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Which entity within the U.S. government is responsible for computing and reporting the CPI?


A) the Department of Commerce
B) the Department of Labor
C) the General Accounting Office
D) the Council of Economic Advisers

E) B) and D)
F) A) and B)

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If the nominal interest rate is 5 percent and the rate of inflation is -2.5 percent, then the real interest rate is


A) -7.5 percent.
B) -2.5 percent.
C) 2.5 percent.
D) 7.5 percent.

E) A) and B)
F) C) and D)

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The inflation rate for 2007 is computed by dividing the CPI in 2007 minus the CPI in 2006) by the CPI in 2006, then multiplying by 100.

A) True
B) False

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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.

E) None of the above
F) A) and C)

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If the nominal interest rate is 8 percent and the real interest rate is 5.5 percent, then the inflation rate is


A) -2.5 percent.
B) 0.45 percent.
C) 2.5 percent.
D) 13.5 percent.

E) None of the above
F) B) and D)

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Table 24-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. Table 24-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. -Refer to Table 24-12. Suppose Will's 2009 food expenditures in 2011 dollars amounted to $5,670. Suppose also that the real interest rate in 2011 was 3 percent. Then, in 2011, A) the inflation rate was 8 percent and the nominal interest rate was 5 percent. B) the inflation rate was 9 percent and the nominal interest rate was 6 percent. C) the inflation rate was 8 percent and the nominal interest rate was 11 percent. D) the inflation rate was 9 percent and the nominal interest rate was 12 percent. -Refer to Table 24-12. Suppose Will's 2009 food expenditures in 2011 dollars amounted to $5,670. Suppose also that the real interest rate in 2011 was 3 percent. Then, in 2011,


A) the inflation rate was 8 percent and the nominal interest rate was 5 percent.
B) the inflation rate was 9 percent and the nominal interest rate was 6 percent.
C) the inflation rate was 8 percent and the nominal interest rate was 11 percent.
D) the inflation rate was 9 percent and the nominal interest rate was 12 percent.

E) A) and C)
F) B) and C)

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If the quality of a good deteriorates from one year to the next while its price remains the same, then the value of a dollar falls.

A) True
B) False

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In calculating the CPI, a fixed basket of goods and services is used. The quantities of the goods and services in the fixed basket are determined by


A) surveying consumers.
B) surveying sellers of the goods and services.
C) working backward from the rate of inflation to arrive at imputed values for those quantities.
D) arbitrary choices made by federal government employees.

E) All of the above
F) B) and C)

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If the nominal interest rate is 4.2 percent and the rate of inflation is -0.5 percent, then the real interest rate is


A) -8.4 percent.
B) -2.1 percent.
C) 3.7 percent.
D) 4.7 percent.

E) All of the above
F) A) and B)

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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.

E) B) and C)
F) A) and D)

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Table 24-11. Megan's salary for three consecutive years, along with other values, are presented in the table below. Table 24-11. Megan's salary for three consecutive years, along with other values, are presented in the table below. -Refer to Table 24-11. Suppose the consumer price index for 2013 is not necessarily 235. Then Megan's 2013 salary represents more purchasing power than her 2011 salary as long as the consumer price index for 2013 is A) greater than 264.25. B) less than 264.25. C) greater than 258.71. D) less than 258.71. -Refer to Table 24-11. Suppose the consumer price index for 2013 is not necessarily 235. Then Megan's 2013 salary represents more purchasing power than her 2011 salary as long as the consumer price index for 2013 is


A) greater than 264.25.
B) less than 264.25.
C) greater than 258.71.
D) less than 258.71.

E) None of the above
F) B) and D)

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Table 24-5 The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. Table 24-5 The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. -Refer to Table 24-5. If the base year is 2004, then the inflation rate in 2006 was A) 44.4%. B) 50%. C) 62.5%. D) 80%. -Refer to Table 24-5. If the base year is 2004, then the inflation rate in 2006 was


A) 44.4%.
B) 50%.
C) 62.5%.
D) 80%.

E) C) and D)
F) None of the above

Correct Answer

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Which of the following is the correct formula for calculating the inflation rate?


A) Which of the following is the correct formula for calculating the inflation rate? A) B) C) D)
B) Which of the following is the correct formula for calculating the inflation rate? A) B) C) D)
C) Which of the following is the correct formula for calculating the inflation rate? A) B) C) D)
D) Which of the following is the correct formula for calculating the inflation rate? A) B) C) D)

E) C) and D)
F) A) and C)

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The consumer price index is subject to substitution bias because


A) some pairs of goods are complements rather than substitutes.
B) some goods are inferior rather than normal.
C) the law of demand applies to most, if not all, goods.
D) the index does not take into account the likelihood that consumers substitute newly-introduced goods for more- established goods.

E) A) and D)
F) A) and C)

Correct Answer

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When box office receipts are not corrected for inflation, the most popular movie of all time is


A) Star Wars.
B) Avatar.
C) Gone With the Wind.
D) The Dark Knight.

E) None of the above
F) A) and D)

Correct Answer

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When the quality of a good improves while its price remains the same, the purchasing power of the dollar


A) increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for.
B) increases, so the CPI understates the change in the cost of living if the quality change is not accounted for.
C) decreases, so the CPI overstates the change in the cost of living if the quality change is not accounted for.
D) decreases, so the CPI understates the change in the cost of living if the quality change is not accounted for.

E) None of the above
F) A) and B)

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If the consumer price index was 100 in the base year and 106 in the following year, then the inflation rate was


A) 1.06 percent.
B) 6 percent.
C) 10.6 percent.
D) 106 percent.

E) B) and C)
F) A) and D)

Correct Answer

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When the relative price of a good increases, consumers respond by buying


A) a larger quantity of that good and a larger quantity of substitutes for that good.
B) a larger quantity of that good and a smaller quantity of substitutes for that good.
C) a smaller quantity of that good and a larger quantity of substitutes for that good.
D) a smaller quantity of that good and a smaller quantity of substitutes for that good.

E) B) and C)
F) All of the above

Correct Answer

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Which of the following is the correct formula for calculating the consumer price index?


A) Which of the following is the correct formula for calculating the consumer price index? A) B) C) D)
B) Which of the following is the correct formula for calculating the consumer price index? A) B) C) D)
C) Which of the following is the correct formula for calculating the consumer price index? A) B) C) D)
D) Which of the following is the correct formula for calculating the consumer price index? A) B) C) D)

E) None of the above
F) B) and C)

Correct Answer

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If the nominal interest rate is 9 percent and the real interest rate is 3 percent, then the inflation rate is


A) -6 percent.
B) 3 percent.
C) 6 percent.
D) 12 percent.

E) None of the above
F) B) and C)

Correct Answer

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