Measuring the Cost of Living 61
116. Refer to Table 24-6. If the base year is 2009, then the economy’s inflation rate in 2010 is
a. 20 percent.
b. 25 percent.
c. 30 percent.
d. 120 percent.
117. Refer to Table 24-6. If the base year is 2010, then the economy’s inflation rate in 2010 was
a. 10.5 percent.
b. 15.0 percent.
c. 20.0 percent.
d. 25.00 percent.
118. Refer to Table 24-6. If the base year is 2011, then the economy’s inflation rate in 2011 was
a. –5.0 percent.
b. -3.3 percent.
c. 3.3 percent.
d. 16.0 percent.
62 Measuring the Cost of Living
Table 24-7. The table below applies to an economy with only two goods — hamburgers and hot
dogs. The fixed basket consists of 4 hamburgers and 8 hot dogs.
119. Refer to Table 24-7. If the base year is 2009, then the consumer price index is
a. 100 in 2009, 109 in 2010, and 115 in 2011.
b. 100 in 2009, 110 in 2010, and 117 in 2011.
c. 110 in 2009, 121 in 2010, and 128.26 in 2011.
d. 44 in 2009, 48.4 in 2010, and 51.48 in 2011.
120. Refer to Table 24-7. If the base year is 2009, then the economy’s inflation rate in 2010 is
a. 8 percent.
b. 10 percent.
c. 10.91 percent.
d. 11.11 percent.
Year
Price of hamburgers
Price of hot dogs
2009
$5.00
$3.00
2010
5.50
3.30
2011
5.61
3.63
Measuring the Cost of Living 63
121. Refer to Table 24-7. If the base year is 2009, then the economy’s inflation rate is
a. 10 percent in 2010 and 6.36 percent in 2011.
b. 10 percent in 2010 and 17 percent in 2011.
c. 9.2 percent in 2010 and 6 percent in 2011.
d. 8.22 percent in 2010 and 5 percent in 2011.
122. Refer to Table 24-7. If the base year is 2010, then the consumer price index is
a. 100 in 2009, 109 in 2010, and 115 in 2011.
b. 95.90 in 2009, 100 in 2010, and 107.44 in 2011.
c. 90.91 in 2009, 100 in 2010, and 106.36 in 2011.
d. 88.82 in 2009, 100 in 2010, and 107.44 in 2011.
123. Refer to Table 24-7. If the base year is 2010, then the economy’s inflation rate in 2010 is
a. 8 percent.
b. 10 percent.
c. 10.91 percent.
d. 11.11 percent.
64 Measuring the Cost of Living
124. Refer to Table 24-7. If the base year is 2010, then the economy’s inflation rate is
a. 2 percent in 2010 and 7 percent in 2011.
b. 4.5 percent in 2010 and 5.2 percent in 2011.
c. 9 percent in 2010 and 5.5 percent in 2011.
d. 10 percent in 2010 and 6.36 percent in 2011.
125. Refer to Table 24-7. Which of the following scenarios is consistent with this statement? “The
rate of inflation was 23.75 percent for 2011.”
a. The price of a hot dog was $2.44 rather than $3.30 in 2010, with other prices in the table
remaining fixed.
b. The price of a hot dog was $4.22 rather than $3.63 in 2011, with other prices in the table
remaining fixed..
c. The price of a hamburger was $3.80 rather than $5.50 in 2010, with other prices in the table
remaining fixed.
d. The price of a hamburger was $6.60 rather than $5.61 in 2011, with other prices in the table
remaining fixed.
Measuring the Cost of Living 65
126. Refer to Table 24-7. Which of the following scenarios is consistent with this statement? “The
cost of living increased by 25 percent between 2009 and 2011.”
a. The price of a hot dog was $2.24 rather than $3.00 in 2009, with other prices in the table
remaining fixed.
b. The price of a hot dog was $4.07 rather than $3.63 in 2011, with other prices in the table
remaining fixed..
c. The price of a hamburger was $4.24 rather than $5.00 in 2009, with other prices in the table
remaining fixed.
d. The price of a hamburger was $5.96 rather than $5.61 in 2011, with other prices in the table
remaining fixed.
127. Refer to Table 24-7. Between 2010 and 2011, the cost of living increased by
a. 5.30 percent.
b. 6.36 percent.
c. 7.78 percent.
d. We need to know the base year in order to answer this question.
66 Measuring the Cost of Living
128. Refer to Table 24-7. Between 2009 and 2011, the cost of living increased by
a. 6 percent.
b. 19 percent.
c. 14 percent.
d. 17 percent.
Table 24-8
The table below relates to the economy of Mainland, where the typical consumer’s market
basket consists of 2 televisions and 300 hamburgers.
Year
Price of a television
Price of a hamburger
2013
$600
$2
2014
$550
$3
2015
$500
$2
129. Refer to Table 24-8. The cost of the basket
a. increased from 2013 to 2014 and increased from 2014 to 2015.
b. increased from 2013 to 2014 and decreased from 2014 to 2015.
c. decreased from 2013 to 2014 and increased from 2014 to 2015.
d. decreased from 2013 to 2014 and decreased from 2014 to 2015.
Measuring the Cost of Living 67
130. Refer to Table 24-8. If the base year is 2013, then the consumer price index was
a. 80 in 2013, 100 in 2014, and 60 in 2015.
b. 100 in 2013, 300 in 2014, and –100 in 2015.
c. 180 in 2013, 200 in 2014, and 160 in 2015.
d. 100 in 2013, 111.1 in 2014, and 88.9 in 2015.
131. Refer to Table 24-8. If the base year is 2014, then the consumer price index was
a. 80 in 2013, 100 in 2014, and 60 in 2015.
b. 98 in 2013, 100 in 2014, and 96 in 2015.
c. 90 in 2013, 100 in 2014, and 80 in 2015.
d. 180 in 2013, 200 in 2014, and 160 in 2015.
68 Measuring the Cost of Living
132. Refer to Table 24-8. If the base year is 2013, then the economy’s inflation rate in 2014 is
a. 11.1 percent.
b. 200 percent.
c. 10 percent.
d. 90 percent.
133. Which of the following is not an example of a price index computed by the Bureau of Labor
Statistics?
a. the Los Angeles price index
b. the energy price index
c. the producer price index
d. the stock price index
Measuring the Cost of Living 69
134. The producer price index measures the cost of a basket of goods and services
a. typically produced in the economy.
b. produced for a typical consumer.
c. sold by producers.
d. bought by firms.
135. The price index that measures the cost of a basket of goods and services bought by firms is
called the
a. industrial price index.
b. producer price index.
c. core price index.
d. GDP deflator.
70 Measuring the Cost of Living
136. Changes in the producer price index are often thought to be useful in predicting changes in
a. stock prices.
b. the consumer price index.
c. the unemployment rate.
d. the rate of output of goods and services.
137. Suppose that in 2010, the producer price index increases by 1.5 percent. As a result, economists
most likely will predict that
a. GDP will increase in 2011.
b. the producer price index will increase by more than 1.5 percent in 2011.
c. interest rates will decrease in the future.
d. the consumer price index will increase in the future.
Measuring the Cost of Living 71
138. When constructing the consumer price index, the Bureau of Labor Statistics does not do which
of the following?
a. Try to include all the goods and services that the typical consumer buys.
b. Try to weight the goods and services that the typical consumer buys according to how much
consumers buy of each item.
c. Survey consumers to determine what the typical consumer buys.
d. Survey sellers to determine what the typical consumer buys.
139. By far the largest category of goods and services in the CPI basket is
a. housing.
b. transportation.
c. education & communication.
d. food & beverages.
72 Measuring the Cost of Living
140. The relative importance of housing in the breakdown of consumer spending is
a. 41 percent.
b. 15 percent.
c. 6 percent.
d. 4 percent.
141. The second largest category, by relative importance, in the CPI calculation is
a. housing.
b. apparel.
c. transportation.
d. medical care.
Measuring the Cost of Living 73
142. For purposes of calculating the CPI, the housing category of consumer spending includes the
cost of
a. shelter.
b. fuel and other utilities.
c. household furnishings and operation.
d. All of the above are correct.
143. For purposes of calculating the CPI, the transportation category of consumer spending includes
the cost of
a. subways.
b. gasoline.
c. both subways and gasoline.
d. neither subways nor gasoline.
74 Measuring the Cost of Living
144. For purposes of calculating the CPI, the food & beverages category of consumer spending
includes the cost of
a. food away from home.
b. alcoholic beverages.
c. both food away from home and alcoholic beverages.
d. neither food away from home nor alcoholic beverages because these are included in the
recreation category of consumer spending.
145. For purposes of calculating the CPI, the apparel category of consumer spending includes the cost
of
a. clothing, but not footwear or jewelry.
b. clothing and footwear, but not jewelry.
c. clothing and jewelry, but not footwear.
d. clothing, footwear, and jewelry.
Measuring the Cost of Living 75
146. In the basket of goods that is used to compute the consumer price index, the three largest
categories of consumer spending are
a. housing, transportation, and recreation.
b. housing, transportation, and food & beverages.
c. housing, food & beverages, and education & communication.
d. housing, medical care, and education & communication.
147. In the basket of goods that is used to compute the consumer price index, which of the following
categories of consumer spending is the smallest?
a. food & beverages
b. recreation
c. housing
d. apparel
76 Measuring the Cost of Living
148. In the basket of goods that is used to compute the consumer price index, which of the following
categories of consumer spending is the smallest?
a. education & communication
b. apparel
c. medical care
d. recreation
149. In the basket of goods that is used to compute the consumer price index, which of the following
categories of consumer spending is the largest?
a. education & communication
b. food & beverages
c. medical care
d. recreation
Measuring the Cost of Living 77
150. In the basket of goods that is used to compute the consumer price index, which of the following
categories of consumer spending is the largest?
a. education & communication
b. recreation
c. medical care
d. All of the above categories are about equal in magnitude.
151. Categories of U.S. consumer spending, ranked from largest to smallest, are
a. housing, food & beverages, education & communication, and transportation.
b. education & communication, housing, food & beverages, and transportation.
c. food & beverages, housing, transportation, and medical care.
d. housing, transportation, food & beverages, and medical care.
78 Measuring the Cost of Living
152. If the cost of housing increases by 10 percent, then, other things the same, the CPI is likely to
increase by about
a. 1.7 percent.
b. 3.3 percent.
c. 4.1 percent.
d. 10 percent.
153. If the cost of transportation increases by 20 percent, then, other things the same, the CPI is
likely to increase by about
a. 0.3 percent.
b. 1.7 percent.
c. 3.4 percent.
d. 10 percent.
Measuring the Cost of Living 79
154. If the cost of food & beverages increases by 10 percent, then, other things the same, the CPI is
likely to increase by about
a. 1.5 percent.
b. 7.5 percent.
c. 10 percent.
d. 20 percent.
155. If the cost of medical care increases by 40 percent, then, other things the same, the CPI is likely
to increase by about
a. 0.9 percent.
b. 2.8 percent.
c. 8.0 percent.
d. 40 percent.
80 Measuring the Cost of Living
156. If the cost of apparel increases by 50 percent, then, other things the same, the CPI is likely to
increase by about
a. 0.5 percent.
b. 2.0 percent.
c. 3.0 percent.
d. 11.8 percent.
157. The goal of the consumer price index is to measure changes in the
a. costs of production.
b. cost of living.
c. relative prices of consumer goods.
d. production of consumer goods.