Unit 24: Measuring The Cost of Living (Ans)

UNIT 24: MEASURING THE COST OF LIVING (ANS)
Question 1
The consumer price index is used to
Select one:
a. monitor changes in the cost of living over time.
b. monitor changes in the stock market.
c. monitor changes in the level of wholesale prices in the economy.
d. monitor changes in the level of real GDP over time.
Question 2
The consumer price index is used to
Select one:
a. characterize the types of goods and services that consumers purchase.
b. convert nominal GDP into real GDP.
c. turn dollar figures into meaningful measures of purchasing power.
d. measure the quantity of goods and services that the economy produces.
Question 3
Economists use the term inflation to describe a situation in which
Select one:
a. some prices are rising faster than others.
b. the economy's overall price level is high, but not necessarily rising.
c. the economy's overall output of goods and services is rising faster than the economy's
overall price level.
d. the economy's overall price level is rising.
Question 4
When the overall level of prices in the economy is increasing, economists say that the economy
is experiencing
Select one:
a. deflation.
b. stagflation.
c. economic growth.
d. inflation.
Question 5
The inflation rate is defined as the
Select one:
a. percentage change in the price level from the previous period.
b. change in the price level from one period to the next.
c. price level in an economy.
d. price level minus the price level from the previous period.
Question 6
The inflation rate you are likely to hear on the nightly news is calculated from
Select one:
a. the GDP deflator.
b. the CPI.
c. the VN-INDEX
d. the unemployment rate.
Question 7
The CPI is more commonly used as a gauge of inflation than the GDP deflator is because
Select one:
a. the CPI better reflects the goods and services bought by consumers.
b. the GDP deflator cannot be used to gauge inflation.
c. the CPI is easier to measure.
d. the CPI is calculated more often than the GDP deflator is.
Question8
The CPI is a measure of the overall cost of the goods and services bought by
Select one:
a. a typical consumer, and the CPI is computed and reported by the General
Statistics Office.
b. a typical consumer, and the CPI is computed and reported by the Ministry of Industry
and Trade.
c. typical consumers and typical business firms, and the CPI is computed and reported by
the General Statistics Office.
d. typical consumers and typical business firms, and the CPI is computed and reported by
the Ministry of Industry and Trade.
Question 9
The CPI is calculated
Select one:
a. weekly.
b. yearly.
c. quarterly.
d. monthly.
Question 10
The steps involved in calculating the consumer price index and the inflation rate, in order, are
as follows:
Select one:
a. Choose a base year, fix the basket, find the prices, compute the inflation rate, compute
the basket's cost, and compute the index.
b. Fix the basket, find the prices, compute the inflation rate, compute the basket’s cost, and
choose a base year and compute the index.
c. Choose a base year, update the basket, find the prices, estimate the basket’s cost,
compute the index, and compute the inflation rate.
d. Fix the basket, find the prices, compute the basket's cost, choose a base year and
compute the index, and compute the inflation rate.
Question 11
When computing the cost of the basket of goods and services purchased by a typical
consumer, which of the following changes from year to year?
Select one:
a. the quantities of the goods and services purchased
b. the prices of the goods and services
c. the goods and services making up the basket
d. All of the above are correct.
Question 12
In computing the consumer price index, a base year is chosen. Which of the following
statements about the base year is correct?
Select one:
a. The value of the consumer price index is always 100 in the base year.
b. The base year is always the first year among the years for which computations are being
made.
c. The base year is always the year in which the cost of the basket was highest among the
years for which computations are being made.
d. It is necessary to designate a base year only in the simplest case of two goods; in more
realistic cases, it is not necessary to designate a base year.
Question 13
If the consumer price index was 96 in 2012, 100 in 2013, and 102 in 2014, then the base year
must be
Select one:
a. 2014.
b. 2012.
c. 2013.
d. The base year cannot be determined from the given information.
Question 14
Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has
been chosen as the base year. In 2012, the basket’s cost was $80.00; in 2013, the basket’s
cost was $84; and in 2014, the basket’s cost was $87.60. The value of the CPI was
Select one:
a. 100 in 2012.
b. 105 in 2013.
c. 109.5 in 2014.
d. All of the above are correct.
Question 15
The consumer price index measures approximately the same economic phenomenon as
Select one:
a. the unemployment rate.
b. real GDP.
c. the GDP deflator.
d. nominal GDP.
Question 16
Because consumers can sometimes substitute cheaper goods for those that have risen in price,
Select one:
a. the CPI overstates inflation.
b. the GDP deflator overstates inflation.
c. the CPI understates inflation.
d. the GDP deflator understates inflation.
Question 17
During a certain year, the consumer price index increased from 120 to 132 and the purchasing
power of a person’s bank account increased by 4 percent. For that year,
Select one:
a. the nominal interest rate was 6 percent.
b. the inflation rate was 9 percent.
c. the nominal interest rate was 14 percent.
d. the inflation rate was 12 percent.
Question 18
Rosa deposits $100 in a bank account that pays an annual interest rate of 20 percent. A year
later, after Rosa has accumulated $20 in interest, she withdraws her $120. Rosa’s purchasing
power
Select one:
a. did not change if the inflation rate was 20 percent.
b. decreased if the inflation rate was -5 percent.
c. increased if the inflation rate was 22 percent.
d. More than one of the above is correct.
Question 19
A worker received $5 for a daily wage in 1930, which has the equivalent value of $63.24 today.
If the CPI was 17 in 1930 what is the value of the CPI today, rounded to the nearest whole
number?
Select one:
a. 1.3
b. 17
c. 215
d. 134
Question 20
The consumer price index was 200 in 2012 and 208 in 2013. The nominal interest rate during
this period was 9 percent. What was the real interest rate during this period?
Select one:
a. 5.15 percent
b. 5.00 percent
c. 13.00 percent
d. 1.00 percent

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What does the consumer price index measure?

What does the term 'inflation' describe?

UNIT 24: MEASURING THE COST OF LIVING (ANS)

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