1) The consumer price index tacks the average of prices of all a) Good and servi
ID: 1251155 • Letter: 1
Question
1) The consumer price index tacks the average of prices of all
a) Good and services purchased by consumers, whether they are produced in the United States or not
b) Goods and services produced in the United State
c) Final goods and services produced in the United States
d) Final goods and services produced by Americans, regardless of where they reside
2) Which of the following goods is not included in U.S GDP, even though its price is included in the CPI?
a) A second-hand computer purchased in the U.S. in a previous year, and now purchased by a resident of Bulgaria.
b) A second-hand computer purchased in the U.S. in a previous year, and now purchased by an American household
c) A new computer produced in the U.S. and purchased by an American household
d) A new computer produced in the U.S. and purchased by an American corporation
e) All of these answers.
3) Which of the following statements about inflation and the price level is true?
a) When the price level is rising, the inflation rate must be rising
b) When the inflation rate is falling, the price level cannot be rising
c) When the inflation rate is positive, the price level must be rising
d) When the inflation is zero, the price level must be zero
e) All of these answers
4) If your nominal wage rises from $5 to $7.50, while the price level rises from 100 to 150, then you real wage
a) Rises by 50%
b) Rises by 25%
c) Rises by 20%
d) Falls
e) Does not change
5) If the nominal interest rate is 7 percent, and the annual inflation rate is 3 percent, the real interest rate is
a) 4%
b) -4%
c) -3%
d) 3%
e) 10%
6) Inflation will redistribute purchasing power away from lenders and toward borrowers when
a) The actual inflation rate turns out to be smaller than expected
b) Inflationary expectations are accurate
c) The actual inflation rate turns out to be greater than expected
d) The inflation rate is higher than normal
e) The inflation rate is lower than normal
7) Which of the following problems has caused the CPI to overestimate the rate of inflation?
a) Substitution bias
b) New technologies
c) Quality changes
d) All of these answers
e) None of these answers
8) Which of the following is a change planned by the BLS to help eliminate the substitution bias of the CPI?
a) A larger number of goods and services in the CPI
b) A larger number of households in the CPI survey
c) More frequent updates of the typical consumer’s market basket
d) Better estimates of the quality of goods and services
e) None of these answers
9) Which groups gain from the overstatement of inflation by the CPI?
a) Recipients of social security payments
b) Workers with fixed nominal wages
c) Foreigners
d) All Americans
e) None of these answers
10) Over a period during which prices are rising, the inflation rate must be rising as well.
a) True
b) False
11) In the United States today, the dollar is accepted as payment for goods and services because the dollar is backed by the US government.
a) True
b) False
12) If the price index rises over the year from 200 to 230, the rate of inflation for the year is 30%.
a) True
b) False
13) If your real wage is rising at the same time as the price level is rising, then your nominal wage must be rising as well.
a) True
b) False
14) When inflation is correctly anticipated, it is less likely to distribute purchasing power between borrowers and lenders.
a) True
b) False
15) An example of the resource cost of inflation is when someone must re-tae a store’s merchandise with new prices.
a) True
b) False
16) In the United States, the CPI is reported and calculated once each year.
a) True
b) False
17) In the United States, the CPI has risen about as often as it has fallen, and is now back pretty much where it started.
a) True
b) False
Explanation / Answer
9) Which groups gain from the overstatement of inflation by the CPI? a) Recipients of social security payments
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