ExamName___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The CPI stands for 1) _______ A) Citizens Paying Index. B) Corporate/Consumer Payment Index. C) Corporate Pricing Index. D) Consumer Paying Index. E) Consumer Price Index. 2) The CPI is a measure of the 2) _______ A) average prices of all goods. B) average prices of all goods and services produced. C) percentage change in the price level. D) average prices paid by consumers for a fixed basket of goods and services. E) average change in the output of the goods and services purchased by a typical urban consumer. 3) The Consumer Price Index (CPI) measures the changes of the 3) _______ A) prices paid by all businesses for a fixed market basket of production resources. B) lowest prices paid by consumers for a fixed market basket of consumer goods and services. C) prices paid by consumers and businesses for a fixed market basket of goods and services. D) prices paid by consumers for a fixed market basket of consumer goods and services. E) quantities of a fixed market basket of goods produced by businesses. 4) The Consumer Price Index measures the average prices paid by 4) _______ A) urban consumers for a fixed market basket of goods and services. B) businesses for the most frequently used basket of resources. C) businesses and consumers for a market basket of goods and services. D) businesses for a fixed market basket of resources. E) urban consumers for the goods and services that most frequently change in price. 5) For the CPI to provide an accurate measure of the prices paid by urban consumers, it is necessary to 5) _______ A) have prices stated in dollars so consumers can compare what they spend. B) make certain that the incomes of the consumers surveyed do not change because such a change would affect the market basket of the goods and services they buy. C) have a market basket that is consistent and corresponds to what households actually purchase. D) assign equal weights to all the goods and services included in the market basket surveyed so that nothing is overweighted. E) change the market basket each month to reflect the changes that consumers make. i. conducting the monthly price survey ii. converting the CPI to an international index iii. selecting CPI market basket 6) _______ 6) Constructing the CPI involves which of the following stages? A) i, ii, and iii B) i only C) ii only D) iii only E) i and iii 7) The prices of the goods and services in the CPI market basket are collected 7) _______ A) infrequently. B) monthly. C) 0. C) 50. E) None of the above. 30 C) 5. 30 B) 10. 10) The items included in the CPI are 10) ______ A) goods and services consumed by the typical urban household. C) only goods and services produced within the current year and consumed by the typical household. D) 1. E) final goods and services produced in the United States. D) 100. 9) The value of the CPI for the reference base period is always 9) _______ A) 100. 8) The reference base period for the CPI has an index number of 8) _______ A) 10. 13) ______ A) 150. B) 0. the reference base period for the CPI for the nation of Webot. how many sodas and DVDs are in their CPI market basket if the price of a soda is $1 and the price of a DVD is $9? 14) ______ A) 10 sodas and 10 DVDs . a typical consumer spent $30 on potatoes and $150 on steak. sodas and DVDs. If the price of steak is $15 and the price of potatoes is $1 then there are ________ units of steak and ________ units of potatoes in the CPI market basket. E) 1. B) final goods produced in the United States. 11) ______ A) random selection B) changing selection C) subjective selection D) least-cost market basket E) fixed market basket 12) What is the good or service is given the most weight in the CPI? 12) ______ A) apparel B) food and beverages C) transportation D) recreation E) housing 13) In 2013.000. 30 D) 30. D) yearly. 14) Consumers in Beachland consume only two goods. B) 1. If they spend $10 on sodas and $90 on DVDs a month. 11) The Consumer Price Index measures the average of the prices paid by urban consumers for a ________ of consumer goods and services. because the value of the CPI is not always the same for all reference base periods. 150 E) None of the above answers is correct. D) gods but not services consumed by the typical urban household.C) quarterly. E) only when the CPI market basket is determined by the Consumer Expenditure Survey. E) 2. C) 250. 19) To find the cost of the CPI market basket in the current period we have to multiply the 19) ______ A) quantities in the CPI market basket by the base period prices. . B) 100. 17) The table above gives the CPI for a nation. D) (Cost of CPI market basket this year × Cost of CPI market basket at base period prices) ÷ 100.50. 16) Each month the CPI is calculated by 16) ______ A) subtracting the current period cost of the CPI market basket from the base period cost and then multiplying by 100. D) 100. 20) If the cost of the CPI market basket at current period prices is $275 and the cost of the CPI market basket at base period prices is $350. C) (Cost of CPI market basket at current period prices ÷ Cost of CPI market basket at next year's prices) × 100. B) subtracting the base period cost of the CPI market basket from the current cost and then dividing by 100. B) 1994. 15) The formula for the CPI is 15) ______ A) (Cost of CPI market basket this year × Cost of CPI market basket at base period prices) × 100. C) current period quantities in the CPI market basket by the base period prices. we can determine that the reference base period is 17) ______ A) 1996. D) recording the new prices and making no other calculation. E) quantities in the CPI market basket by the base period prices and then multiply by 100. C) 127. E) (Cost of CPI market basket at current period prices ÷ Cost of CPI market basket at base period prices) × 100. D) 79.B) 1 soda and 9 DVDs C) 10 sodas and 9 DVDs D) 9 sodas and 1 DVD E) It is impossible to determine the market basket without information on the quantity of at least one of the two goods consumed. 18) If the cost of the CPI market basket at current period prices is $1000 and the cost of the CPI market basket at base period prices is $250. E) More information about when the Consumer Expenditure Survey was undertaken is needed to answer the question. the CPI is 20) ______ A) 350.0. D) 2002. the CPI is 18) ______ A) 400. Based on the table. E) multiplying the current cost of the CPI market basket by the base period cost and then dividing by 100. D) quantities in the CPI market basket by the current period prices. B) current period quantities in the CPI market basket by the current period prices. B) 4. C) 1998-2000. E) 275. B) (Cost of CPI market basket at base period prices ÷ Cost of CPI market basket at current period prices) × 100. C) dividing the current cost of the CPI market basket by the base period cost and then multiplying by 100. B) prices rose 33. the cost of the CPI basket for the reference base period. then 24) ______ A) the CPI increases. D) prices rose 133. If the price of cauliflower goes down by $1 per head and the price of broccoli goes up by $1 per bunch.9.5. goods cost $133. then the inflation rate equals D) 93. C) The CPI does not change because the change in the two prices is the same. the price of strawberries was $2 and the price of milk was $1. 2011. E) prices rose 133. 27) ______ . 22) ______ A) 86.7 percent over the base year. C) $3.2. 14 percent C) 116. C) 106. which is the base year. C) the CPI does not change. The CPI in 2011 is ________ and the inflation rate from 2010 to 2011 is ________. the cost of the CPI market basket in the base year is 25) ______ A) $3.7 percent over the last year. The prices and quantities purchased by urban households are in the table above. D) The CPI increases because milk is more expensive.4 in one year and is 241. B) 97. The cost of the CPI basket in 2010 was $23. 25) Consumers in a country buy only two goods.500.408.0.805. If 2011 is the reference base year. C) prices rose 33. The CPI for 2012 is 26) ______ A) 102. was $23. to $159 in 2011. E) The CPI might increase or decrease depending on the quantities in the CPI market basket. 23) Suppose that last year. E) There is not enough information to answer this question.500. and the cost of the CPI basket in 2012 was $24.2 in the next year. E) $3.7. 26) A country reports the total expenditures on the fixed CPI basket for the past three years. Which of the following statements is true? 23) ______ A) The CPI decreases because strawberries are cheaper. 22 percent D) 116. This year. D) the CPI might increase or decrease depending how the quantities are affected by the price changes. E) 245.9. pens and CDs.21) Suppose the CPI for this year is 133. 22 percent B) 86. B) the CPI decreases. B) The change in the CPI depends how the market basket changed between the two years.580. This number means that 21) ______ A) on average.508. B) $3. 24) Suppose that the CPI basket contains only 40 heads of cauliflower and 60 bunches of broccoli.000. 16 percent E) There is not enough information to answer this question. D) $3.7 percent over the base year. the price of milk is $2 and the price of strawberries is $1. 27) If the CPI is 231.7 percent over the last year.400.70 each this year. 22) Suppose that the cost of the CPI basket of goods and services rises from $137 in 2010. D) stores so that consumers switch from one store to another. and specifies a salary increase equal to the percentage increase in the CPI during the second year. 32) An example of the commodity substitution bias in the calculation of the CPI is a price increase in 32) ______ A) a 2014 Toyota Camry versus a 2005 Honda Civic. B) × 100. 31) When discussing the CPI.0. E) quantities that lead households to change the items they buy. Mark's wage contract specifies a $50.2 .0 percentage point. The percentage increase in the CPI during the year was 4.0. D) 66. C) has no relation to the cost of living. E) 160. B) a GPS unit versus a AAA map book. B) takes into account the changes in technology.0.000 salary for the first year.0 percentage points. D) does not always take into account the changes in product quality. E) etexts versus used books bought through Craigslist. E) × 100. at the end of the first year Mark's salary increased by ________ more than it would have without the upward bias. B) overstates inflation by about 4.4) × 100. C) new homes because people's incomes have increased. 28) Suppose the market basket of consumer goods and services costs $180 using the base period prices. and the same basket of goods and services costs $300 using the current period prices. E) takes into account the changes in product quality. C) does not include services. D) (241. the term "commodity substitution bias" refers to changes in 31) ______ A) income that lead households to change the items they buy. 33) Mark has a two-year wage contract with his employer. D) is a near perfect measure of the cost of living. C) prices that lead business to change the items they buy.7. 29) Economists agree that the CPI 29) ______ A) is a possibly biased measure of the cost of living.1 percentage points a year. C) 300. D) turkey when the price of chicken doesn't rise.7. 30) The CPI is biased because it 30) ______ A) accurately measures the cost of living but not the cost of producing. B) prices that lead households to change the items they buy. C) × 100. B) 60. E) almost always shows the cost of living rising less rapidly than is the case in reality. 33) ______ A) $3000 B) $1500 C) $2000 D) $50 E) $500 . If the CPI overstates inflation by 1. The CPI for the current year period equals 28) ______ A) 166.231.A) × 100. If the CPI was 130. E) typically. 35) If the GDP price index is 137.629 per gallon and the CPI was 202. the same Hershey candy bar cost $1.32 per gallon E) $1. C) always greater than 100.05 per gallon C) $0. C) inflation between the two years was 172 percent. B) typically. D) typically.00 per gallon B) $2. E) equal to nominal GDP during the base year. B) the price level during the base year. B) equivalent to the price of the 2007 Hershey candy bar.34) The GDP deflator is 34) ______ A) a measure of the price level. a Hershey candy bar cost $. By 2007. E) both nominal and real are measured with index numbers. this value means that prices have increased 35) ______ A) 63 percent since the base year.571 per gallon E) $0.29 per gallon D) $5.4 with a base period of 1982 to 1984. the price of gasoline in the Florida was $2. a good whose price was $100 in 1983 had a price of $58 this year. What was the real price of gasoline per gallon in base period dollars? 37) ______ A) $1. the price of the 1990 Hershey candy bar in 2007 prices is 40) ______ A) greater than the price of the 2007 Hershey candy bar.629 per gallon C) $1.7 in 1990 and 180. B) 137 percent since the base year.169 per gallon and the CPI was 29. These values for the CPI mean that38) ______ A) typically. . C) nominal is a number stated in dollars and real is stated with an index number.25. 36) The difference between nominal and real is 36) ______ A) real is a number stated in dollars and nominal is stated with an index number. What was the real price of gasoline per gallon in base period dollars? 39) ______ A) $0. a good whose price was $100 in 1983 had a price of $172 this year. D) real is measured in current dollars and nominal is measured in dollars of a given year. a good whose price was $172 in 1983 had a price of $100 this year. B) nominal is measured in current dollars and real is measured in dollars of a given year.6 with a base period of 1982 to 1984. 39) In June 1960.809 per gallon 38) Suppose the CPI in 1983 is 100 and the CPI this year is 172.057 per gallon B) $0. D) 137 percent in the last year. only the nominal index is greater than 100 and the real index is less than 100.5 in 2007.169 per gallon 40) During 1990. 37) February 2010.85. a good whose price was $100 in 1983 had a price of $139 this year. D) a measure of the level of production. the price of gasoline in the Midwest was $0. E) 37 percent in the last year.296 per gallon D) $0. C) 37 percent since the base year. 04. What has happened? 47) ______ A) Your real wage rate has increased by a larger percentage than your nominal wage.000. After one year.000. Cameron began his career with SBC. 43) Your starting salary is $35. B) Your real wage has increased but by a smaller percentage than your nominal wage. His starting salary was $32. we see that 48) ______ A) the real interest rate is positive and is larger than 1 percent. and a bank is paying a nominal interest rate of 6 percent.000.400. or perhaps the same depending on whether the CPI in 2007 has been adjusted to reflect 2007 prices. C) $32. you are given a raise that increases your nominal salary. the equivalent price for the ham and cheese sandwich today is 41) ______ A) $5.29. E) Your real and nominal wages have each increased by the same percentage.000 salary with a CPI of 110.0 D) a $37. B) $5. D) Your nominal wage has increased but your real wage has declined.0. E) $4.54. B) $34. .558. 42) In 2008. C) $6. E) $37. 41) A ham and cheese sandwich at the local deli costs $4.99 in 2005. 48) If the CPI is 170 at the beginning of the year and 181 at the end. what is the CPI? 46) ______ A) 112 B) 89 C) 150 D) 100 E) 106 47) Your wage this year is $15 per hour and the CPI is 178. Cameron's 2012 real income is 42) ______ A) $32. then if the CPI is 170. what is your nominal income? 45) ______ A) $70. what is the CPI? 44) ______ A) 125 B) 80 C) 100 D) 250 E) 200 45) If your real income in base year prices is $50.76 E) $85.000. If the CPI in 2005 was 90.000 salary with a CPI of 103. E) not able to be determined given the information in the question.500. If the CPI was 100. D) perhaps greater than.000.000 salary with a CPI of 106.428. Which of the following salaries would you prefer the most? 43) ______ A) a $38.0 in 2008 and 107.71.000 and your real income in base year prices is $71.C) less than the price of the 2007 Hershey candy bar.0 and the CPI today is 121.000 and your real income in base year prices is $60.0 B) a $36.0 C) a $39.99. D) $35.5 in 2012.57 C) $50.0 E) a $39.00 D) $29. perhaps less. Next year you get a raise to $17 and the CPI rises to 185. D) $6.411.625. C) Your nominal wage has increased but your real wage has not changed.000 salary with a CPI of 104.000 per year.000. By 2012.00 B) $71.000. his salary increased to $35.00 46) If your nominal income is $80.000 salary with a CPI of 109.000.000.0 44) If your nominal income is $75. 51) The average starting salary for a history major is $29. and nominal interest rate for the country of Syldavia for the years 2010 to 2012. E) 9.8 percent. The real wage rate in Syldavia during 2011 was 50) ______ A) $14.513.500.5. If the CPI was 147. C) the real interest rate is negative. and nominal interest rate for the country of Syldavia for the years 2010 to 2012. C) $200. nominal wage rate. D) the real interest rate is equal to zero. . E) the interest nominal rate is negative. The real interest rate in Syldavia during 2012 was 49) ______ A) 2.6 percent. 50) The table above has information about the CPI.2 percent. B) 0. D) 8. B) $14. C) $15.00 an hour. D) $15. 51) ______ A) $20. D) $14. the real salary is E) $14. C) 5. The reference base year is 2010. E) $35. B) $43.00.750. nominal wage rate.000. The reference base year is 2010.B) the real interest rate is positive and is less than 1 percent.4 percent.25.79.22.0 percent.000. 49) The table above has information about the CPI.00. 1) E 2) D 3) D 4) A 5) C 6) E 7) B 8) D 9) A 10) A 11) E 12) E 13) B 14) A 15) E 16) C 17) C 18) A 19) D 20) D 21) C 22) C 23) E 24) A 25) A 26) A 27) E 28) A 29) A 30) D 31) B 32) D 33) E 34) A 35) C 36) B 37) C 38) B 39) D 40) C 41) C 42) C 43) A 44) A 45) E 46) A 47) B 48) B 49) B 50) D . 51) A .