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True / False
1. The consumer price index is used to monitor changes in an economy’s production of goods and services over time.
a.
True
b.
False
2. When the consumer price index falls, the typical family has to spend fewer dollars to maintain the same standard of
living.
a.
True
b.
False
3. Economists use the term inflation to describe a situation in which the economy’s overall price level is rising.
a.
True
b.
False
4. The inflation rate is the absolute change in the price level from the previous period.
a.
True
b.
False
5. Inflation can be measured using either the GDP deflator or the consumer price index.
a.
True
b.
False
6. The inflation rate reported in the news is usually calculated from the GDP deflator rather than the consumer price
index.
a.
True
b.
False
7. Because the consumer price index reflects the goods and services bought by consumers better than the GDP deflator
does, it is the more common gauge of inflation.
a.
True
b.
False
8. The CPI is a measure of the overall cost of the goods and services bought by a typical consumer.
a.
True
b.
False
9. Each week, the Bureau of Labor Statistics computes and reports the consumer price index.
a.
True
b.
False
10. The Bureau of Labor Statistics is part of the U.S. Department of Labor.
a.
True
b.
False
11. The Bureau of Labor Statistics determines which prices are most important to the typical consumer by surveying
consumers.
a.
True
b.
False
12. The content of the basket of goods and services used to compute the CPI changes every month.
a.
True
b.
False
13. By keeping the basket of goods and services the same when computing the CPI, the Bureau of Labor Statistics isolates
the effects of price changes from the effect of any quantity changes that might be occurring at the same time.
a.
True
b.
False
14. When the consumer price index is computed, the base year is always the first year among the years being considered.
a.
True
b.
False
15. The CPI for 2008 is computed by dividing the price of the basket of goods and services in 2008 by the price of the
basket of goods and services in the base year, then multiplying by 100.
a.
True
b.
False
16. The CPI is always 1 in the base year.
a.
True
b.
False
17. If the current year CPI is 140, then the price level has increased 40 percent since the base year.
a.
True
b.
False
18. If the current year CPI is 90, then the price level has decreased 10 percent since the base year.
a.
True
b.
False
19. The inflation rate for 2007 is computed by dividing (the CPI in 2007 minus the CPI in 2006) by the CPI in 2006, then
multiplying by 100.
a.
True
b.
False
20. If the value of the consumer price index is 110 in 2005 and 121 in 2006, then the inflation rate is 11 percent for 2006.
a.
True
b.
False
21. The producer price index measures the cost of a basket of goods and services bought by firms rather than consumers.
a.
True
b.
False
22. Changes in the consumer price index are useful in predicting changes in the producer price index.
a.
True
b.
False
23. Data from the Bureau of Labor Statistics show that the largest category of consumer spending is housing.
a.
True
b.
False
24. Data from the Bureau of Labor Statistics show that consumer spending on transportation is only slightly higher than
consumer spending on food and beverages.
a.
True
b.
False
25. Data from the Bureau of Labor Statistics show that consumer spending on medical care is about equal to consumer
spending on housing.
a.
True
b.
False
26. Data from the Bureau of Labor Statistics show that apparel makes up 14 percent of the typical consumer’s budget.
a.
True
b.
False
27. The goal of the consumer price index is to gauge how much incomes must rise to maintain a constant standard of
living.
a.
True
b.
False
28. Substitution bias occurs because the CPI ignores the possibility of consumer substitution toward goods that have
become relatively less expensive.
a.
True
b.
False
29. Substitution bias causes the CPI to understate the increase in the cost of living from one year to the next.
a.
True
b.
False
30. When a new good is introduced, consumers have more variety from which to choose, and this in turn increases the
cost of maintaining the same level of economic well-being.
a.
True
b.
False
31. The CPI does not reflect the increase in the value of the dollar that arises from the introduction of new goods.
a.
True
b.
False
32. If the quality of a good deteriorates from one year to the next while its price remains the same, then the value of a
dollar falls.
a.
True
b.
False
33. The Bureau of Labor Statistics does not try to account for quality changes in the goods and services in the basket used
to compute the CPI.
a.
True
b.
False
34. There is no longer much debate among economists concerning the severity of and the solution to the problems in using
the CPI to measure the cost of living.
a.
True
b.
False
35. Many economists believe the bias in the CPI is now only about half as large as it once was.
a.
True
b.
False
36. The CPI and GDP deflator usually tell two different stories about how quickly prices are rising.
a.
True
b.
False
37. When the price of Italian wine rises, this change is reflected in the U.S. CPI but not in the U.S. GDP deflator.
a.
True
b.
False
38. When the price of nuclear missiles rises, this change is reflected in the CPI but not in the GDP deflator.
a.
True
b.
False
39. In the U.S., when the price of oil rises, the CPI rises by much more than does the GDP deflator.
a.
True
b.
False
40. The group of goods and services used to compute the GDP deflator changes automatically over time, but the group of
goods and services used to compute the CPI does not.
a.
True
b.
False
41. The largest sector in the consumer price index market basket is food and beverage purchases.
a.
True
b.
False
42. The Bureau of Labor Statistics surveys consumers to determine a fixed basket of goods.
a.
True
b.
False
43. If the consumer price index is 120 in 2009 and 139.2 in 2010, then the rate of inflation for 2010 is 39.2 percent.
a.
True
b.
False
44. The GDP deflator reflects the prices of all goods and services produced around the world, whereas the consumer price
index reflects the prices of all goods and services bought by consumers.
a.
True
b.
False
45. Consumer price index = × 100.
a.
True
