Measuring the Cost of Living 101
200.
An important difference between the GDP deflator and the consumer price index is that
a.
the GDP deflator reflects the prices of goods and services bought by producers, whereas the
consumer price
index reflects the prices of goods and services bought by consumers.
b.
the GDP deflator reflects the prices of all final goods and services produced domestically,
whereas the
consumer price index reflects the prices of goods and services bought by
consumers.
c.
the GDP deflator reflects the prices of all final goods and services produced by a nation’s
citizens, whereas
the consumer price index reflects the prices of all final goods and services
bought by consumers.
d.
the GDP deflator reflects the prices of all final goods and services bought by producers and
consumers,
whereas the consumer price index reflects the prices of all final goods and
services bought by consumers.
201.
The GDP Deflator reflects
a.
the prices of all final goods and services currently produced domestically, as does the CPI.
b.
the price of a fixed basket of goods and services purchased by a typical consumer, as does
the CPI.
c.
the prices of all final goods and services currently produced domestically, while the CPI
reflects the price of
a fixed basket of goods and services purchased by a typical consumer.
d.
the price of a fixed basket of goods and services purchased by a typical consumer, while the
CPI reflects the
prices of all final goods and services produced domestically.
202.
The CPI differs from the GDP deflator in that
a.
the CPI is a price index, while the GDP deflator is an inflation index.
b.
substitution bias is not a problem with the CPI, but it is a problem with the GDP deflator.
c.
increases in the prices of foreign produced goods that are sold to U.S. consumers show up in
the CPI but not
in the GDP deflator.
d.
increases in the prices of domestically produced goods that are sold to the U.S. government
show up in the
CPI but not in the GDP deflator.
203.
The CPI differs from the GDP deflator in that
a.
the CPI is an inflation index, while the GDP deflator is a price index.
b.
substitution bias is not a problem with the CPI, but it is a problem with the GDP deflator.
c.
increases in the prices of foreign produced goods that are sold to U.S. consumers show up in
the GDP
deflator but not in the CPI.
d.
increases in the prices of domestically produced goods that are sold to the U.S. government
show up in the
GDP deflator but not in the CPI.
204.
An increase in the price of dairy products produced domestically will be reflected in
a.
both the GDP deflator and the consumer price index.
b.
neither the GDP deflator nor the consumer price index.
c.
the GDP deflator but not in the consumer price index.
d.
the consumer price index but not in the GDP deflator.
205.
An increase in the price of bread produced domestically will be reflected in
a.
both the GDP deflator and the consumer price index.
b.
neither the GDP deflator nor the consumer price index.
c.
the GDP deflator but not in the consumer price index.
d.
the consumer price index but not in the GDP deflator.
206.
If the price of domestically produced power tools increases, then
a.
the consumer price index and the GDP deflator will both increase.
b.
the consumer price index will increase, and the GDP deflator will be unaffected.
c.
the consumer price index will be unaffected, and the GDP deflator will increase.
d.
the consumer price index and the GDP deflator will both be unaffected.
207.
A Korean steel company produces steel in the United States, with some of its steel being
exported to other nations
and some of it being sold within the United States. If the prices of this
steel increase, then
a.
the GDP deflator and the CPI will both increase.
b.
the GDP deflator will increase and the CPI will be unchanged.
c.
the GDP deflator will be unchanged and the CPI will increase.
d.
the GDP deflator and the CPI will both be unchanged.
208.
A decrease in the price of domestically produced industrial robots will be reflected in
a.
both the GDP deflator and the consumer price index.
b.
neither the GDP deflator nor the consumer price index.
c.
the GDP deflator but not in the consumer price index.
d.
the consumer price index but not in the GDP deflator.
209.
A decrease in the price of domestically produced nuclear reactors will be reflected in
a.
both the GDP deflator and the consumer price index.
b.
neither the GDP deflator nor the consumer price index.
c.
the GDP deflator but not in the consumer price index.
d.
the consumer price index but not in the GDP deflator.
210.
In the United States, if the price of imported oil rises so that the prices of gasoline and heating oil
rise, then the
a.
GDP deflator rises much more than does the consumer price index.
b.
consumer price index rises much more than does the GDP deflator.
c.
GDP deflator and the consumer price index rise by about the same amount.
d.
consumer price index rises slightly more than does the GDP deflator.
211.
Assume most athletic apparel bought by U.S. consumers is imported from other nations. If all
else is constant, an
increase in the price of foreign-made athletic apparel will cause the U.S.
a.
consumer price index and GDP deflator to increase by exactly the same amount.
b.
GDP deflator to increase more than the consumer price index.
c.
consumer price index to increase more than the GDP deflator.
d.
GDP deflator to decrease less than the consumer price index.
212.
In general, if a consumer good is produced domestically and consumed domestically, a decrease
in its price will
have which of the following effects?
a.
The consumer price index will decrease relatively more than will the GDP deflator.
b.
The consumer price index and the GDP deflator will decrease by the same amount.
c.
The consumer price index will decrease relatively less than will the GDP deflator.
d.
One cannot generalize about the decrease in the consumer price index relative to the decrease
in the GDP
deflator.
213.
In general, if a consumer good is produced domestically and consumed domestically, an increase
in its price will
have which of the following effects?
a.
The consumer price index will increase relatively more than will the GDP deflator.
b.
The consumer price index and the GDP deflator will increase by the same amount.
c.
The consumer price index will increase relatively less than will the GDP deflator.
d.
One cannot generalize about the increase in the consumer price index relative to the increase
in the GDP
deflator.
214.
The price of milk increases dramatically, causing a 0.5 percent increase in the CPI. The price
increase will most
likely cause the GDP deflator to increase by
a.
more than 0.5 percent.
b.
less than 0.5 percent.
c.
0.5 percent.
d.
None of the above is correct; this particular price increase will not affect the GDP deflator.
215.
The consumer price index and the GDP deflator are two alternative measures of the overall
price level. Which of
the following statements about the two measures is correct?
a.
The two measures are constructed differently, but they always indicate the same inflation
rate.
b.
The substitution bias applies equally to both measures.
c.
A change in the price of Korean televisions is reflected in the U.S. consumer price index but
not in the U.S.
GDP deflator.
d.
All of the above are correct.
216.
If the price of Italian shoes imported into the United States increases, then
a.
both the GDP deflator and the consumer price index will increase.
b.
neither the GDP deflator nor the consumer price index will increase.
c.
the GDP deflator will increase, but the consumer price index will not increase.
d.
the consumer price index will increase, but the GDP deflator will not increase.
217.
If the price of Spanish olives imported into the United States decreases, then
a.
both the GDP deflator and the consumer price index will decrease.
b.
neither the GDP deflator nor the consumer price index will decrease.
c.
the GDP deflator will decrease, but the consumer price index will not decrease.
d.
the consumer price index will decrease, but the GDP deflator will not decrease.
218.
A decrease in the price of large tractors imported into the United States from Russia
a.
leaves the GDP deflator unchanged but decreases the consumer price index.
b.
decreases the GDP deflator but leaves the consumer price index unchanged.
c.
decreases both the GDP deflator and the consumer price index.
d.
leaves both the GDP deflator and the consumer price index unchanged.
219.
Suppose that U.S. mining companies purchase German-made ore trucks at a reduced price. By
itself, what effect
will this purchase have on the GDP deflator and on the consumer price index?
a.
The consumer price index and the GDP deflator will both fall.
b.
The consumer price index and the GDP deflator will both be unaffected.
c.
The consumer price index will fall, and the GDP deflator will be unaffected.
d.
The consumer price index will be unaffected, and the GDP deflator will fall.
220.
Most, but not all, athletic apparel sold in the United States is imported from other nations. If the
price of athletic
apparel increases, the GDP deflator will
a.
increase less than will the consumer price index.
b.
increase more than will the consumer price index.
c.
not increase, but the consumer price index will increase.
d.
increase, but the consumer price index will not increase.
221.
An increase in the price of Irish whiskey imported into the United States will be reflected in
a.
both the U.S. GDP deflator and the U.S. CPI.
b.
neither the U.S. GDP deflator nor the U.S. CPI.
c.
the U.S. GDP deflator, but not the U.S. CPI.
d.
the U.S. CPI, but not the U.S. GDP deflator.
222.
Which is the most accurate statement about the GDP deflator and the consumer price index?
a.
The GDP deflator compares the price of a fixed basket of goods and services to the price of
the basket in
the base year, whereas the consumer price index compares the price of currently
produced goods and
services to the price of the same goods and services in the base year.
b.
The consumer price index compares the price of a fixed basket of goods and services to the
price of the
basket in the base year, whereas the GDP deflator compares the price of currently
produced goods and
services to the price of the same goods and services in the base year.
c.
Both the GDP deflator and the consumer price index compare the price of a fixed basket of
goods and
services to the price of the basket in the base year.
d.
Both the GDP deflator and the consumer price index compare the price of currently produced
goods and
services to the price of the same goods and services in the base year.
223.
The consumer price index and the GDP deflator are two alternative measures of the overall
price level. Which of
the following statements about the two measures is correct?
a.
The CPI involves a base year; the GDP deflator does not involve a base year.
b.
The CPI can be used to compute the inflation rate; the GDP deflator cannot be used to
compute the inflation
rate.
c.
The CPI reflects the prices of goods and services produced domestically; the GDP deflator
reflects the
prices of all goods and services bought by consumers.
d.
The CPI reflects a fixed basket of goods and services; the GDP deflator reflects current
production of goods
and services.
224.
The basket of goods in the consumer price index changes
a.
occasionally, as does the group of goods used to compute the GDP deflator.
b.
automatically, as does the group of goods used to compute the GDP deflator.
c.
occasionally, whereas the group of goods used to compute the GDP deflator changes
automatically.
d.
automatically, whereas the group of goods used to compute the GDP deflator changes
occasionally.
225.
In 1979 and 1980,
a.
the U.S. inflation rate as measured by the GDP deflator was higher than that measured by the
CPI, and the
difference was explained by rapidly rising prices of goods exported by the U.S.
b.
the U.S. inflation rate as measured by the CPI was higher than that measured by the GDP
deflator, and the
difference was explained by rapidly rising prices of goods exported by the
U.S.
c.
the U.S. inflation rate as measured by the GDP deflator was higher than that measured by the
CPI, and the
difference was explained by rapidly rising oil prices.
d.
the U.S. inflation rate as measured by the CPI was higher than that measured by the GDP
deflator, and the
difference was explained by rapidly rising oil prices.
226.
Which of the following is the most accurate statement?
a.
In the 1970s, the late 1980s, 1990s, and 2000s, the GDP deflator and the CPI both showed
high rates of
inflation.
b.
In the 1970s, both the GDP deflator and the consumer price index showed high rates of
inflation, and in the
late 1980s, 1990s, and 2000s, both measures showed low rates of
inflation.
c.
In the 1970s, both the GDP deflator and the consumer price index showed low rates of
inflation, and in the
late 1980s, 1990s, and 2000s, both measures showed high rates of
inflation.
d.
In the 1970s, the late 1980s, 1990s, and 2000s, the GDP deflator and the CPI both showed
low rates of
inflation.
227.
In addition to the consumer price index, the Bureau of Labor Statistics also calculates the
a.
macroeconomic price index.
b.
producer price index.
c.
rental unit price index.
d.
terms of trade.
228.
Price changes from year to year are not proportional, and consumers respond to these changes
by altering their
spending patterns. The problem this creates for inflation calculations is called
a.
deflation.
b.
inflation.
c.
unmeasured quality change.
d.
substitution bias.
229.
One of the differences between the GDP deflator and the consumer price index is
a.
the GDP deflator includes income earned by American citizens working in foreign countries
and the
consumer price index is based solely on purchases made in the U.S.
b.
the consumer price index basket of goods is updated constantly by the Bureau of Labor
Statistics whereas
the GDP deflator is updated only occasionally.
c.
the consumer price index includes items not included in the GDP deflator such as airplanes
purchased by the
Air Force.
d.
the GDP deflator reflects prices for all goods and services produced domestically and the
consumer price
index reflects prices for some goods and services bought by consumers.
230.
A 2009 Chevrolet model has more horsepower than the 2008 version and is included in the BLS
basket of goods. BLS attempts to account for this change in the market basket by
a.
dropping the good from the basket.
b.
substituting in a different vehicle with the same horsepower as the 2008 model.
c.
adjusting the share of the market basket allocated to transportation.
d.
adjusting the price of the good to account for the quality change.
231.
Which of the following statements is correct?
a.
The consumer price index is a measure of the overall level of prices, whereas the GDP
deflator is not a
measure of the overall level of prices.
b.
If, in the year 2011, the consumer price index has a value of 123.50, then the inflation rate for
2011 must be
23.50 percent.
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.
Measuring the Cost of Living 117
Multiple Choice – Section 01B: The Consumer Price Index
1.
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
2.
Refer to Table 24-9. What is the consumer price index for May?
a.
60
b.
132
c.
166
d.
123
3.
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
4.
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
Measuring the Cost of Living 119
5.
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.
6.
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.
7.
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.
8.
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.
9.
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.