
E) $9.6
Skill: Level 2: Using deinitions
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
22) Suppose that in 2012, real GDP is larger than nominal GDP. The GDP price index in
2012 is deinitely
A) negative.
B) larger than the GDP price index in 2012.
C) less than the GDP price index in 2012.
D) greater than 100.
E) less than 100.
Skill: Level 3: Using models
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
23) The ________ is the average hourly wage rate measured in current dollars, while the
________ is the average hourly rate measured in the dollars of a given reference base year.
A) real interest rate; nominal interest rate
B) nominal wage rate; real wage rate
C) real wage rate; nominal wage rate
D) nominal interest rate; real interest rate
E) inlation rate; real wage rate
Skill: Level 1: Deinition
Section: Checkpoint 7.3
Status: Old
AACSB: Relective thinking
60