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c.
Compared to the GDP deflator, the consumer price index is the more common gauge of inflation.
d.
The consumer price index and the GDP deflator reflect the goods and services bought by consumers equally
well.
232. Which of the following statements regarding the consumer price index and the GDP deflator is correct?
a.
The two price measures are always equal.
b.
Divergence between the two price measures is the rule, not the exception.
c.
Divergence between the two price measures is the exception, not the rule.
d.
None of the above is correct.
233. Suppose the typical household spends $3,500 on goods and services during the month of January, and $4,300 on the
same goods and services in February. Using January as the base period, what is the consumer price index for February?
a.
151.4
b.
81.4
c.
55.1
d.
122.9
Table 24-9
The table below lists the per gallon prices of gas and milk for the months of April, May, and June. Assume that the typical
consumer buys 60 gallons of gas and 4 gallons of milk each month, and that April is the base period.
Month
Price of Gas
Price of Milk
April
$2.00
$3.50
May
$3.50
$3.25
June
$3.85
$3.58
234. Refer to Table 24-9. What is the consumer price index for May?
a.
60
b.
132
c.
166
d.
123
235. Refer to Table 24-9. What is the inflation rate for May?
a.
66.4%
b.
60.1%
c.
-4.1%
d.
10%
Table 24-10
The table below shows the prices of baseballs and baseball bats for three years. Assume the typical consumer’s basket
consists of 6 baseballs and 2 baseball bats.
Year
Price of a
Baseball
Price of a
Baseball Bat
2008
$3.25
$75
2009
$3.75
$82
2010
$4.50
$96
236. Refer to Table 24-10. How much was the cost of the basket in 2008?
a.
$78.25
b.
$84.75
c.
$169.50
d.
$456.50
237. Refer to Table 24-10. If 2008 is the base year, then the consumer price index was
a.
100.00 in 2008, 110.03 in 2009, and 117.43 in 2010.
b.
100.00 in 2008, 110.03 in 2009, and 129.20 in 2010.
c.
100.00 in 2008, 117.00 in 2009, and 132.50 in 2010.
d.
169.50 in 2008, 186.50 in 2009, and 219.00 in 2010.
238. Refer to Table 24-10. If 2009 is the base year, then the consumer price index was
a.
83.00 in 2008, 100.00 in 2009, and 132.50 in 2010.
b.
89.97 in 2008, 100.00 in 2009, and 117.43 in 2010.
c.
90.88 in 2008, 100.00 in 2009, and 117.43 in 2010.
d.
169.50 in 2008, 186.50 in 2009, and 219.00 in 2010.
239. Refer to Table 24-10. If 2010 is the base year, then the consumer price index was
a.
77.40 in 2008, 85.16 in 2009, and 100.00 in 2010.
b.
50.50 in 2008, 67.50 in 2009, and 100.00 in 2010.
c.
90.88 in 2008, 85.16 in 2009, and 100.00 in 2010.
d.
169.50 in 2008, 186.50 in 2009, and 219.00 in 2010.
240. Refer to Table 24-10. The inflation rate was
a.
10.03 percent in 2009 and 17.43 percent in 2010.
b.
17.00 percent in 2009 and 32.50 percent in 2010.
c.
10.03 percent in 2009 and 29.20 percent in 2010.
d.
17.00 percent in 2009 and 29.20 percent in 2010.
241. When we are calculating the consumer price index and the inflation rate for a certain year,
a.
the value of the consumer price index may depend on the choice of a base year, but the inflation rate does not
depend on the choice of a base year.
b.
the inflation rate may depend on the choice of a base year, but the value of the consumer price index does not
depend on the choice of a base year.
c.
both the value of the consumer price index and the inflation rate may depend on the choice of a base year.
d.
neither the value of the consumer price index nor the inflation rate depends on the choice of a base year.
242. Which of the following statements is true?
a.
Even if we know the values of the consumer price index for the years 2009 and 2010, we cannot calculate the
inflation rate for 2010 if we do not know which year is the base year.
b.
If we know the base year is 1990, and if we know the value of the consumer price index for the year 2010,
then we have all the information we need to calculate the inflation rate for 2010.
c.
If we know the base year is 2000, and if we know the value of the consumer price index for the year 1995,
then we have all the information we need to calculate the inflation rate for 1995.
d.
If we know the base year is 2000, and if we know the value of the consumer price index for the year 1995,
then we have all the information we need to calculate the percentage change in the cost of living between 1995
and 2000.
243. Changes in the quality of a good
a.
do not present a problem in the construction of the consumer price index.
b.
present a problem in the construction of the consumer price index, and that problem is sometimes referred to
as substitution bias.
c.
are not accounted for, as a matter of policy, by the Bureau of Labor Statistics.
d.
can lead to either an increase or a decrease in the value of a dollar.
244. The introduction of the video cassette recorder in the 1970s exemplified a problem in measuring the cost of living;
that problem is the problem of
a.
substitution bias.
b.
product-improvement bias.
c.
introduction of new goods.
d.
unmeasured quality change.
245. An increase in the price of imported coffee shows up
a.
in the consumer price index and in the GDP deflator.
b.
in the consumer price index, but not in the GDP deflator.
c.
in the GDP deflator, but not in the consumer price index.
d.
in neither the consumer price index nor in the GDP deflator.
246. Every unit of good x that is produced in the United States is exported to other countries. An increase in the price of
good x shows up
a.
in the consumer price index and in the GDP deflator.
b.
in the consumer price index, but not in the GDP deflator.
c.
in the GDP deflator, but not in the consumer price index.
d.
in neither the consumer price index nor in the GDP deflator.
247. In which of the following cases would there be an effect on the value of the U.S. consumer price index, but not on
the value of the U.S. GDP deflator?
a.
All of the truck tires that are produced by a certain company in South Korea are sold to the U.S. military, and
the price of these tires decreases.
b.
All of the truck tires that are produced by a certain company in California are sold to the U.S. military, and the
price of these tires decreases.
c.
Most of the bananas that are produced by a certain company in Honduras end up in U.S. grocery stores, and
the price of these bananas increases.
d.
Most of the earth-moving machines that are produced by a certain company in Illinois are exported to other
countries, and the price of these machines increases.
248. Suppose the typical consumer buys more bananas than oranges. In fixing the basket of goods and services for the
purpose of calculating the consumer price index, the Bureau of Labor Statistics
a.
ignores the fact that the typical consumer buys more bananas than orange; this procedure does not affect the
value of the index.
b.
ignores the fact that the typical consumer buys more bananas than orange; this procedure results in a
potentially-serious bias in the index.
c.
places more weight on the price of bananas than on the price of oranges; the weights of the two prices are
determined by surveying consumers.
d.
places more weight on the price of bananas than on the price of oranges; the weights of the two prices are
determined by the extent to which those prices have changed over the previous year.
249. For the purpose of calculating the consumer price index, the basket of goods
a.
is kept the same from year to year so that the effects of price changes are isolated from the effect of any
quantity changes that might be occurring at the same time.
b.
is kept the same from year to year; otherwise, the value of the index would remain constant from year to year.
c.
varies from year to year; otherwise, the value of the index would remain constant from year to year.
d.
varies from year to year so that consumers’ buying patterns are updated in a timely fashion.
250. Which of the following statements is correct?
a.
In order to calculate the inflation rate for the year 2011, we need to know the values of the consumer price
index for the years 2009, 2010, and 2011.
b.
Changes in the consumer price index are often thought to be useful in predicting changes in the producer price
index.
c.
Despite its name, the “consumer price index” really measures the overall cost of the goods and services bought
by consumers, business firms, and units of government.
d.
If the prices of all goods and services changed proportionately over time, then the consumer price index would
reflect no substitution bias.
251. With respect to the consumer price index, the substitution bias arises because
a.
prices of goods and services do not change in the same proportion from year to year.
b.
consumers are slow to adjust their buying patterns from year to year in response to price changes.
c.
consumers are eager to buy new products as they are introduced, despite their lack of full information about
the quality of those products until they buy and use them.
d.
All of the above are correct.
252. With respect to the consumer price index, which of the following serves as an example of how the substitution bias
arises? Between 2010 and 2011, the price of a pound of peanuts
a.
rises from $0.80 to $1.00 while the price of a loaf of bread rises from $2.00 to $2.50.
b.
falls from $0.90 to $0.72 while the price of a loaf of bread falls from $2.00 to $1.60.
c.
remains constant, as does the price of a loaf of bread.
d.
None of the above serves as an example of how the substitution bias arises.
253. With respect to the consumer price index, which of the following does not serve as an example of how the
substitution bias arises? Between 2010 and 2011, the price of a pound of peanuts
a.
rises from $0.80 to $1.00 while the price of a loaf of bread rises from $2.00 to $2.50.
b.
rises from $1.00 to $1.30 while the price of a loaf of bread rises from $2.00 to $2.30.
c.
remains constant, while the price of a loaf of bread rises from $2.00 to $2.30.
d.
falls from $1.00 to $0.80 while the price of a loaf of bread falls from $2.00 to $1.80.
254. The consumer price index is subject to substitution bias because
a.
some pairs of goods are complements rather than substitutes.
b.
some goods are inferior rather than normal.
c.
the law of demand applies to most, if not all, goods.
d.
the index does not take into account the likelihood that consumers substitute newly-introduced goods for
more-established goods.
255. Suppose the quality of beef changes over time, but the quality change goes unmeasured for the purpose of computing
the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality
change be least severe?
a.
The quality of beef deteriorates and beef becomes more expensive relative to other goods.
b.
The quality of beef deteriorates and beef becomes less expensive relative to other goods.
c.
The quality of beef improves and beef becomes more expensive relative to other goods.
d.
The quality of beef improves and the price of beef relative to other prices remains unchanged.
256. Suppose the quality of televisions changes over time, but the quality change goes unmeasured for the purpose of
computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured
quality change be most severe?
a.
The quality of televisions deteriorates and televisions become more expensive relative to other goods.
b.
The quality of televisions improves and televisions become less expensive relative to other goods.
c.
The quality of televisions improves and televisions become more expensive relative to other goods.
d.
The quality of televisions deteriorates and the price of televisions relative to other prices remains unchanged.
257. Which of the following pairs of values of the consumer price index (CPI) is consistent with an inflation rate of 10
percent for 2014?
a.
CPI in 2014 = 90; CPI in 2015 = 100
b.
CPI in 2014 = 102; CPI in 2015 = 112
c.
CPI in 2013 = 210; CPI in 2014 = 220
d.
CPI in 2013 = 210; CPI in 2014 = 231
258. Suppose you know the value of the consumer price index (CPI) in year 2 as well as the inflation rate in year 2. Which
of the following equations is valid for the CPI in year 1?
a.
CPI in year 1 =
b.
CPI in year 1 =
c.
CPI in year 1 =
d.
CPI in year 1 =
259. Suppose you know the value of the consumer price index (CPI) in year 1 as well as the inflation rate in year 2. Which
of the following equations is valid for the CPI in year 2?
a.
CPI in year 2 =
b.
CPI in year 2 =
c.
CPI in year 2 =
d.
CPI in year 2 =
Table 24-14
The following table shows some values of the Consumer Price Index and the corresponding inflation rates for 2012-2015.
Year
CPI
Inflation Rate
2012
229.6
2.1%
2013
233.0
2014
1.6%
2015
237.0
0.1%
260. Refer to Table 24-14. The inflation rate in 2013 was approximately
a.
0.8%.
b.
1.5%.
c.
2.3%.
d.
3.4%.
261. Refer to Table 24-14. The value of the Consumer Price Index in 2014 was approximately
a.
234.6.
b.
235.0.
c.
236.7.
d.
236.9.
262. Refer to Table 24-14. The value of the Consumer Price Index in 2011 was approximately
a.
224.9.
b.
226.9.
c.
227.5.
d.
228.4.
Table 24-15
The following table shows the prices of good X and good Y for 2013-2015. In addition, assume the basket of goods used
to compute the Consumer Price Index consists of 3 units of good X and 4 units of good Y.
Year
Price of Good X ($)
Price of Good Y ($)
2013
2.00
1.00
2014
3.00
2.00
2015
4.00
3.00
263. Refer to Table 24-15. If the base year is 2015, the value of the Consumer Price Index in 2013 is
a.
41.7.
b.
70.8.
c.
86.0.
d.
141.2.
264. Refer to Table 24-15. If the base year is 2014, the value of the Consumer Price Index in 2013 is
a.
41.2.
b.
58.8.
c.
93.0.
d.
114.0.
265. Refer to Table 24-15. The inflation rate in 2014 was
a.
57%.
b.
63%.
c.
70%.
d.
75%.
266. Refer to Table 24-15. The inflation rate in 2015 was approximately
a.
41%.
b.
70%.
c.
140%.
d.
240%.
267. Core CPI is
a.
the CPI including only food, clothing, and energy.
b.
the CPI including only food and energy.
c.
the CPI excluding food, clothing, and energy.
d.
the CPI excluding food and energy.
268. The CPI for all goods and services excluding food and energy is called
a.
a hedonic price index.
b.
the CPI basis.
c.
the core CPI.
d.
the producer price index.
