Question 1

If the price of jet fuel imported from Russia and used by Qantas suddenly increases, then the CPI will ________ and the GDP deflator will ________.

Accepted Answer

A)   not change; increase
B)   increase; increase
C)   increase; not change
D)   increase; increase by more than the CPI
E)   not change; not changeF) All of the above
G) A) and B)

Question 2

A country's CPI was 84.5 last year and 100.0 this year. The inflation rate was

Accepted Answer

A)   18.3 per cent.
B)   15.5 per cent.
C)   7.29 per cent.
D)   -18 per cent.
E)   84.5 per cent.F) A) and E)
G) B) and D)

Question 3

The price of dishwashers has remained relatively constant while the quality of dishwashers has improved. The CPI

Accepted Answer

A)   is increased monthly to reflect the increased quality of dishwashers.
B)   should not take account of any quality changes because it is a price index not a quality index.
C)   has an upward bias if it is not adjusted to take account of the higher quality.
D)   has an upward bias because it does not reflect the increased production of dishwashers.
E)   is adjusted monthly to reflect the improvement in quality.F) A) and B)
G) All of the above

Question 4

In order to determine if the quantity of goods and services that an hour's work can buy has increased or decreased between 2014 anD2019, one should compare the

Accepted Answer

A)   2014 nominal wage with the 2019 nominal wage.
B)   2014 real wage with the 2019 real wage.
C)  2014nominal wage with the 2019 real wage.
D)  2014 real wage with the 2019 nominal wage.
E)   2014 nominal wage with the 2019 nominal wage and the 2014 real wage with the 2019 real wage because both are important factors determining if workers can buy more or fewer goods with an hour's work.F) A) and E)
G) D) and E)

Question 5

The CPI market basket is determined by

Accepted Answer

A)   surveys asking large retail companies, such as Kmart, about their sales of consumer goods and services.
B)   profit releases of the largest companies.
C)   a household survey.
D)   supermarket purchases recorded by scanner technology.
E)   tax return data of households.F) A) and B)
G) C) and E)

Question 6

If we look at real and nominal interest rates in Australia since 1971, we see that

Accepted Answer

A)   the difference between the nominal and real interest rates widened during the 1990s because of inflation.
B)   both the nominal and real interest rates were negative in the highly inflationary 1970s.
C)   the nominal interest rate has always been less than the real interest rate because of inflation.
D)   at times the nominal interest rate has been greater than the real interest rate and at times has been less than it.
E)   the real interest rate has almost always been less than the nominal interest rate because of inflation.F) A) and B)
G) A) and C) E

Question 7

Which of the following statements about the nominal and real wage rates is correct?

Accepted Answer

A)   The nominal wage rate is measured in the dollars of a base year.
B)   The real wage rate indicates how many goods and services can be purchased with an hour's labour.
C)   The nominal wage rate equals the real wage rate divided by the CPI and then multiplied by 100.
D)   The real wage rate is measured in current year dollars.
E)   The real wage rate equals the nominal wage rate multiplied by the CPI then divided by 100.F) A) and C)
G) A) and E)

Question 8

The outlet substitution bias is most likely to put ________ and so ________ the inflation rate.

Accepted Answer

A)   an upward bias into the CPI; understate
B)   a downward bias into the CPI; overstate
C)   a downward bias into the CPI; understate
D)   an upward bias into the CPI; overstate
E)   no bias into the CPI because it is such a small effect; have no effect onF) A) and B)
G) B) and E)

Question 9

-The data in the table above show the consumption by families in a small (poor)  economy. The families consume only salt and bread. The reference base period is 2011. The inflation rate between 2011 and 2012 was

Accepted Answer

A)   23.1 per cent.
B)   18.8 per cent.
C)   52.5 per cent.
D)   118.8 per cent.
E)   123.1 per cent.F) C) and D)
G) A) and B)

Question 10

-Based on the table above, the cost of the base period market basket in the base period is

Accepted Answer

A)   $4,885.
B)   $4,650.
C)   $21.00.
D)   $3,300.
E)   $3,250.F) B) and E)
G) D) and E) D

Question 11

Suppose that last year the price of strawberries was $2 and the price of milk was $1. This year, the price of milk is $2 and the price of strawberries is $1. Which of the following statements is true?

Accepted Answer

A)   The CPI increases because milk is more expensive.
B)   The change in the CPI depends on how the market basket changed between the two years.
C)   The CPI might increase or decrease depending on the quantities in the CPI market basket.
D)   The CPI does not change because the change in the two prices is the same.
E)   The CPI decreases because strawberries are cheaper.F) A) and E)
G) A) and D)

Question 12

Which of the following changes would have the largest impact on the CPI?

Accepted Answer

A)   A one per cent increase in the cost of education.
B)   A one per cent increase in the cost of medical care.
C)   A one per cent increase in the cost of housing.
D)   A one per cent increase in the cost of transportation.
E)   A one per cent increase in the cost of clothing.F) B) and D)
G) None of the above

Question 13

When we compare the records of the CPI and the chain price index of Household Final Consumption Expenditure (HFCE)  over time, the

Accepted Answer

A)   CPI tends to exceed the chain price index of HFCE.
B)   two are very different in magnitude.
C)   chain price index tends to exceed the CPI.
D)   two measures are identical.
E)   CPI tends to exceed the chain price index when inflation is high, and the chain price index tends to exceed the CPI when inflation is low.F) A) and B)
G) A) and C)

Question 14

Real GDP is $140 billion and nominal GDP is $180 billion. The GDP deflator equals

Accepted Answer

A)   222.2.
B)   2.86.
C)   100.0.
D)   128.6.
E)   77.0.F) C) and D)
G) B) and E)

Question 15

-Based on the table above, the CPI for 2019 is

Accepted Answer

A)   102.5.
B)   105.1.
C)   5.0 per cent.
D)   98.5.
E)   100.F) A) and B)
G) D) and E)

Question 16

The formula for the CPI is

Accepted Answer

A)   (Cost of CPI market basket at current period prices ÷ Cost of CPI market basket at next year's prices)  × 100.
B)   (Cost of CPI market basket at current period prices ÷ Cost of CPI market basket at base period prices)  × 100.
C)   (Cost of CPI market basket this year × Cost of CPI market basket at base period prices)  ÷ 100.
D)   (Cost of CPI market basket at base period prices ÷ Cost of CPI market basket at current period prices)  × 100.
E)   (Cost of CPI market basket this year × Cost of CPI market basket at base period prices)  × 100.F) A) and E)
G) A) and B)

Question 17

-The table above gives the CPI for a nation. Based on the table, we can determine that the reference base period is

Accepted Answer

A)   2002.
B)   1998-2000.
C)   1994.
D)   1996.
E)   More information about when the Consumer Expenditure Survey was undertaken is needed to answer the question.F) C) and D)
G) B) and E)

Question 18

If the current period has a CPI of 143, then the amount of inflation since the base period is

Accepted Answer

A)   unknown without knowing the base period's CPI.
B)   143 per cent.
C)   57 per cent.
D)   43 per cent.
E)   157 per cent.F) B) and E)
G) D) and E)

Question 19

Suppose Mack's wage was $7.00 an hour in 2001 and $12.00 an hour in 2012. The CPI was 94 in 2001 and 201 in 2012. The 2001 hourly wage in terms of 2012 dollars is

Accepted Answer

A)   $7.00.
B)   $3.48.
C)   $14.07.
D)   $14.97.
E)   $13.16.F) A) and E)
G) B) and C)

Question 20

If the CPI is 170 at the beginning of the year and 181 at the end, and a bank is paying a nominal interest rate of 6 per cent, we see that

Accepted Answer

A)   the real interest rate is positive and is larger than 1 per cent.
B)   the real interest rate is equal to zero.
C)   the real interest rate is positive and is less than 1 per cent.
D)   the real interest rate is negative.
E)   the nominal interest rate is negative.F) D) and E)
G) C) and E) C

Exam 7: The Cpi and the Cost of Living

If the price of jet fuel imported from Russia and used by Qantas suddenly increases, then the CPI will ________ and the GDP deflator will ________.

Correct AnswerverifiedShow Answer

A country's CPI was 84.5 last year and 100.0 this year. The inflation rate was

Correct AnswerverifiedShow Answer

The price of dishwashers has remained relatively constant while the quality of dishwashers has improved. The CPI

Correct AnswerverifiedShow Answer

In order to determine if the quantity of goods and services that an hour's work can buy has increased or decreased between 2014 anD2019, one should compare the

Correct AnswerverifiedShow Answer

The CPI market basket is determined by

Correct AnswerverifiedShow Answer

If we look at real and nominal interest rates in Australia since 1971, we see that

Correct AnswerverifiedE

Which of the following statements about the nominal and real wage rates is correct?

Correct AnswerverifiedShow Answer

The outlet substitution bias is most likely to put ________ and so ________ the inflation rate.

Correct AnswerverifiedShow Answer

-The data in the table above show the consumption by families in a small (poor) economy. The families consume only salt and bread. The reference base period is 2011. The inflation rate between 2011 and 2012 was

Correct AnswerverifiedShow Answer

-Based on the table above, the cost of the base period market basket in the base period is

Correct AnswerverifiedD

Suppose that last year the price of strawberries was $2 and the price of milk was $1. This year, the price of milk is $2 and the price of strawberries is $1. Which of the following statements is true?

Correct AnswerverifiedShow Answer

Which of the following changes would have the largest impact on the CPI?

Correct AnswerverifiedShow Answer

When we compare the records of the CPI and the chain price index of Household Final Consumption Expenditure (HFCE) over time, the

Correct AnswerverifiedShow Answer

Real GDP is $140 billion and nominal GDP is $180 billion. The GDP deflator equals

Correct AnswerverifiedShow Answer

-Based on the table above, the CPI for 2019 is

Correct AnswerverifiedShow Answer

The formula for the CPI is

Correct AnswerverifiedShow Answer

-The table above gives the CPI for a nation. Based on the table, we can determine that the reference base period is

Correct AnswerverifiedShow Answer

If the current period has a CPI of 143, then the amount of inflation since the base period is

Correct AnswerverifiedShow Answer

Suppose Mack's wage was $7.00 an hour in 2001 and $12.00 an hour in 2012. The CPI was 94 in 2001 and 201 in 2012. The 2001 hourly wage in terms of 2012 dollars is

Correct AnswerverifiedShow Answer

If the CPI is 170 at the beginning of the year and 181 at the end, and a bank is paying a nominal interest rate of 6 per cent, we see that

Correct AnswerverifiedC

If the price of jet fuel imported from Russia and used by Qantas suddenly increases, then the CPI will and the GDP deflator will .

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In order to determine if the quantity of goods and services that an hour's work can buy has increased or decreased between 2014 anD₂019, one should compare the

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E

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The outlet substitution bias is most likely to put and so the inflation rate.

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D

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C