1. Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best baseball players can earn more than
400 times as much as Babe Ruth earned in 1931. However, prices have also risen since 1931. We can conclude that
a.
the best baseball players today are about 400 times better off than Babe Ruth was in 1931.
b.
because prices have also risen, the standard of living of baseball stars hasn’t changed since 1931.
c.
one cannot make judgments about changes in the standard of living based on changes in prices and changes in
incomes.
d.
one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in
1931 without additional information regarding increases in prices since 1931.
2. The consumer price index is used to
a.
b.
c.
d.
3. The consumer price index is used to
a.
convert nominal GDP into real GDP.
b.
turn dollar figures into meaningful measures of purchasing power.
c.
characterize the types of goods and services that consumers purchase.
d.
measure the quantity of goods and services that the economy produces.
4. Which of the following is not correct?
a.
The consumer price index gives economists a way of turning dollar figures into meaningful measures of
purchasing power.
b.
The consumer price index is used to monitor changes in the cost of living over time.
c.
The consumer price index is used by economists to measure the inflation rate.
d.
The consumer price index is used to measure the quantity of goods and services that the economy is
producing.
5. When the consumer price index rises, the typical family
a.
has to spend more dollars to maintain the same standard of living.
b.
can spend fewer dollars to maintain the same standard of living.
c.
finds that its standard of living is not affected.
d.
can offset the effects of rising prices by saving more.
6. When the consumer price index falls, the typical family
a.
has to spend more dollars to maintain the same standard of living.
b.
can spend fewer dollars to maintain the same standard of living.
c.
finds that its standard of living is not affected.
d.
can save less because they do not need to offset the effects of rising prices.
7. Economists use the term inflation to describe a situation in which
a.
some prices are rising faster than others.
b.
the economy’s overall price level is rising.
c.
the economy’s overall price level is high, but not necessarily rising.
d.
the economy’s overall output of goods and services is rising faster than the economy’s overall price level.
8. The term inflation is used to describe a situation in which
a.
the overall level of prices in the economy is increasing.
b.
incomes in the economy are increasing.
c.
stock-market prices are rising.
d.
the economy is growing rapidly.
9. When the overall level of prices in the economy is increasing, economists say that the economy is experiencing
a.
economic growth.
b.
stagflation.
c.
inflation.
d.
deflation.
10. The inflation rate is defined as the
a.
price level in an economy.
b.
change in the price level from one period to the next.
c.
percentage change in the price level from the previous period.
d.
price level minus the price level from the previous period.
11. The economy’s inflation rate is the
a.
price level in the current period.
b.
change in the price level from the previous period.
c.
change in the gross domestic product from the previous period.
d.
percentage change in the price level from the previous period.
12. The inflation rate you are likely to hear on the nightly news is calculated from
a.
the GDP deflator.
b.
the CPI.
c.
the Dow Jones Industrial Average.
d.
the unemployment rate.
13. Which of the following is correct?
a.
The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers.
b.
The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers.
c.
The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers.
d.
The GDP deflator is more commonly used as a gauge of inflation than the CPI is.
14. The CPI is more commonly used as a gauge of inflation than the GDP deflator is because
a.
the CPI is easier to measure.
b.
the CPI is calculated more often than the GDP deflator is.
c.
the CPI better reflects the goods and services bought by consumers.
d.
the GDP deflator cannot be used to gauge inflation.
15. Which of the following statements is correct?
a.
The CPI can be used to compare dollar figures from different points in time.
b.
The percentage change in the CPI is a measure of the inflation rate, but the percentage change in the GDP
deflator is not a measure of the inflation rate.
c.
Compared to the consumer price index (CPI), the GDP deflator is the more common gauge of inflation.
d.
The GDP deflator better reflects the goods and services bought by consumers than does the CPI.