Chapter 24

Chapter 24 Measuring the Cost of Living
TRUE/FALSE 1. The consumer price index is used to monitor changes in an economys production of goods and services over time. ANS: F DIF: !"F: #$% NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I +S): Interpretive ,hen the consumer price index fa&&s- the typica& fami&y has to spend fe.er do&&ars to maintain the same standard of &iving. ANS: T DIF: !"F: #$% NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I +S): Interpretive /. "conomists use the term inf&ation to descri0e a situation in .hich the economys overa&& price &eve& is rising. ANS: T DIF: 1 !"F: #$% NAT: Ana&ytic '(): 1nemp&oyment and inf&ation T(*: Inf&ation +S): Definitiona& #. The inf&ation rate is the a0so&ute change in the price &eve& from the previous period. ANS: F DIF: 1 !"F: #$% NAT: Ana&ytic '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate +S): Definitiona& 2. Inf&ation can 0e measured using either the 3D* def&ator or the consumer price index. ANS: T DIF: !"F: #$% NAT: Ana&ytic '(): 1nemp&oyment and inf&ation T(*: Inf&ation 4 )*I 4 3D* def&ator +S): Interpretive 5. The inf&ation rate reported in the ne.s is usua&&y ca&cu&ated from the 3D* def&ator rather than the consumer price index. ANS: F DIF: !"F: #$% NAT: Ana&ytic '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate 4 )*I 4 3D* def&ator +S): Interpretive 6. 7ecause the consumer price index ref&ects the goods and services 0ought 0y consumers 0etter than the 3D* def&ator does- it is the more common gauge of inf&ation. ANS: T DIF: 1 !"F: #$% NAT: Ana&ytic '(): 1nemp&oyment and inf&ation T(*: Inf&ation 4 )*I 4 3D* def&ator +S): Definitiona& 8. The )*I is a measure of the overa&& cost of the goods and services 0ought 0y a typica& consumer. ANS: T DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I +S): Definitiona& 9. "ach .ee:- the 7ureau of 'a0or Statistics computes and reports the consumer price index. ANS: F DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I +S): Definitiona& 1%. The 7ureau of 'a0or Statistics is part of the 1.S. Department of 'a0or. ANS: T DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: 7ureau of 'a0or Statistics +S): Definitiona& .
8/
8#
11.
)hapter #;+easuring the )ost of 'iving
The 7ureau of 'a0or Statistics determines .hich prices are most important to the typica& consumer 0y surveying consumers. ANS: T DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: 7ureau of 'a0or Statistics +S): Definitiona& 1 . The content of the 0as:et of goods and services used to compute the )*I changes every month. ANS: F DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I +S): Interpretive 1/. 7y :eeping the 0as:et of goods and services the same .hen computing the )*I- the 7ureau of 'a0or Statistics iso&ates the effects of price changes from the effect of any <uantity changes that might 0e occurring at the same time. ANS: T DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I +S): Definitiona& 1#. ,hen the consumer price index is computed- the 0ase year is a&.ays the first year among the years 0eing considered. ANS: F DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I +S): Interpretive 12. The )*I for %%8 is computed 0y dividing the price of the 0as:et of goods and services in %%8 0y the price of the 0as:et of goods and services in the 0ase year- then mu&tip&ying 0y 1%%. ANS: T DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I +S): Interpretive 15. The )*I is a&.ays 1 in the 0ase year. ANS: F DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I +S): Definitiona& 16. If the current year )*I is 1#%- then the price &eve& has increased #% percent since the 0ase year. ANS: T DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I +S): App&icative 18. If the current year )*I is 9%- then the price &eve& has decreased 1% percent since the 0ase year. ANS: T DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I +S): App&icative 19. The inf&ation rate for %%6 is computed 0y dividing =the )*I in %%6 minus the )*I in %%5> 0y the )*I in %%5- then mu&tip&ying 0y 1%%. ANS: T DIF: !"F: #$1 NAT: Ana&ytic '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate +S): Interpretive If the va&ue of the consumer price index is 11% in %%2 and 1 1 in %%5- then the inf&ation rate is 11 percent for %%5. ANS: F DIF: !"F: #$1 NAT: Ana&ytic '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate +S): App&icative %.

The producer price index measures the cost of a 0as:et of goods and services 0ought 0y firms rather than consumers. ANS: T DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: **I +S): Definitiona& . )hanges in the consumer price index are usefu& in predicting changes in the producer price index. ANS: F DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 **I +S): Interpretive /. Data from the 7ureau of 'a0or Statistics sho. that the &argest category of consumer spending is housing. ANS: T DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )ategories of consumer spending +S): Definitiona& Data from the 7ureau of 'a0or Statistics sho. that consumer spending on transportation is on&y s&ight&y higher than consumer spending on food and 0everages. ANS: T DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )ategories of consumer spending +S): Definitiona& Data from the 7ureau of 'a0or Statistics sho. that consumer spending on medica& care is a0out e<ua& to consumer spending on recreation and consumer spending on education and communication. ANS: T DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )ategories of consumer spending +S): Definitiona& Data from the 7ureau of 'a0or Statistics sho. that appare& ma:es up 1# percent of the typica& consumers 0udget. ANS: F DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )ategories of consumer spending +S): Definitiona& 5. 2. #. 1.
82
The goa& of the consumer price index is to gauge ho. much incomes must rise to maintain a constant standard of &iving. ANS: T DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I +S): Definitiona& Su0stitution 0ias occurs 0ecause the )*I ignores the possi0i&ity of consumer su0stitution to.ard goods that have 0ecome re&ative&y &ess expensive. ANS: T DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Su0stitution 0ias +S): Interpretive 9. Su0stitution 0ias causes the )*I to understate the increase in the cost of &iving from one year to the next. ANS: F DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Su0stitution 0ias +S): Definitiona& /%. ,hen a ne. good is introduced- consumers have more variety from .hich to choose- and this in turn increases the cost of maintaining the same &eve& of economic .e&&$0eing. ANS: F DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Introduction of ne. goods +S): Definitiona& /1. The )*I does not ref&ect the increase in the va&ue of the do&&ar that arises from the introduction of ne. goods. ANS: T DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Introduction of ne. goods +S): Definitiona& 8.
6.
85
/ .
If the <ua&ity of a good deteriorates from one year to the next .hi&e its price remains the same- then the va&ue of a do&&ar fa&&s. ANS: T DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 ?ua&ity change +S): Definitiona& //. The 7ureau of 'a0or Statistics does not try to account for <ua&ity changes in the goods and services in the 0as:et used to compute the )*I. ANS: F DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 ?ua&ity change +S): Interpretive /#. There is no &onger much de0ate among economists concerning the severity of and the so&ution to the pro0&ems in using the )*I to measure the cost of &iving. ANS: F DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I +S): Interpretive /2. +any economists 0e&ieve the 0ias in the )*I is no. on&y a0out ha&f as &arge as it once .as. ANS: T DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I +S): Definitiona& /5. The )*I and 3D* def&ator usua&&y te&& t.o different stories a0out ho. <uic:&y prices are rising. ANS: F DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): Interpretive /6. ,hen the price of Ita&ian .ine rises- this change is ref&ected in the 1.S. )*I 0ut not in the 1.S. 3D* def&ator. ANS: T DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): App&icative /8. ,hen the price of nuc&ear missi&es rises- this change is ref&ected in the )*I 0ut not in the 3D* def&ator. ANS: F DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): App&icative /9. In the 1.S.- .hen the price of oi& rises- the )*I rises 0y much more than does the 3D* def&ator. ANS: T DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): App&icative #%. The group of goods and services used to compute the 3D* def&ator changes automatica&&y over time- 0ut the group of goods and services used to compute the )*I does not. ANS: T DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): App&icative #1. The purpose of measuring the overa&& &eve& of prices in the economy is to permit comparison 0et.een do&&ar figures from different times. ANS: T DIF: 1 !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): Definitiona& # . A do&&ar figure from 19%8 is converted into %%8 do&&ars 0y dividing the %%8 price &eve& 0y the 19%8 price &eve&- then mu&tip&ying 0y the 19%8 do&&ar figure. ANS: T DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): Interpretive

#/. If the )*I today is 1 % and the )*I five years ago .as 8%- then something that cost @1 five years ago .ou&d cost @1.2% in todayAs prices. ANS: T DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative ##.
86
Benry Ford paid his .or:ers @2 a day in 191#- .hen the )*I .as 1%. Today- .ith the price index at 166- the @2 a day is .orth @88.2%. ANS: T DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative #2. If you current&y ma:e @ 2-%%% a year and the )*I rises from 11% today to 12% in five years- then you need to 0e ma:ing @#/-///.// in five years to have :ept pace .ith consumer price inf&ation. ANS: F DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative #5. ,hen some do&&ar amount is automatica&&y corrected for inf&ation 0y &a. or contract- the amount is said to 0e indexed for inf&ation. ANS: T DIF: 1 !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: Indexation +S): Definitiona& #6. A )('A automatica&&y raises the .age .hen the )*I rises. ANS: T DIF: 1 !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )('A +S): Definitiona& #8. The 1.S. income tax system is comp&ete&y indexed for inf&ation. ANS: F DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: Indexation +S): Interpretive #9. 7o0 deposits @1%% in a 0an: account that pays an annua& interest rate of 2 percent. A year &ater- 7o0 .ithdra.s his @1%2. If inf&ation .as percent during the year the money .as deposited- then 7o0s purchasing po.er has increased 0y / percent. ANS: T DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: !ea& interest rate +S): App&icative 2%. 7o0 deposits @1%% in a 0an: account that pays an annua& interest rate of 2 percent. A year &ater- 7o0 .ithdra.s his @1%2. If inf&ation .as 2 percent during the year the money .as deposited- then 7o0s purchasing po.er has not changed. ANS: T DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: !ea& interest rate +S): App&icative 21. 7o0 deposits @1%% in a 0an: account that pays an annua& interest rate of 2 percent. A year &ater- 7o0 .ithdra.s his @1%2. If inf&ation .as 6 percent during the year the money .as deposited- then 7o0s purchasing po.er has increased 0y percent. ANS: F DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: !ea& interest rate +S): App&icative
88
2 .
7o0 deposits @1%% in a 0an: account that pays an annua& interest rate of 2 percent. A year &ater- 7o0 .ithdra.s his @1%2. If def&ation .as 2 percent during the year the money .as deposited- then 7o0s purchasing po.er has not changed. ANS: F DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: !ea& interest rate +S): App&icative 2/. 7o0 deposits @1%% in a 0an: account that pays an annua& interest rate of 2 percent. A year &ater- 7o0 .ithdra.s his @1%2. If def&ation .as 6 percent during the year the money .as deposited- then 7o0s purchasing po.er has increased 0y 1 percent. ANS: T DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: !ea& interest rate +S): App&icative 2#. The rea& interest rate measures the change in do&&ar amounts. ANS: F DIF: 1 !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: Nomina& interest rate +S): Definitiona& 22. The rea& interest rate is the interest rate corrected for inf&ation. ANS: T DIF: 1 !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: !ea& interest rate +S): Definitiona& 25. The nomina& interest rate te&&s you ho. fast the num0er of do&&ars in your 0an: account rises over time. ANS: T DIF: 1 !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: Nomina& interest rate +S): Definitiona& 26. The rea& interest rate te&&s you ho. fast the purchasing po.er of your 0an: account rises over time. ANS: T DIF: 1 !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: !ea& interest rate +S): Definitiona& 28. If the nomina& interest rates rises- then the inf&ation rate must have increased. ANS: F DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: Nomina& interest rate 4 Inf&ation rate +S): Interpretive 29. If the nomina& interest rate is 2 percent and the inf&ation rate is percent- then the rea& interest rate is 6 percent. ANS: F DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: !ea& interest rate +S): App&icative 5%. If the nomina& interest rate is 2 percent and the rea& interest rate is percent- then the inf&ation rate is / percent. ANS: T DIF: !"F: #$ NAT: Ana&ytic '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate +S): App&icative 51. If the rea& interest rate is 2 percent and the inf&ation rate is percent- then the nomina& interest rate is 6 percent. ANS: T DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: Nomina& interest rate +S): App&icative 5 . The va&ue of the consumer price index increased from 1#% to 1#6 during %%5. Nathan opened a 0an: account at the 0eginning of %%5- and at the end of %%5 his account 0a&ance .as @1 -8#%. The purchasing po.er of Nathans account increased 0y percent during the year. ,e can conc&ude that Nathan opened his account .ith a deposit of @11-2%% at the 0eginning of %%5. ANS: F DIF: / !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: Nomina& interest rate 4 !ea& interest rate +S): Ana&ytica&

5/. The 1.S. economy has experienced rising consumer prices in every year since 1952. ANS: T DIF: 1 !"F: #$ NAT: Ana&ytic '(): 1nemp&oyment and inf&ation T(*: 1.S. inf&ation +S): Definitiona& 5#. The 1.S. economy has never experienced def&ation. ANS: F DIF: !"F: #$ NAT: Ana&ytic '(): 1nemp&oyment and inf&ation +S): Interpretive 52.
89
T(*:
1.S. inf&ation
In the &ate 196%s- 1.S. nomina& interest rates .ere high and rea& interest rates .ere &o.- 0ut in the &ate 199%s1.S. nomina& interest rates .ere &o. and rea& interest rates .ere high. ANS: T DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: 1.S. interest rates +S): Interpretive SHORT ANS 1. ER In a simp&e economy- peop&e consume on&y goods- food and c&othing. The mar:et 0as:et of goods used to compute the )*I consists of 2% units of food and 1% units of c&othing. Food @# @5 )&othing @1% @ %
%% price per unit %%/ price per unit a. 0. c. ANS: a. 0. c.
,hat are the percentage increases in the price of food and in the price of c&othingC ,hat is the percentage increase in the )*IC Do these price changes affect a&& consumers to the same extentC "xp&ain. The price of food increased 0y 2% percent =D5$#E;# x 1%%>. The price of c&othing increased 0y 1%% percent =D %$1%E;1% x 1%%>. In %% - the mar:et 0as:et cost @/%% =#x2% F 1%x1%>G in %%/- it cost @2%% =5x2% F %x1%>. The percentage increase in the )*I is 55.6 percent =D2%%$/%%E;/%% x 1%%>. 7ecause the price of c&othing increased re&ative&y more than the price of food- peop&e .ho purchase a &ot of c&othing and &itt&e food 0ecame .orse off re&ative to peop&e .ho purchase a &ot of food and &itt&e c&othing. T(*: )*I
DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics +S): App&icative . ,hich is &i:e&y to have the &arger effect on the )*I- a increase in the price of diamond ringsC "xp&ain.
percent increase in the price of food or a / percent
ANS: The percent increase in the price of food .i&& increase the )*I 0y more 0ecause the portion of the mar:et 0as:et consisting of food is much &arger than the portion consisting of diamond rings. DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics +S): Interpretive T(*: )*I
9%
/. 'ist the three maHor pro0&ems in using the )*I as a measure of the cost of &iving. ANS: =1> Su0stitution 0ias. The )*I ignores the fact that consumers su0stitute to.ard goods that have 0ecome re&ative&y &ess expensive. = > Introduction of ne. goods. 7ecause the )*I uses a fixed 0as:et of goods- it does not ta:e into account the increased .e&&$0eing of consumers created .hen ne. goods are introduced. =/> 1nmeasured <ua&ity change. Not a&& <ua&ity changes can 0e measured. DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics +S): Interpretive T(*: )*I
#. ,hy does the 3D* def&ator give a different rate of inf&ation than the )*IC ANS: The 3D* def&ator and the )*I differ in t.o important .ays. The 3D* def&ator uses as a 0as:et a&& fina& goods and services produced in the domestic economy- .hi&e the )*I 0as:et inc&udes goods and services purchased 0y typica& consumers. Therefore- changes in the price of imported goods affect the )*I- 0ut not the 3D* def&ator. A&sochanges in the price of domestica&&y produced capita& goods affect the 3D* def&ator- 0ut not the )*I. )hanges in the price of domestica&&y produced consumer goods are &i:e&y to affect the )*I more than the 3D* def&ator 0ecause it is &i:e&y that those goods ma:e up a &arger part of consumer 0udgets than of 3D*. DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics +S): Interpretive 2. T(*: )*I 4 3D* def&ator
)ompute ho. much each of the fo&&o.ing items is .orth in terms of todayAs do&&ars using 166 as the price index for today. a. In 19 5- the )*I .as 16.6 and the price of a movie tic:et .as @%. 2. 0. In 19/ - the )*I .as 1/.1 and a coo: earned @12.%% a .ee:. c. In 19#/- the )*I .as 16.# and a ga&&on of gas cost @%.19. a. 0. c. The movie tic:et is .orth @. 2 166;16.6 I @ .2% in todayAs do&&ars. The coo:s .ee:&y .age is .orth @12.%% 166;1/.1 I @ % .56 in todayAs do&&ars. The ga&&on of gas is .orth @.19 166;16.# I @1.9/ in todayAs do&&ars. T(*: )omparing do&&ar figures
ANS:
DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics +S): App&icative 5.
Jay and Joyce meet 3eorge- the 0an:er- to .or: out the detai&s of a mortgage. They a&& expect that inf&ation .i&& 0e percent over the term of the &oan- and they agree on a nomina& interest rate of 5 percent. As it turns out- the inf&ation rate is 2 percent over the term of the &oan. a. ,hat .as the expected rea& interest rateC 0. ,hat .as the actua& rea& interest rateC c. ,ho 0enefited and .ho &ost 0ecause of the unexpected inf&ationC a. 0. c. The expected rea& interest rate .as # percent =5$ >. The actua& rea& interest rate .as 1 percent =5$2>. 3eorge- the 0an:er- &ost 0ecause he received &ess rea& interest income than he expected. Jay and Joyce gained 0ecause they paid &ess rea& interest income than they expected. T(*: !ea& interest rate
ANS:
DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics +S): App&icative
91
Se!"" # Measuring the Cost of Living

MULT$%LE CHO$CE 1. 7a0e !uth- the famous 0ase0a&& p&ayer- earned @8%-%%% in 19/1. Today- the 0est 0ase0a&& p&ayers can earn more than /%% times as much as 7a0e !uth earned in 19/1. Bo.ever- prices have a&so risen since 19/1. ,e can conc&ude that a. the 0est 0ase0a&& p&ayers today are a0out /%% times 0etter off than 7a0e !uth .as in 19/1. 0. 0ecause prices have a&so risen- the standard of &iving of 0ase0a&& stars hasnAt changed since 19/1. c. one cannot ma:e Hudgments a0out changes in the standard of &iving 0ased on changes in prices and changes in incomes. d. one cannot determine .hether 0ase0a&& stars today enHoy a higher standard of &iving than 7a0e !uth did in 19/1 .ithout additiona& information regarding increases in prices since 19/1.
ANS: D DIF: !"F: #$% NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: *rices 4 Standard of &iving +S): Interpretive . The consumer price index is used to a. monitor changes in the &eve& of .ho&esa&e prices in the economy. 0. monitor changes in the cost of &iving over time. c. monitor changes in the &eve& of rea& 3D* over time. d. monitor changes in the stoc: mar:et. DIF: 1 !"F: #$% '(): The study of economics and definitions of economics +S): Definitiona&
ANS: 7 NAT: Ana&ytic T(*: )*I /.
The consumer price index is used to a. convert nomina& 3D* into rea& 3D*. 0. turn do&&ar figures into meaningfu& measures of purchasing po.er. c. characteriKe the types of goods and services that consumers purchase. d. measure the <uantity of goods and services that the economy produces. DIF: 1 !"F: #$% '(): The study of economics and definitions of economics +S): Definitiona&
ANS: 7 NAT: Ana&ytic T(*: )*I #.
,hich of the fo&&o.ing is not correctC a. The consumer price index gives economists a .ay of turning do&&ar figures into meaningfu& measures of purchasing po.er. 0. The consumer price index is used to monitor changes in the cost of &iving over time. c. The consumer price index is used 0y economists to measure the inf&ation rate. d. The consumer price index is used to measure the <uantity of goods and services that the economy is producing. DIF: !"F: #$% '(): The study of economics and definitions of economics +S): Interpretive
ANS: D NAT: Ana&ytic T(*: )*I 2.
,hen the consumer price index rises- the typica& fami&y a. has to spend more do&&ars to maintain the same standard of &iving. 0. can spend fe.er do&&ars to maintain the same standard of &iving. c. finds that its standard of &iving is not affected. d. can offset the effects of rising prices 0y saving more.
ANS: A DIF: 1 !"F: #$% NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Standard of &iving +S): Definitiona&
9
5.

,hen the consumer price index fa&&s- the typica& fami&y a. has to spend more do&&ars to maintain the same standard of &iving. 0. can spend fe.er do&&ars to maintain the same standard of &iving. c. finds that its standard of &iving is not affected. d. can save &ess 0ecause they do not need to offset the effects of rising prices.
ANS: 7 DIF: !"F: #$% NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Standard of &iving +S): Interpretive 6. "conomists use the term inf&ation to descri0e a situation in .hich a. some prices are rising faster than others. 0. the economyAs overa&& price &eve& is rising. c. the economyAs overa&& price &eve& is high- 0ut not necessari&y rising. d. the economyAs overa&& output of goods and services is rising faster than the economyAs overa&& price &eve&. DIF: 1 !"F: #$% '(): 1nemp&oyment and inf&ation T(*: Inf&ation
ANS: 7 NAT: Ana&ytic +S): Definitiona& 8.
The term inf&ation is used to descri0e a situation in .hich a. the overa&& &eve& of prices in the economy is increasing. 0. incomes in the economy are increasing. c. stoc:$mar:et prices are rising. d. the economy is gro.ing rapid&y. DIF: 1 !"F: #$% '(): 1nemp&oyment and inf&ation T(*: Inf&ation
ANS: A NAT: Ana&ytic +S): Definitiona& 9.
,hen the overa&& &eve& of prices in the economy is increasing- economists say that the economy is experiencing a. economic gro.th. 0. stagf&ation. c. inf&ation. d. def&ation. DIF: 1 !"F: #$% '(): 1nemp&oyment and inf&ation T(*: Inf&ation
ANS: ) NAT: Ana&ytic +S): Definitiona& 1%.
The inf&ation rate is defined as the a. price &eve& in an economy. 0. change in the price &eve& from one period to the next. c. percentage change in the price &eve& from the previous period. d. price &eve& minus the price &eve& from the previous period. DIF: 1 !"F: #$% '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: ) NAT: Ana&ytic +S): Definitiona& 11.
The economyAs inf&ation rate is the a. price &eve& in the current period. 0. change in the price &eve& from the previous period. c. change in the gross domestic product from the previous period. d. percentage change in the price &eve& from the previous period. DIF: 1 !"F: #$% '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: D NAT: Ana&ytic +S): Definitiona&

1 . The inf&ation rate you are &i:e&y to hear on the night&y ne.s is ca&cu&ated from a. the 3D* def&ator. 0. the )*I. c. the Do. Jones Industria& Average. d. the unemp&oyment rate. DIF: !"F: #$% '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
9/
ANS: 7 NAT: Ana&ytic +S): Interpretive 1/.
,hich of the fo&&o.ing is correctC a. The 3D* def&ator is 0etter than the )*I at ref&ecting the goods and services 0ought 0y consumers. 0. The )*I is 0etter than the 3D* def&ator at ref&ecting the goods and services 0ought 0y consumers. c. The 3D* def&ator and the )*I are e<ua&&y good at ref&ecting the goods and services 0ought 0y consumers. d. The 3D* def&ator is more common&y used as a gauge of inf&ation than the )*I is.
ANS: 7 DIF: !"F: #$% NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): Interpretive 1#. The )*I is more common&y used as a gauge of inf&ation than the 3D* def&ator is 0ecause a. the )*I is easier to measure. 0. the )*I is ca&cu&ated more often than the 3D* def&ator is. c. the )*I 0etter ref&ects the goods and services 0ought 0y consumers. d. the 3D* def&ator cannot 0e used to gauge inf&ation.
ANS: ) DIF: !"F: #$% NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): Interpretive
Se!"& # Measuring the Cost of Living # The Consu'er %ri!e $n(e)

MULT$%LE CHO$CE 1. The )*I is a measure of the overa&& cost of a. the inputs purchased 0y a typica& producer. 0. the goods and services purchased 0y a typica& consumer. c. the goods and services produced in the economy. d. the stoc:s on the Ne. Lor: Stoc: "xchange. DIF: 1 !"F: #$1 '(): The study of economics and definitions of economics +S): Definitiona&
ANS: 7 NAT: Ana&ytic T(*: )*I .
The )*I is a measure of the overa&& cost of the goods and services 0ought 0y a. a typica& firm. 0. the government. c. a typica& consumer. d. A&& of the a0ove are correct. DIF: 1 !"F: #$1 '(): The study of economics and definitions of economics +S): Definitiona&
ANS: ) NAT: Ana&ytic T(*: )*I /.
The )*I is a measure of the overa&& cost of the goods and services 0ought 0y a. a typica& consumer- and the )*I is computed and reported 0y the Department of the Treasury. 0. typica& consumers and typica& 0usiness firms- and the )*I is computed and reported 0y the Department of the Treasury. c. a typica& consumer- and the )*I is computed and reported 0y the 7ureau of 'a0or Statistics. d. typica& consumers and typica& 0usiness firms- and the )*I is computed and reported 0y the 7ureau of 'a0or Statistics.
9#

DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): Interpretive
ANS: ) NAT: Ana&ytic T(*: )*I #.
,hich of the fo&&o.ing agencies ca&cu&ates the )*IC a. the Nationa& *rice 7oard 0. the Department (f ,eight and +easurements c. the 7ureau of 'a0or Statistics d. the )ongressiona& 7udget (ffice
ANS: ) DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 7ureau of 'a0or Statistics +S): Definitiona& 2. ,hich entity .ithin the 1.S. government is responsi0&e for computing and reporting the )*IC a. the Department of )ommerce 0. the Department of 'a0or c. the 3enera& Accounting (ffice d. the )ounci& of "conomic Advisers
ANS: 7 DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Department of 'a0or +S): Definitiona& 5. The )*I is ca&cu&ated a. month&y 0y the Department of )ommerce. 0. month&y 0y the 7ureau of 'a0or Statistics. c. <uarter&y 0y the Department of )ommerce. d. <uarter&y 0y the 7ureau of 'a0or Statistics.
ANS: 7 DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 7ureau of 'a0or Statistics +S): Definitiona& 6. The )*I is ca&cu&ated a. .ee:&y. 0. month&y. c. <uarter&y. d. year&y. DIF: 1 !"F: #$1 '(): The study of economics and definitions of economics +S): Definitiona&
ANS: 7 NAT: Ana&ytic T(*: )*I 8.
The steps invo&ved in ca&cu&ating the consumer price index and the inf&ation rate- in order- are as fo&&o.s: a. )hoose a 0ase year- fix the 0as:et- find the prices- compute the 0as:ets cost- compute the indexand compute the inf&ation rate. 0. )hoose a 0ase year- fix the 0as:et- find the prices- compute the inf&ation rate- compute the 0as:etAs cost- and compute the index. c. Fix the 0as:et- find the prices- compute the 0as:etAs cost- choose a 0ase year and compute the indexand compute the inf&ation rate. d. Fix the 0as:et- find the prices- compute the inf&ation rate- compute the 0as:ets cost- and choose a 0ase year and compute the index.
ANS: ) DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Inf&ation rate +S): Definitiona& 9. In the )*I- goods and services are .eighted according to a. ho. &ong a mar:et has existed for each good or service. 0. the extent to .hich each good or service is regarded 0y the government as a necessity. c. ho. much consumers 0uy of each good or service. d. the num0er of firms that produce and se&& each good or service.

ANS: ) NAT: Ana&ytic T(*: )*I 1%. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): Interpretive
92
In the ca&cu&ation of the )*I- coffee is given greater .eight than tea if a. consumers 0uy more coffee than tea. 0. the price of coffee is higher than the price of tea. c. it costs more to produce coffee than it costs to produce tea. d. coffee is more readi&y avai&a0&e than tea is to the typica& consumer. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative
ANS: A NAT: Ana&ytic T(*: )*I 11.
In the ca&cu&ation of the )*I- s.eaters are given greater .eight than Heans if a. the price of s.eaters is higher than the price of Heans. 0. it costs more to produce s.eaters than it costs to produce Heans. c. s.eaters are more readi&y avai&a0&e than Heans are to the typica& consumer. d. consumers 0uy more s.eaters than Heans. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative
ANS: D NAT: Ana&ytic T(*: )*I 1 .
In ca&cu&ating the )*I- a fixed 0as:et of goods and services is used. The <uantities of the goods and services in the fixed 0as:et are determined 0y a. surveying consumers. 0. surveying se&&ers of the goods and services. c. .or:ing 0ac:.ard from the rate of inf&ation to arrive at imputed va&ues for those <uantities. d. ar0itrary choices made 0y federa& government emp&oyees. DIF: 1 !"F: #$1 '(): The study of economics and definitions of economics +S): Definitiona&
ANS: A NAT: Ana&ytic T(*: )*I 1/.
,hat 0as:et of goods and services is used to construct the )*IC a. a random samp&e of a&& goods and services produced in the economy 0. the goods and services that are typica&&y 0ought 0y consumers as determined 0y government surveys c. on&y food- c&othing- transportation- entertainment- and education d. the &east expensive and the most expensive goods and services in each maHor category of consumer expenditures DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): Interpretive
ANS: 7 NAT: Ana&ytic T(*: )*I 1#.
)onsider a sma&& economy in .hich consumers 0uy on&y t.o goods: app&es and pears. In order to compute the consumer price index for this economy for t.o or more consecutive years- .e assume that a. the num0er of app&es 0ought 0y the typica& consumer is e<ua& to the num0er of pears 0ought 0y the typica& consumer in each year. 0. neither the num0er of app&es nor the num0er of pears 0ought 0y the typica& consumer changes from year to year. c. the percentage change in the price of app&es is e<ua& to the percentage change in the price of pears from year to year. d. neither the price of app&es nor the price of pears changes from year to year. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): Interpretive
ANS: 7 NAT: Ana&ytic T(*: )*I
95
12.

)onsider a sma&& economy in .hich consumers 0uy on&y t.o goods: pies and tarts. In order to compute the consumer price index for this economy for t.o or more consecutive years- .e assume that a. the percentage change in the price of pies is e<ua& to the percentage change in the price of tarts from year to year. 0. the num0er of pies 0ought 0y the typica& consumer is e<ua& to the num0er of tarts 0ought 0y the typica& consumer in each year. c. neither the num0er of pies nor the num0er of tarts 0ought 0y the typica& consumer changes from year to year. d. neither the price of pies nor the price of tarts changes from year to year. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): Interpretive
ANS: ) NAT: Ana&ytic T(*: )*I 15.
To ca&cu&ate the )*I- the 7ureau of 'a0or Statistics uses a. the prices of a&& goods and services produced domestica&&y. 0. the prices of a&& fina& goods and services. c. the prices of a&& consumer goods. d. the prices of some consumer goods. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): Interpretive
,hen computing the cost of the 0as:et of goods and services purchased 0y a typica& consumer- .hich of the fo&&o.ing changes from year to yearC a. the <uantities of the goods and services purchased 0. the prices of the goods and services c. the goods and services ma:ing up the 0as:et d. A&& of the a0ove are correct. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): Interpretive
In computing the consumer price index- a 0ase year is chosen. ,hich of the fo&&o.ing statements a0out the 0ase year is correctC a. The 0ase year is a&.ays the first year among the years for .hich computations are 0eing made. 0. It is necessary to designate a 0ase year on&y in the simp&est case of t.o goodsG in more rea&istic cases- it is not necessary to designate a 0ase year. c. The va&ue of the consumer price index is a&.ays 1%% in the 0ase year. d. The 0ase year is a&.ays the year in .hich the cost of the 0as:et .as highest among the years for .hich computations are 0eing made. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): Interpretive
For any given year- the )*I is the price of the 0as:et of goods and services in the a. given year divided 0y the price of the 0as:et in the 0ase year- then mu&tip&ied 0y 1%%. 0. given year divided 0y the price of the 0as:et in the previous year- then mu&tip&ied 0y 1%%. c. 0ase year divided 0y the price of the 0as:et in the given year- then mu&tip&ied 0y 1%%. d. previous year divided 0y the price of the 0as:et in the given year- then mu&tip&ied 0y 1%%. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): Interpretive
ANS: A NAT: Ana&ytic T(*: )*I %.
The inf&ation rate is ca&cu&ated a. 0y determining the change in the price index from the preceding period. 0. 0y adding up the price increases of a&& goods and services. c. 0y computing a simp&e average of the price increases for a&& goods and services. d. 0y determining the percentage increase in the price index from the preceding period.

ANS: D NAT: Ana&ytic +S): Definitiona& 1. DIF: 1 !"F: #$1 '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
96
The inf&ation rate is ca&cu&ated a. 0y determining the change in the price index from the preceding period. 0. 0y determining the change in the price index from the 0ase year. c. 0y determining the percentage change in the price index from the preceding period. d. 0y determining the percentage change in the price index from the 0ase year. DIF: 1 !"F: #$1 '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: ) NAT: Ana&ytic +S): Definitiona& .
If %%# is the 0ase year- then the inf&ation rate for %%2 e<ua&s a. 0. c. d.
ANS: A NAT: Ana&ytic +S): Interpretive /.
DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation
T(*:
Inf&ation rate
If %% is the 0ase year- then the inf&ation rate in %%2 e<ua&s a. 0. c. d.
ANS: D NAT: Ana&ytic +S): Interpretive #.
DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation
T(*:
Inf&ation rate
If the consumer price index .as 8% in %%#- 1%% in %%2- and 11% in %%5- then the 0ase year must 0e a. %%#. 0. %%2. c. %%5. d. The 0ase year cannot 0e determined from the given information. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative
Suppose a 0as:et of goods and services has 0een se&ected to ca&cu&ate the )*I and %% has 0een chosen as the 0ase year. In %% - the 0as:ets cost .as @62.%%G in %%#- the 0as:ets cost .as @69.2%G and in %%5- the 0as:ets cost .as @82.85. The va&ue of the )*I .as a. 1%% in %% . 0. 1%5 in %%#. c. 11#.#8 in %%5. d. A&& of the a0ove are correct.
98

DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative
Suppose a 0as:et of goods and services has 0een se&ected to ca&cu&ate the )*I and %% has 0een se&ected as the 0ase year. In %% - the 0as:ets cost .as @2%G in %%#- the 0as:ets cost .as @2 G and in %%5- the 0as:ets cost .as @2#.5%. The va&ue of the )*I in %%# .as a. 95. . 0. 1% .%. c. 1%#.%. d. 12 .%. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative
Suppose a 0as:et of goods and services has 0een se&ected to ca&cu&ate the )*I and %% has 0een se&ected as the 0ase year. In %% - the 0as:ets cost .as @2%G in %%#- the 0as:ets cost .as @2 G and in %%5- the 0as:ets cost .as @2#.5%. The va&ue of the )*I in %%5 .as a. 91.5. 0. 1%#.5. c. 1%9. . d. 12#.5. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative
Suppose a 0as:et of goods and services has 0een se&ected to ca&cu&ate the )*I and %%# has 0een se&ected as the 0ase year. In %% - the 0as:ets cost .as @2%G in %%#- the 0as:ets cost .as @2 G and in %%5- the 0as:ets cost .as @2#.5%. The va&ue of the )*I in %%5 .as a. 91.5. 0. 92. . c. 1%2.%. d. 1%9. . DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative
If the consumer price index .as 1%% in the 0ase year and 1%6 in the fo&&o.ing year- then the inf&ation rate .as a. 1.%6 percent. 0. 6 percent. c. 1%.6 percent. d. 1%6 percent. DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: 7 NAT: Ana&ytic +S): App&icative /%.
The price index .as / % in one year and /5% in the next year. ,hat .as the inf&ation rateC a. 9 percent 0. 11.1 percent c. 1 .2 percent d. #% percent DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: ) NAT: Ana&ytic +S): App&icative

/1. The price index .as 1 % in %%5 and 1 6. in %%6. ,hat .as the inf&ation rateC a. 2.6 percent 0. 5.% percent c. 6. percent d. 6. percent DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
99
ANS: 7 NAT: Ana&ytic +S): App&icative / .
For an imaginary economy- the va&ue of the consumer price index .as 1#% in %%5 and 1#9.1% in %%6. The economys inf&ation rate for %%6 .as a. 5.1 percent. 0. 5.2 percent. c. 9.1 percent. d. #9.1 percent. DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: 7 NAT: Ana&ytic +S): App&icative //.
From %%# to %%2- the )*I for medica& care increased from 5%.8 to 6 .8. ,hat .as the inf&ation rate for medica& careC a. #.# percent 0. #.5 percent c. 1 .% percent d. 16 .8 percent DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: 7 NAT: Ana&ytic +S): App&icative /#.
The mar:et 0as:et used to ca&cu&ate the )*I in A<ui&onia is # &oaves of 0read- 5 ga&&ons of mi&:- shirts- and pairs of pants. In %%2- 0read cost @1.%% per &oaf- mi&: cost @1.2% per ga&&on- shirts cost @5.%% each- and pants cost @1%.%% per pair. In %%5- 0read cost @1.2% per &oaf- mi&: cost @ .%% per ga&&on- shirts cost @6.%% each- and pants cost @1 .%% per pair. 1sing %%2 as the 0ase year- .hat .as A<ui&onias inf&ation rate in %%5C a. # percent 0. 11 percent c. 19.5 percent d. #.# percent DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: D NAT: Ana&ytic +S): App&icative /2.
7et.een (cto0er %%1 and (cto0er %% - the )*I in )anada rose from 115.2 to 119.8 and the )*I in +exico rose from 9/. to 1% ./. ,hat .ere the inf&ation rates for )anada and +exico over this one$year periodC a. .8 percent for )anada and 9.1 percent for +exico 0. .8 percent for )anada and 9.8 percent for +exico c. /./ percent for )anada and 9.1 percent for +exico d. /./ percent for )anada and 9.8 percent for +exico DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: 7 NAT: Ana&ytic +S): App&icative /5.
Suppose the price index .as 11% in %%#- 1 % in %%2- and 1 2 in %%5. ,hich of the fo&&o.ing statements is correctC a. The economy experienced inf&ation 0et.een %%# and %%2 and 0et.een %%2 and %%5. 0. The inf&ation rate .as positive 0et.een %%# and %%2- and it .as negative 0et.een %%2 and %%5. c. The inf&ation rate .as higher 0et.een %%2 and %%5 than it .as 0et.een %%# and %%2. d. A&& of the a0ove are correct.
1%%

DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: A NAT: Ana&ytic +S): App&icative /6.
The price index .as 12% in the first year- 15% in the second year- and 162 in the third year. The inf&ation rate .as a0out a. 5. 2 percent 0et.een the first and second years- and 8.5 percent 0et.een the second and third years. 0. 5.6 percent 0et.een the first and second years- and 9.# percent 0et.een the second and third years. c. 1% percent 0et.een the first and second years- and 12 percent 0et.een the second and third years. d. 5% percent 0et.een the first and second years- and 62 percent 0et.een the second and third years. DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: 7 NAT: Ana&ytic +S): App&icative /8.
The price index .as 11% in the first year- 1%% in the second year- and 95 in the third year. The economy experienced a. 9.1 percent def&ation 0et.een the first and second years- and # percent def&ation 0et.een the second and third years. 0. 9.1 percent def&ation 0et.een the first and second years- and #. percent def&ation 0et.een the second and third years. c. 1% percent def&ation 0et.een the first and second years- and # percent def&ation 0et.een the second and third years. d. 1% percent def&ation 0et.een the first and second years- and #. percent def&ation 0et.een the second and third years. DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: A NAT: Ana&ytic +S): App&icative /9.
If the price index .as 9% in year 1- 1%% in year - and 92 in year /- then the economy experienced a. 1% percent inf&ation 0et.een years 1 and -and 2 percent inf&ation 0et.een years and /. 0. 1% percent inf&ation 0et.een years 1 and - and 2 percent def&ation 0et.een years and /. c. 11.1 percent inf&ation 0et.een years 1 and - and 2 percent inf&ation 0et.een years and /. d. 11.1 percent inf&ation 0et.een years 1 and - and 2 percent def&ation 0et.een years and /. DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: D NAT: Ana&ytic +S): App&icative #%.
The price index .as 12% in the first year- 15% in the second year- and 152 in the third year. ,hich of the fo&&o.ing statements is correctC a. The price &eve& .as higher in the second year than in the first year- and it .as higher in the third year than in the second year. 0. The inf&ation rate .as positive 0et.een the first and second years- and it .as positive 0et.een the second and third years. c. The inf&ation rate .as &o.er 0et.een the second and third years than it .as 0et.een the first and second years. d. A&& of the a0ove are correct. DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation T(*: *rice &eve& 4 Inf&ation rate
ANS: D NAT: Ana&ytic +S): App&icative #1.
In a particu&ar economy- the price index .as 6% in %%2 and /%% in %%5. ,hich of the fo&&o.ing statements is correctC a. The economy experienced a rising price &eve& 0et.een %%2 and %%5. 0. The economy experienced a higher inf&ation rate 0et.een %%2 and %%5 than it had experienced 0et.een %%# and %%2. c. The inf&ation rate 0et.een %%2 and %%5 .as /% percent. d. A&& of the a0ove are correct.

ANS: A NAT: Ana&ytic +S): App&icative # . DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation T(*: *rice &eve& 4 Inf&ation rate
1%1
,hich of the fo&&o.ing changes in the price index produces the greatest rate of inf&ation: 8% to 1%%- 1%% to 1 %- or 12% to 16%C a. 8% to 1%% 0. 1%% to 1 % c. 12% to 16% d. A&& of these changes produce the same rate of inf&ation. DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: A NAT: Ana&ytic +S): App&icative #/.
,hich of the fo&&o.ing changes in the price index produces the greatest rate of inf&ation: 1%5 to 11 - 11 to 118- or 118 to 1 #C a. 1%5 to 11 0. 11 to 118 c. 118 to 1 # d. A&& of these changes produce the same rate of inf&ation. DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: A NAT: Ana&ytic +S): App&icative ##.
,hich of the fo&&o.ing changes in the price index produces the greatest rate of inf&ation: 1%% to 11%- 12% to 152- or 18% to 198C a. 1%% to 11% 0. 12% to 152 c. 18% to 198 d. A&& of these changes produce the same rate of inf&ation. DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: D NAT: Ana&ytic +S): App&icative #2.
If the )*I .as 11% this year and 1%% &ast year- then a. the cost of the )*I 0as:et of goods and services increased 0y 11% percent this year. 0. the price &eve& increased 0y 1% percent this year. c. the inf&ation rate for this year .as 1% percent higher than the inf&ation rate for &ast year. d. A&& of the a0ove are correct.
ANS: 7 DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 *rice &eve& +S): App&icative #5. If the )*I .as 1 2 this year and 1 % &ast year- then a. the cost of the )*I 0as:et of goods and services increased 0y #. percent this year. 0. the price &eve& increased 0y #. percent this year. c. the inf&ation rate for this year .as #. percent. d. A&& of the a0ove are correct.
ANS: D DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 *rice &eve& 4 Inf&ation rate +S): App&icative #6. In an imaginary economy- consumers 0uy on&y hot dogs and ham0urgers. The fixed 0as:et consists of 1% hot dogs and 5 ham0urgers. A hot dog cost @/ in %%5 and @2.#% in %%6. A ham0urger cost @2 in %%5 and @5 in %%6. ,hich of the fo&&o.ing statements is correctC a. ,hen %%5 is chosen as the 0ase year- the consumer price index is 9% in %%6. 0. ,hen %%5 is chosen as the 0ase year- the inf&ation rate is 12% percent in %%6. c. ,hen %%6 is chosen as the 0ase year- the consumer price index is 1%% in %%5. d. ,hen %%6 is chosen as the 0ase year- the inf&ation rate is 2% percent in %%6.
1%
ANS: D DIF: / !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Inf&ation rate +S): Ana&ytica& #8. In an imaginary economy- consumers 0uy on&y sand.iches and magaKines. The fixed 0as:et consists of % sand.iches and /% magaKines. In %%5- a sand.ich cost @# and a magaKine cost @ . In %%6- a sand.ich cost @2. The 0ase year is %%5. If the consumer price index in %%6 .as 1 2- then ho. much did a magaKine cost in %%6C a. @%.8/ 0. @ . 2 c. @ .2% d. @/.%% DIF: / !"F: #$1 '(): The study of economics and definitions of economics +S): Ana&ytica&
ANS: ) NAT: Ana&ytic T(*: )*I #9.
In an imaginary economy- consumers 0uy on&y sand.iches and magaKines. The fixed 0as:et consists of % sand.iches and /% magaKines. In %%5- a sand.ich cost @# and a magaKine cost @ . In %%6- a sand.ich cost @2. The 0ase year is %%5. If the inf&ation rate in %%6 .as 15 percent- then ho. much did a magaKine cost in %%6C a. @1.86 0. @ .%8 c. @ ./ d. @/.%%
ANS: 7 DIF: / !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Inf&ation rate +S): Ana&ytica& 2%. In an imaginary economy- consumers 0uy on&y shirts and pants. The fixed 0as:et consists of 5 shirts and # pairs of pants. A shirt cost @ % in %%5 and @ 2 in %%6. A pair of pants cost @/% in %%5 and @#% in %%6. 1sing %%5 as the 0ase year- .hich of the fo&&o.ing statements is correctC a. For the typica& consumer- the num0er of do&&ars spent on shirts is e<ua& to the num0er of do&&ars spent on pants in each of the t.o years. 0. The consumer price index is /1% in %%6. c. The rate of inf&ation is 9.16M in %%6. d. None of the a0ove is correct.
ANS: ) DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Inf&ation rate +S): App&icative 21. The price index .as 1 8.95 in %%5- and the inf&ation rate .as # percent 0et.een %%2 and %%5. The price index in %%2 .as a. 1%#. 0. 1%#.95. c. 12 .95. d. 129.91.
ANS: A DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Inf&ation rate +S): App&icative 2 . The price index .as 9 in %%%- and the inf&ation rate .as 1/ percent 0et.een 1999 and %%%. The price index in 1999 .as a. 69. 0. 81.#. c. 1%/.95. d. 1%2.
ANS: 7 DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Inf&ation rate +S): App&icative

2/.
1%/
For an imaginary economy- the va&ue of the consumer price index .as 1/8.62 in %%6- and the inf&ation rate .as 11 percent 0et.een %%5 and %%6. The consumer price index in %%5 .as a. 1 2. 0. 1 6.62. c. 1#9.62. d. 12#.%1.
ANS: A DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Inf&ation rate +S): App&icative 2#. For an imaginary economy- the va&ue of the consumer price index .as 1 2 in %%9- and the inf&ation rate .as #.8 percent 0et.een %%8 and %%9. The consumer price index in %%8 .as a. 119. 6. 0. 1 %. . c. 1 9.8. d. 1/1.
ANS: A DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Inf&ation rate +S): App&icative 22. Suppose the price index .as 1%% in %%#- 118 in %%2- and the inf&ation rate .as &o.er 0et.een %%2 and %%5 than it .as 0et.een %%# and %%2. This means that a. the price index in %%5 .as &o.er than 118. 0. the price index in %%5 .as &o.er than 1/5. c. the price index in %%5 .as &o.er than 1/9. #. d. the inf&ation rate 0et.een %%2 and %%5 .as &o.er than 1.18 percent.
ANS: ) DIF: / !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Inf&ation rate +S): Ana&ytica& 25. Suppose the price index .as 1%2 in %%6- 112.2 in %%8- and the inf&ation rate .as &o.er 0et.een %%8 and %%9 than it .as 0et.een %%6 and %%8. This means that a. the price index in %%9 .as &o.er than 112.2. 0. the price index in %%9 .as &o.er than 1 5. c. the price index in %%9 .as &o.er than 1 6.%2. d. the inf&ation rate 0et.een %%8 and %%9 .as &o.er than 1.1 percent.
ANS: ) DIF: / !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Inf&ation rate +S): Ana&ytica& 26. Assume an economy experienced a positive rate of inf&ation 0et.een %%/ and %%# and again 0et.een %%# and %%2. Bo.ever- the inf&ation rate .as &o.er 0et.een %%# and %%2 than it .as 0et.een %%/ and %%#. ,hich of the fo&&o.ing scenarios is consistent .ith this assumptionC a. The )*I .as 1%% in %%/- 11% in %%#- and 1%2 in %%2. 0. The )*I .as 1%% in %%/- 1 % in %%#- and 1/2 in %%2. c. The )*I .as 1%% in %%/- 1%2 in %%#- and 1/% in %%2. d. The )*I .as 1%% in %%/- 9% in %%#- and 88 in %%2.
ANS: 7 DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Inf&ation rate +S): App&icative 28. Assume an economy experienced a positive rate of inf&ation 0et.een %%/ and %%# and again 0et.een %%# and %%2. Bo.ever- the inf&ation rate .as higher 0et.een %%# and %%2 than it .as 0et.een %%/ and %%#. ,hich of the fo&&o.ing scenarios is consistent .ith this assumptionC a. The )*I .as 1%% in %%/- 11% in %%#- and 1%2 in %%2. 0. The )*I .as 1%% in %%/- 1 % in %%#- and 1/2 in %%2. c. The )*I .as 1%% in %%/- 1%2 in %%#- and 1/% in %%2. d. The )*I .as 1%% in %%/- 9% in %%#- and 88 in %%2.
1%#
ANS: ) DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Inf&ation rate +S): App&icative 29. For an imaginary economy- the consumer price index .as 5 .2% in %%#- 1%%.%% in %%2- and 15%.%% in %%5. ,hich of the fo&&o.ing statements is correctC a. If the 0as:et of goods that is used to ca&cu&ate the )*I cost @8% in %%#- then that 0as:et of goods cost @1 8 in %%2. 0. If the 0as:et of goods that is used to ca&cu&ate the )*I cost @9% in %%2- then that 0as:et of goods cost @12% in %%5. c. The overa&& &eve& of prices increased 0y 96.2 percent 0et.een %%# and %%5. d. A&& of the a0ove are correct. DIF: / !"F: #$1 '(): The study of economics and definitions of economics +S): Ana&ytica&
ANS: A NAT: Ana&ytic T(*: )*I 5%.
For an imaginary economy- the consumer price index .as 112.%% in %%#- 1 5.2% in %%2- and 1/5.5 in %%5. ,hich of the fo&&o.ing statements is correctC a. For this economy- the 0ase year must 0e %%#. 0. If the 0as:et of goods that is used to ca&cu&ate the )*I cost @62.%% in the 0ase year- then that 0as:et of goods cost @112.%% in %%#. c. This economys rate of inf&ation for %%5 is 1%.1 percent. d. None of the a0ove is correct.
ANS: D DIF: / !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Inf&ation rate +S): Ana&ytica& 51. Suppose a 0as:et of goods and services has 0een se&ected to ca&cu&ate the consumer price index. In %%2- the 0as:et of goods cost @1%8.%%G in %%5- it cost @1/2.%%G and in %%6- it cost @158.62. ,hich of the fo&&o.ing statements is correctC a. 1sing %%2 as the 0ase year- the economys inf&ation rate .as higher in %%6 than it .as in %%5. 0. If %%6 is the 0ase year- then the )*I is //.62 in %%5. c. If the )*I is 125. 2 in %%6- then %%2 is the 0ase year. d. 1sing %%2 as the 0ase year- the economys inf&ation rate for %%5 .as 6 percent.
ANS: ) DIF: / !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Inf&ation rate +S): Ana&ytica& Table 24-1 The ta0&e 0e&o. pertains to *ie.ay- an economy in .hich the typica& consumers 0as:et consists of 1% 0ushe&s of peaches and 12 0ushe&s of pecans. Lear %%2 %%5 5 . *rice of *eaches @11 per 0ushe& @9 per 0ushe& *rice of *ecans @5 per 0ushe& @1% per 0ushe&
Refer to Ta*+e 24#&. The cost of the 0as:et in %%2 .as a. @ %%. 0. @ 1%. c. @ #%. d. @ #2. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative
ANS: A NAT: Ana&ytic T(*: )*I

5/. Refer to Ta*+e 24#&. The cost of the 0as:et in %%5 .as a. @ %%. 0. @ 1%. c. @ #%. d. @ #2. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative
1%2
ANS: ) NAT: Ana&ytic T(*: )*I 5#.
Refer to Ta*+e 24#&. If %%2 is the 0ase year- then the )*I for %%2 .as a. 8/./. 0. 1%%. c. 1 %. d. %%. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative
Refer to Ta*+e 24#&. If %%2 is the 0ase year- then the )*I for %%5 .as a. 8/./. 0. 1%%. c. 1 %. d. #%. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative
Refer to Ta*+e 24#&. If %%5 is the 0ase year- then the )*I for %%2 .as a. 8/./. 0. 1%%. c. 1 %. d. %%. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative
Refer to Ta*+e 24#&. If %%5 is the 0ase year- then the )*I for %%5 .as a. 8/./. 0. 1%%. c. 1 %. d. #%. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative
Refer to Ta*+e 24#&. If %%2 is the 0ase year- then the inf&ation rate in %%5 .as a. 15.6 percent. 0. % percent. c. #% percent. d. ##.1 percent. DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: 7 NAT: Ana&ytic +S): App&icative 59.
Refer to Ta*+e 24#&. If %%5 is the 0ase year- then the inf&ation rate in %%5 .as a. 15.6 percent. 0. % percent. c. #% percent. d. ##.1 percent.
1%5

DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: 7 NAT: Ana&ytic +S): App&icative Table 24-2
The ta0&e 0e&o. pertains to Io.an- an economy in .hich the typica& consumers 0as:et consists of / pounds of por: and # 0ushe&s of corn. Lear %%8 %%9 6%. *rice of *or: @ % per pound @ 2 per pound *rice of )orn @1 per 0ushe& @18 per 0ushe&
Refer to Ta*+e 24#2. The cost of the 0as:et in %%8 .as a. @1%8. 0. @1#6. c. @15%. d. @ #. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative
Refer to Ta*+e 24#2. The cost of the 0as:et in %%9 .as a. @1%8. 0. @1#6. c. @15%. d. @/%1. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative
ANS: 7 NAT: Ana&ytic T(*: )*I 6 .
Refer to Ta*+e 24#2. If %%8 is the 0ase year- then the )*I for %%8 .as a. 6/.2. 0. 1%%. c. 1%8. d. 1/5.1. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative
ANS: 7 NAT: Ana&ytic T(*: )*I 6/.
Refer to Ta*+e 24#2. If %%8 is the 0ase year- then the )*I for %%9 .as a. 6/.2. 0. 1%%. c. 1/5.1. d. 1#6. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative
ANS: ) NAT: Ana&ytic T(*: )*I 6#.
Refer to Ta*+e 24#2. If %%9 is the 0ase year- then the )*I for %%8 .as a. 6/.2. 0. 1%%. c. 1%8. d. 1/5.1. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative

62. Refer to Ta*+e 24#2. If %%9 is the 0ase year- then the )*I for %%9 .as a. 6/.2. 0. 1%%. c. 1/5.1. d. 1#6. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative
1%6
Refer to Ta*+e 24#2. If %%8 is the 0ase year- then the inf&ation rate in %%9 .as a. 5.2 percent. 0. /5.1 percent. c. /9 percent. d. #6 percent. DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: 7 NAT: Ana&ytic +S): App&icative 66.
Refer to Ta*+e 24#2. If %%9 is the 0ase year- then the inf&ation rate in %%9 .as a. 5.2 percent. 0. /5.1 percent. c. /9 percent. d. #6 percent. DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: 7 NAT: Ana&ytic +S): App&icative Table 24-3
The ta0&e 0e&o. pertains to Studious- an economy in .hich the typica& consumers 0as:et consists of 2 0oo:s and 1% ca&cu&ators. Lear %%5 %%6 %%8 68. *rice of a 7oo: @ # @/% @/ *rice of a )a&cu&ator @8 @1 @12
Refer to Ta*+e 24#,- The cost of the 0as:et in %%5 .as a. @/ . 0. @ %%. c. @ 8%. d. @#8%. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative %%6 to %%6 to %%6 to %%6 to %%8. %%8. %%8. %%8.
Refer to Ta*+e 24#,- The cost of the 0as:et a. increased from %%5 to %%6 and increased from 0. increased from %%5 to %%6 and decreased from c. decreased from %%5 to %%6 and increased from d. decreased from %%5 to %%6 and decreased from
1%8
8%.

Refer to Ta*+e 24#,- The cost of the 0as:et a. increased 0y @1% from %%5 to %%6. 0. increased 0y @# from %%5 to %%6. c. increased 0y @6% from %%5 to %%6. d. increased 0y @12% from %%5 to %%6. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative %%5 is the 0ase year- then the consumer price index .as %%6- and 122 in %%8. %%6- and /1% in %%8. %%6- and 122 in %%8. %%6- and /1% in %%8.
Refer to Ta*+e 24#,- If a. 1%% in %%5- 1/2 in 0. 1%% in %%5- 6% in c. %% in %%5- 1/2 in d. %% in %%5- 6% in
ANS: A NAT: Ana&ytic T(*: )*I 8 .
DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative %%6 is the 0ase year- then the consumer price index .as %%6- and 11#.8 in %%8. %%6- and /1% in %%8. %%6- and 11#.8 in %%8. %%6- and /1% in %%8.
Refer to Ta*+e 24#,- If a. 6#.1 in %%5- 1%% in 0. 6#.1 in %%5- 6% in c. %% in %%5- 1%% in d. %% in %%5- 6% in
ANS: A NAT: Ana&ytic T(*: )*I 8/.
Refer to Ta*+e 24#,- If %%8 is the 0ase year- then the consumer price index .as a. 5#.2 in %%5- 86.1 in %%6- and 1%% in %%8. 0. 5#.2 in %%5- 6% in %%6- and /1% in %%8. c. %% in %%5- 86.1 in %%6- and 1%% in %%8. d. %% in %%5- 6% in %%6- and /1% in %%8. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative
ANS: A NAT: Ana&ytic T(*: )*I 8#.
Refer to Ta*+e 24#,- The inf&ation rate .as a. .5 percent in %%6 and 1 .9 percent in %%8. 0. 2.9 percent in %%6 and 1#.8 percent in %%8. c. /2 percent in %%6 and 1#.8 percent in %%8. d. /2 percent in %%6 and % percent in %%8. DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: ) NAT: Ana&ytic +S): App&icative Table 24-4
The ta0&e 0e&o. pertains to ,rexington- an economy in .hich the typica& consumers 0as:et consists of % pounds of meat and 1% toys. Lear %%# %%2 %%5 *rice of +eat @/ per pound @1 per pound @# per pound *rice of a Toy @ @6 @2

82. Refer to Ta*+e 24#4- The cost of the 0as:et in %%5 .as a. @9. 0. @1/%. c. @1#%. d. @ 6%. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative %%2 to %%2 to %%2 to %%2 to %%5. %%5. %%5. %%5.
1%9
Refer to Ta*+e 24#4- The cost of the 0as:et a. increased from %%# to %%2 and increased from 0. increased from %%# to %%2 and decreased from c. decreased from %%# to %%2 and increased from d. decreased from %%# to %%2 and decreased from
Refer to Ta*+e 24#4- The cost of the 0as:et a. decreased 0y @ from %%# to %%2. 0. increased 0y @/ from %%# to %%2. c. increased 0y @6 from %%# to %%2. d. increased 0y @1% from %%# to %%2. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative
Refer to Ta*+e 24#4- If the 0ase year is %%#- then the )*I in %%# .as a. %. 0. 1. c. 8%. d. 1%%. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative
Refer to Ta*+e 24#4- If the 0ase year is %%#- then the )*I in %%2 .as a. 88.9. 0. 9%. c. 1%%. d. 11 .2. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative %%5. %%5. %%5. %%5.
ANS: D NAT: Ana&ytic T(*: )*I 9%.
Refer to Ta*+e 24#4- If the 0ase year is %%#- then the )*I a. increased from %%# to %%2 and increased from %%2 to 0. increased from %%# to %%2 and decreased from %%2 to c. decreased from %%# to %%2 and increased from %%2 to d. decreased from %%# to %%2 and decreased from %%2 to
DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative %%5. %%5. %%5. %%5.
Refer to Ta*+e 24#4- If the 0ase year is %%5- then the )*I a. increased from %%# to %%2 and increased from %%2 to 0. increased from %%# to %%2 and decreased from %%2 to c. decreased from %%# to %%2 and increased from %%2 to d. decreased from %%# to %%2 and decreased from %%2 to
11%

ANS: A NAT: Ana&ytic T(*: )*I 9 .
Refer to Ta*+e 24#4- If the 0ase year is %%#- then the inf&ation rate in %%5 .as a. ##.#M. 0. 2%M. c. 5 .2M. d. 8%M. DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: A NAT: Ana&ytic +S): App&icative 9/.
Refer to Ta*+e 24#4- If the 0ase year is %%5- then the inf&ation rate in %%2 .as a. $##.2M. 0. $/%.8M. c. 6.6M. d. 1 .2M. DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: D NAT: Ana&ytic +S): App&icative 9#.
Refer to Ta*+e 24#4- The inf&ation rate .as a. negative in %%2 and negative in %%5. 0. negative in %%2 and positive in %%5. c. positive in %%2 and negative in %%5. d. positive in %%2 and positive in %%5. DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: D NAT: Ana&ytic +S): App&icative Table 24-5
The ta0&e 0e&o. pertains to Lac:andsnac:- an economy in .hich the typica& consumers 0as:et consists of ce&& phones and % ham sand.iches. Lear %%5 %%6 %%8 92. *rice of a )e&& *hone @2% @5% @22 *rice of a Bam Sand.ich @/ @# @2 %%6 to %%6 to %%6 to %%6 to %%8. %%8. %%8. %%8.
Refer to Ta*+e 24#.. The cost of the 0as:et a. increased from %%5 to %%6 and increased from 0. increased from %%5 to %%6 and decreased from c. decreased from %%5 to %%6 and increased from d. decreased from %%5 to %%6 and decreased from
Refer to Ta*+e 24#.. If the 0ase year is %%5- then the consumer price index .as a. 1%% in %%5- 1 2 in %%6- and 1/1. 2 in %%8. 0. 1%% in %%5- %% in %%6- and 1% in %%8. c. 15% in %%5- 1 2 in %%6- and 1/1. 2 in %%8. d. 15% in %%5- %% in %%6- and 1% in %%8. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative

96. Refer to Ta*+e 24#.. If the 0ase year is %%6- then the consumer price index .as a. 8% in %%5- 1%% in %%6- and 1%2 in %%8. 0. 8% in %%5- %% in %%6- and 1% in %%8. c. 15% in %%5- 1%% in %%6- and 1%2 in %%8. d. 15% in %%5- %% in %%6- and 1% in %%8. DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): App&icative %%5. %%5. %%5. %%5.
111
Refer to Ta*+e 24#.- If the 0ase year is %%8- then the )*I a. increased from %%# to %%2 and increased from %%2 to 0. increased from %%# to %%2 and decreased from %%2 to c. decreased from %%# to %%2 and increased from %%2 to d. decreased from %%# to %%2 and decreased from %%2 to
Refer to Ta*+e 24#.. If the 0ase year is %%5- then the economys inf&ation rate in %%6 is a. % percent. 0. 2 percent. c. #% percent. d. 1 2 percent. DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: 7 NAT: Ana&ytic +S): App&icative
1%%. Refer to Ta*+e 24#.. If the 0ase year is %%6- then the economys inf&ation rate in %%8 .as a. 1.%2 percent. 0. #.8 percent. c. 2 percent. d. 1% percent. ANS: ) NAT: Ana&ytic +S): App&icative DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
1%1. ,hich of the fo&&o.ing is not an examp&e of a price index computed 0y the 7ureau of 'a0or StatisticsC a. the 'os Ange&es price index 0. the energy price index c. the producer price index d. the stoc: price index ANS: D DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: 7ureau of 'a0or Statistics +S): Interpretive 1% . The producer price index measures the cost of a 0as:et of goods and services a. typica&&y produced in the economy. 0. produced for a typica& consumer. c. so&d 0y producers. d. 0ought 0y firms. ANS: D NAT: Ana&ytic T(*: **I DIF: 1 !"F: #$1 '(): The study of economics and definitions of economics +S): Definitiona&
1%/. The price index that measures the cost of a 0as:et of goods and services 0ought 0y firms is ca&&ed the a. industria& price index. 0. producer price index. c. core price index. d. 3D* def&ator.
11

DIF: 1 !"F: #$1 '(): The study of economics and definitions of economics +S): Definitiona&
ANS: 7 NAT: Ana&ytic T(*: **I
1%#. )hanges in the producer price index are often thought to 0e usefu& in predicting changes in a. stoc: prices. 0. the consumer price index. c. the unemp&oyment rate. d. the rate of output of goods and services. ANS: 7 NAT: Ana&ytic T(*: **I 4 )*I DIF: 1 !"F: #$1 '(): The study of economics and definitions of economics +S): Definitiona&
1%2. Suppose that in %1%- the producer price index increases 0y percent. As a resu&t- economists most &i:e&y .i&& predict that a. 3D* .i&& increase in %11. 0. the producer price index .i&& increase 0y more than percent in %11. c. interest rates .i&& decrease in the future. d. the consumer price index .i&& increase in the future. ANS: D NAT: Ana&ytic T(*: **I 4 )*I DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): Interpretive
1%5. ,hen constructing the consumer price index- the 7ureau of 'a0or Statistics does not do .hich of the fo&&o.ingC a. Try to inc&ude a&& the goods and services that the typica& consumer 0uys. 0. Try to .eight the goods and services that the typica& consumer 0uys according to ho. much consumers 0uy of each item. c. Survey consumers to determine .hat the typica& consumer 0uys. d. Survey se&&ers to determine .hat the typica& consumer 0uys. ANS: D DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: 7ureau of 'a0or Statistics +S): Interpretive 1%6. 7y far the &argest category of goods and services in the )*I 0as:et is a. housing. 0. transportation. c. education N communication. d. food N 0everages. ANS: A DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )ategories of consumer spending +S): Definitiona& 1%8. For purposes of ca&cu&ating the )*I- the housing category of consumer spending inc&udes the cost of a. she&ter. 0. fue& and other uti&ities. c. househo&d furnishings and operation. d. A&& of the a0ove are correct. ANS: D DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )ategories of consumer spending +S): Definitiona& 1%9. For purposes of ca&cu&ating the )*I- the transportation category of consumer spending inc&udes the cost of a. su0.ays. 0. gaso&ine. c. 0oth su0.ays and gaso&ine. d. neither su0.ays nor gaso&ine.

ANS: ) DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )ategories of consumer spending +S): Definitiona&
11/
11%. For purposes of ca&cu&ating the )*I- the food N 0everages category of consumer spending inc&udes the cost of a. food a.ay from home. 0. a&coho&ic 0everages. c. 0oth food a.ay from home and a&coho&ic 0everages. d. neither food a.ay from home nor a&coho&ic 0everages 0ecause these are inc&uded in the recreation category of consumer spending. ANS: ) DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )ategories of consumer spending +S): Definitiona& 111. For purposes of ca&cu&ating the )*I- the appare& category of consumer spending inc&udes the cost of a. c&othing- 0ut not foot.ear or He.e&ry. 0. c&othing and foot.ear- 0ut not He.e&ry. c. c&othing and He.e&ry- 0ut not foot.ear. d. c&othing- foot.ear- and He.e&ry. ANS: D DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )ategories of consumer spending +S): Definitiona& 11 . In the 0as:et of goods that is used to compute the consumer price index- the three &argest categories of consumer spending are a. housing- transportation- and recreation. 0. housing- transportation- and food N 0everages. c. housing- food N 0everages- and education N communication. d. housing- medica& care- and education N communication. ANS: 7 DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )ategories of consumer spending +S): Interpretive 11/. In the 0as:et of goods that is used to compute the consumer price index- .hich of the fo&&o.ing categories of consumer spending is the sma&&estC a. food N 0everages 0. recreation c. housing d. appare& ANS: D DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )ategories of consumer spending +S): Interpretive 11#. In the 0as:et of goods that is used to compute the consumer price index- .hich of the fo&&o.ing categories of consumer spending is the sma&&estC a. education N communication 0. appare& c. medica& care d. recreation ANS: 7 DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )ategories of consumer spending +S): Interpretive 112. In the 0as:et of goods that is used to compute the consumer price index- .hich of the fo&&o.ing categories of consumer spending is the &argestC a. education N communication 0. food N 0everages c. medica& care d. recreation
11#
ANS: 7 DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )ategories of consumer spending +S): Interpretive 115. In the 0as:et of goods that is used to compute the consumer price index- .hich of the fo&&o.ing categories of consumer spending is the &argestC a. education N communication 0. recreation c. medica& care d. A&& of the a0ove categories are a0out e<ua& in magnitude. ANS: D DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )ategories of consumer spending +S): Interpretive 116. )ategories of 1.S. consumer spending- ran:ed from &argest to sma&&est- are a. housing- food N 0everages- education N communication- and transportation. 0. education N communication- housing- food N 0everages- and transportation. c. food N 0everages- housing- transportation- and medica& care. d. housing- transportation- food N 0everages- and medica& care. ANS: D DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )ategories of consumer spending +S): Interpretive 118. If the cost of housing increases 0y 1% percent- then- other things the same- the )*I is &i:e&y to increase 0y a0out a. 1.6 percent. 0. /./ percent. c. #./ percent. d. 1% percent. ANS: ) DIF: / !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )ategories of consumer spending +S): Ana&ytica& 119. If the cost of transportation increases 0y 1% percent- then- other things the same- the )*I is &i:e&y to increase 0y a0out a. %.5 percent. 0. 1.6 percent. c. /./ percent. d. 1% percent. ANS: 7 DIF: / !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )ategories of consumer spending +S): Ana&ytica& 1 %. If the cost of food N 0everages increases 0y % percent- then- other things the same- the )*I is &i:e&y to increase 0y a0out a. / percent. 0. 12 percent. c. % percent. d. /% percent. ANS: A DIF: / !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )ategories of consumer spending +S): Ana&ytica& 1 1. If the cost of medica& care increases 0y 2% percent- then- other things the same- the )*I is &i:e&y to increase 0y a0out a. / percent. 0. 5 percent. c. 1 percent. d. 2% percent.

ANS: A DIF: / !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )ategories of consumer spending +S): Ana&ytica& 1
112
. If the cost of appare& increases 0y 2% percent- then- other things the same- the )*I is &i:e&y to increase 0y a0out a. 1 percent. 0. percent. c. # percent. d. 8 percent.
ANS: 7 DIF: / !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )ategories of consumer spending +S): Ana&ytica& 1 /. The goa& of the consumer price index is to measure changes in the a. costs of production. 0. cost of &iving. c. re&ative prices of consumer goods. d. production of consumer goods. ANS: 7 NAT: Ana&ytic T(*: )*I DIF: 1 !"F: #$1 '(): The study of economics and definitions of economics +S): Definitiona&
1 #. The consumer price index tries to gauge ho. much incomes must rise to maintain a. an increasing standard of &iving. 0. a constant standard of &iving. c. a decreasing standard of &iving. d. the highest standard of &iving possi0&e. ANS: 7 DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Standard of &iving +S): Definitiona& 1 2. The consumer price index is a. not very usefu& as a measure of the cost of &iving. 0. a perfect measure of the cost of &iving. c. a usefu& measure- 0ut not a perfect measure- of the cost of &iving. d. not used as a measure of the cost of &iving. ANS: ) NAT: Ana&ytic T(*: )*I DIF: 1 !"F: #$1 '(): The study of economics and definitions of economics +S): Definitiona&
1 5. ,hich of the fo&&o.ing is not a .ide&y ac:no.&edged pro0&em .ith using the )*I as a measure of the cost of &ivingC a. su0stitution 0ias 0. introduction of ne. goods c. unmeasured <ua&ity change d. unmeasured price change ANS: D NAT: Ana&ytic T(*: )*I DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): Interpretive
1 6. The three pro0&ems .ith using the consumer price index as a measure of the cost of &iving are a. .ide&y ac:no.&edged and easy to so&ve. 0. .ide&y ac:no.&edged and difficu&t to so&ve. c. near&y unac:no.&edged and easy to so&ve. d. near&y unac:no.&edged and difficu&t to so&ve. ANS: 7 NAT: Ana&ytic T(*: )*I DIF: 1 !"F: #$1 '(): The study of economics and definitions of economics +S): Definitiona&
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1 8. ,hen the re&ative price of a good increases- consumers respond 0y 0uying a. a &arger <uantity of that good and a &arger <uantity of su0stitutes for that good. 0. a &arger <uantity of that good and a sma&&er <uantity of su0stitutes for that good. c. a sma&&er <uantity of that good and a &arger <uantity of su0stitutes for that good. d. a sma&&er <uantity of that good and a sma&&er <uantity of su0stitutes for that good. ANS: ) NAT: Ana&ytic T(*: Su0stitutes DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): Interpretive
1 9. ,hen the re&ative price of a good decreases- consumers respond 0y 0uying a. a &arger <uantity of that good and a &arger <uantity of su0stitutes for that good. 0. a &arger <uantity of that good and a sma&&er <uantity of su0stitutes for that good. c. a sma&&er <uantity of that good and a &arger <uantity of su0stitutes for that good. d. a sma&&er <uantity of that good and a sma&&er <uantity of su0stitutes for that good. ANS: 7 NAT: Ana&ytic T(*: Su0stitutes DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): Interpretive
1/%. Suppose the price of a <uart of mi&: rises from @1 to @1. 2 and the price of a T$shirt rises from @8 to @1%. If the )*I rises from 12% to 162- then peop&e &i:e&y .i&& 0uy a. more mi&: and more T$shirts. 0. more mi&: and fe.er T$shirts. c. &ess mi&: and more T$shirts. d. &ess mi&: and fe.er T$shirts. ANS: D NAT: Ana&ytic T(*: )*I 4 *rices DIF: / !"F: #$1 '(): The study of economics and definitions of economics +S): Ana&ytica&
1/1. Suppose the price of a ga&&on of ice cream rises from @# to @2 and the price of a can of coffee rises from @ to @ .2%. If the )*I rises from 12% to %%- then peop&e &i:e&y .i&& 0uy a. more ice cream and more coffee. 0. more ice cream and &ess coffee. c. &ess ice cream and more coffee. d. &ess ice cream and &ess coffee. ANS: A NAT: Ana&ytic T(*: )*I 4 *rices DIF: / !"F: #$1 '(): The study of economics and definitions of economics +S): Ana&ytica&
1/ . Suppose the price of a tu0 of margarine rises from @/ to @/.62 and the price of a note0oo: rises from @1. 2 to @1.62. If the )*I rises from 1#% to 18 - then peop&e &i:e&y .i&& 0uy a. more margarine and more note0oo:s. 0. more margarine and fe.er note0oo:s. c. &ess margarine and more note0oo:s. d. &ess margarine and fe.er note0oo:s. ANS: 7 NAT: Ana&ytic T(*: )*I 4 *rices DIF: / !"F: #$1 '(): The study of economics and definitions of economics +S): Ana&ytica&
1//. (ne pro0&em .ith the consumer price index stems from the fact that- over time- consumers tend to 0uy &arger <uantities of goods that have 0ecome re&ative&y &ess expensive and sma&&er <uantities of goods that have 0ecome re&ative&y more expensive. This pro0&em is ca&&ed a. price$change neg&ect. 0. unmeasured <ua&ity change. c. su0stitution 0ias. d. re&ative 0ias. ANS: ) DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Su0stitution 0ias +S): Definitiona&

1/#. The su0stitution 0ias in the consumer price index refers to the a. su0stitution 0y consumers to.ard ne. goods and a.ay from o&d goods. 0. su0stitution 0y consumers to.ard a sma&&er num0er of high$<ua&ity goods and a.ay from a &arger num0er of &o.$<ua&ity goods. c. su0stitution 0y consumers to.ard goods that have 0ecome re&ative&y &ess expensive and a.ay from goods that have 0ecome re&ative&y more expensive. d. su0stitution of ne. prices for o&d prices in the )*I 0as:et of goods and services from one year to the next. ANS: ) DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Su0stitution 0ias +S): Interpretive
116
1/2. Suppose that the prices of dairy products have risen re&ative&y &ess than prices in genera& over the &ast severa& years. To .hich pro0&em in the construction of the )*I is this situation most re&evantC a. su0stitution 0ias 0. introduction of ne. goods c. unmeasured <ua&ity change d. income 0ias ANS: A DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Su0stitution 0ias +S): App&icative 1/5. Samantha goes to the grocery store to ma:e her month&y purchase of ginger a&e. As she enters the soft drin: section- she notices that the price of ginger a&e has increased 12 percent- so she decides to 0uy some peppermint tea instead. To .hich pro0&em in the construction of the )*I is this situation most re&evantC a. su0stitution 0ias 0. introduction of ne. goods c. unmeasured <ua&ity change d. income effect ANS: A DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Su0stitution 0ias +S): App&icative 1/6. Assume that consumers consider coffee and tea to 0e su0stitutes- so that .hen the price of tea rises- consumers purchase &ess tea and more coffee. ,hen the )*I is computed fo&&o.ing the increase in the price of tea- it ta:es into account a. the increase in the price of tea. 0. the decrease in the <uantity of tea purchased and the increase in the <uantity of coffee purchased. c. 0oth =a> and =0>. d. None of the a0ove is correct. ANS: A DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Su0stitution 0ias +S): App&icative 1/8. 7y not ta:ing into account the possi0i&ity of consumer su0stitution- the )*I a. understates the cost of &iving. 0. overstates the cost of &iving. c. may overstate or understate the cost of &iving- depending on ho. <uic:&y prices rise. d. may overstate or understate the cost of &iving- regard&ess of ho. <uic:&y prices rise. ANS: 7 DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Su0stitution 0ias +S): Interpretive 1/9. Suppose the price of gaso&ine increases rapid&y and consumers respond 0y 0uying a sma&&er <uantity of gaso&ine. The consumer price index a. ref&ects this price increase accurate&y. 0. understates this price increase due to the su0stitution 0ias. c. overstates this price increase due to the income 0ias. d. overstates this price increase due to the su0stitution 0ias.
118
ANS: D DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Su0stitution 0ias +S): Interpretive 1#%. ,hen ne. goods are introduced- consumers have more variety from .hich to choose. As a resu&t- each do&&ar is .orth a. more- and the cost of &iving increases. 0. more- and the cost of &iving decreases. c. &ess- and the cost of &iving increases. d. &ess- and the cost of &iving decreases. ANS: 7 DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: Introduction of ne. goods +S): Interpretive 1#1. The introduction of a ne. good a. increases the cost of maintaining the same &eve& of economic .e&&$0eing. 0. decreases the cost of maintaining the same &eve& of economic .e&&$0eing. c. has no impact on the cost of maintaining the same &eve& of economic .e&&$0eing. d. may increase or decrease the cost of maintaining the same &eve& of economic .e&&$0eing- depending on ho. expensive the ne. good is. ANS: 7 DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: Introduction of ne. goods +S): Interpretive 1# . (ne of the .ide&y ac:no.&edged pro0&ems .ith using the consumer price index as a measure of the cost of &iving is that the )*I a. fai&s to account for consumer spending on housing. 0. accounts on&y for consumer spending on food- c&othing- and energy. c. fai&s to account for the fact that consumers spend &arger percentages of their incomes on some goods and sma&&er percentages of their incomes on other goods. d. fai&s to account for the introduction of ne. goods. ANS: D DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Introduction of ne. goods +S): Interpretive 1#/. 7ecause the )*I is 0ased on a fixed 0as:et of goods- the introduction of ne. goods and services in the economy causes the )*I to overestimate the cost of &iving. This is so 0ecause a. ne. goods and services are a&.ays of higher <ua&ity than existing goods and services. 0. ne. goods and services cost &ess than existing goods and services. c. ne. goods and services cost more than existing goods and services. d. .hen a ne. good is introduced- it gives consumers greater choice- thus reducing the amount they must spend to maintain their standard of &iving. ANS: D DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Introduction of ne. goods +S): Interpretive 1##. To .hich of the pro0&ems in the construction of the )*I is the invention of poc:et$siKed computers most re&evantC a. su0stitution 0ias 0. introduction of ne. goods c. unmeasured <ua&ity change d. income 0ias ANS: 7 DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Introduction of ne. goods +S): App&icative

1#2. To .hich of the pro0&ems in the construction of the )*I is the creation of the mo0i&e phone most re&evantC a. su0stitution 0ias 0. introduction of ne. goods c. unmeasured <ua&ity change d. income 0ias ANS: 7 DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Introduction of ne. goods +S): App&icative 1#5. If the <ua&ity of a good improves .hi&e its price remains the same- then the va&ue of a do&&ar a. rises and the cost of &iving increases. 0. rises and the cost of &iving decreases. c. fa&&s and the cost of &iving increases. d. fa&&s and the cost of &iving decreases. ANS: 7 DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: ?ua&ity change +S): Interpretive 1#6. If the <ua&ity of a good deteriorates .hi&e its price remains the same- then the va&ue of a do&&ar a. rises and the cost of &iving increases. 0. rises and the cost of &iving decreases. c. fa&&s and the cost of &iving increases. d. fa&&s and the cost of &iving decreases. ANS: ) DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: ?ua&ity change +S): Interpretive 1#8. ,hen the <ua&ity of a good improves .hi&e its price remains the same- the purchasing po.er of the do&&ar a. increases- so the )*I overstates the change in the cost of &iving if the <ua&ity change is not accounted for. 0. increases- so the )*I understates the change in the cost of &iving if the <ua&ity change is not accounted for. c. decreases- so the )*I overstates the change in the cost of &iving if the <ua&ity change is not accounted for. d. decreases- so the )*I understates the change in the cost of &iving if the <ua&ity change is not accounted for. ANS: A DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 ?ua&ity change +S): Interpretive
119
1#9. ,hen the <ua&ity of a good deteriorates .hi&e its price remains the same- the purchasing po.er of the do&&ar a. increases- so the )*I overstates the change in the cost of &iving if the <ua&ity change is not accounted for. 0. increases- so the )*I understates the change in the cost of &iving if the <ua&ity change is not accounted for. c. decreases- so the )*I overstates the change in the cost of &iving if the <ua&ity change is not accounted for. d. decreases- so the )*I understates the change in the cost of &iving if the <ua&ity change is not accounted for. ANS: D DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 ?ua&ity change +S): Interpretive
1 %
12%. (ne of the .ide&y ac:no.&edged pro0&ems .ith using the consumer price index as a measure of the cost of &iving is that the )*I a. fai&s to measure a&& changes in the <ua&ity of goods. 0. disp&ays a housing 0ias. c. accounts for changes in prices of some goods- 0ut prices of certain goods are assumed to remain constant. d. A&& of the a0ove are correct. ANS: A DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 ?ua&ity change +S): Interpretive 121. Suppose &a.n mo.ers are part of the mar:et 0as:et used to compute the )*I. Suppose a&so that the <ua&ity of &a.n mo.ers improves .hi&e the price of &a.n mo.ers stays the same. If the 7ureau of 'a0or Statistics is a0&e to precise&y adHust the )*I for the improvement in <ua&ity- then- other things e<ua&a. the )*I .i&& rise. 0. the )*I .i&& fa&&. c. the )*I .i&& stay the same. d. &a.n mo.ers .i&& no &onger 0e inc&uded in the mar:et 0as:et. ANS: 7 DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 ?ua&ity change +S): App&icative 12 . For some rac<uet sports- there have 0een increases in the siKe of the rac<uetsG a&so- the methods and materia&s used for ma:ing rac<uets have improved. To .hich pro0&em in the construction of the )*I is this situation most re&evantC a. su0stitution 0ias 0. introduction of ne. goods c. unmeasured <ua&ity change d. income 0ias ANS: ) DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 ?ua&ity change +S): App&icative 12/. 'aura 0ought .ord$processing soft.are in %%2 for @2%. 'auraAs t.in 0rother- 'aurence- 0ought an upgrade of the same soft.are in %%5 for @2%. To .hich pro0&em in the construction of the )*I is this situation most re&evantC a. su0stitution 0ias 0. unmeasured <ua&ity change c. introduction of ne. goods d. income 0ias ANS: 7 DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 ?ua&ity change +S): App&icative 12#. ,hich of the fo&&o.ing is the most accurate statement a0out the effects of <ua&ity change on the )*IC a. "ven though the 7'S adHusts the prices of products in the )*I 0as:et .hen the <ua&ity of the products change- changes in <ua&ity are sti&& a pro0&em 0ecause <ua&ity is so hard to measure. 0. 7ecause the 7'S adHusts the prices of products in the )*I 0as:et .hen the <ua&ity of the products change- changes in <ua&ity are no &onger a pro0&em for the )*I. c. The 7'S does not adHust the )*I for <ua&ity changes. d. +ost economists 0e&ieve that changes in the <ua&ity of goods inc&uded in the )*I 0as:et do not 0ias the )*I as a measure of the cost of &iving. ANS: A DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 ?ua&ity change +S): Interpretive
1 1
122. Suppose (*") succeeds in raising .or&d oi& prices 0y /%% percent. This price increase causes inventors to &oo: at a&ternative sources of fue& for interna&$com0ustion engines. A hydrogen$po.ered engine is deve&oped .hich is cheaper to operate than gaso&ine engines. ,hich pro0&ems in the construction of the )*I does this situation representC a. su0stitution 0ias and introduction of ne. goods 0. introduction of ne. goods and unmeasured <ua&ity change c. su0stitution 0ias and unmeasured <ua&ity change d. income 0ias and su0stitution 0ias ANS: A DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 Su0stitution 0ias 4 Introduction of ne. goods +S): App&icative 125. ,hich of these events .ou&d cause the consumer price index to overstate the increase in the cost of &ivingC a. )ar ma:ers 0enefit from a ne. techno&ogy that a&&o.s them to se&& higher$<ua&ity cars to consumers .ith no increase in price. 0. "nergy prices decrease- and consumers respond 0y 0uying more gas and e&ectricity. c. A ne. good is introduced that renders ce&&u&ar te&ephones inferior and o0so&ete. d. A&& of the a0ove are correct. ANS: NAT: T(*: +S): D DIF: !"F: #$1 Ana&ytic '(): The study of economics and definitions of economics )*I 4 Su0stitution 0ias 4 Introduction of ne. goods 4 ?ua&ity change App&icative
126. ,hich of the fo&&o.ing statements 0est represents economistsA 0e&iefs a0out the 0ias in the )*I as a measure of the cost of &ivingC a. "conomists agree that the 0ias in the )*I is a very serious pro0&em. 0. "conomists agree that the 0ias in the )*I is not a serious pro0&em. c. "conomists agree on the severity of the )*I 0ias- 0ut there is sti&& de0ate on .hat to do a0out it. d. There is sti&& de0ate among economists on the severity of the )*I 0ias and .hat to do a0out it. ANS: D DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 "conomists +S): Definitiona& 128. Severa& studies in the 199%s conc&uded that the consumer price index overstated inf&ation 0y a0out a. / percentage points per year- and that num0er of percentage points &i:e&y sti&& app&ies no.. 0. / percentage points per year- 0ut recent improvements to the )*I pro0a0&y have reduced the overstatement of inf&ation to something &ess than / percentage points. c. 1 percentage point per year- and that num0er of percentage points &i:e&y sti&& app&ies no.. d. 1 percentage point per year- 0ut recent improvements to the )*I pro0a0&y have reduced the overstatement of inf&ation to something &ess than 1 percentage point ANS: D NAT: Ana&ytic T(*: )*I DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): Interpretive
129. !ecent changes in methods used to compute the )*I have made the a. up.ard 0ias in the )*I inf&ation rate more severe than it used to 0e. 0. up.ard 0ias in the )*I inf&ation rate &ess severe than it used to 0e. c. do.n.ard 0ias in the )*I inf&ation rate more severe than it used to 0e. d. do.n.ard 0ias in the )*I inf&ation rate &ess severe than it used to 0e. ANS: 7 NAT: Ana&ytic T(*: )*I DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): Interpretive
15%. The pro0&ems .ith using the consumer price index as a measure of the cost of &iving are important 0ecause a. even the appearance of high rates of inf&ation cause voters to 0ecome disenchanted. 0. po&iticians have manipu&ated the measurement pro0&ems to their advantage. c. many government programs use the )*I to adHust for changes in the overa&& &eve& of prices. d. if the price &eve& is overstated- consumers .i&& 0e ta:en advantage of 0y se&&ers of consumer goods.

DIF: !"F: #$1 '(): The study of economics and definitions of economics +S): Interpretive
ANS: ) NAT: Ana&ytic T(*: )*I
151. The 3D* def&ator ref&ects the a. &eve& of prices in the 0ase year re&ative to the current &eve& of prices. 0. current &eve& of prices re&ative to the &eve& of prices in the 0ase year. c. &eve& of rea& output in the 0ase year re&ative to the current &eve& of rea& output. d. current &eve& of rea& output re&ative to the &eve& of rea& output in the 0ase year. ANS: 7 NAT: Ana&ytic T(*: 3D* def&ator DIF: 1 !"F: #$1 '(): The study of economics and definitions of economics +S): Definitiona&
15 . T.o a&ternative measures of the overa&& &eve& of prices are a. the inf&ation rate and the consumer price index. 0. the inf&ation rate and the 3D* def&ator. c. the 3D* def&ator and the consumer price index. d. the cost of &iving index and nomina& 3D*. ANS: ) DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): Interpretive 15/. The )*I and the 3D* def&ator a. genera&&y move together. 0. genera&&y sho. different patterns of movement. c. a&.ays sho. identica& changes. d. a&.ays sho. different patterns of movement. ANS: A DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): Interpretive 15#. An important difference 0et.een the 3D* def&ator and the consumer price index is that a. the 3D* def&ator ref&ects the prices of goods and services 0ought 0y producers- .hereas the consumer price index ref&ects the prices of goods and services 0ought 0y consumers. 0. the 3D* def&ator ref&ects the prices of a&& fina& goods and services produced domestica&&y- .hereas the consumer price index ref&ects the prices of goods and services 0ought 0y consumers. c. the 3D* def&ator ref&ects the prices of a&& fina& goods and services produced 0y a nationAs citiKens.hereas the consumer price index ref&ects the prices of a&& fina& goods and services 0ought 0y consumers. d. the 3D* def&ator ref&ects the prices of a&& fina& goods and services 0ought 0y producers and consumers- .hereas the consumer price index ref&ects the prices of a&& fina& goods and services 0ought 0y consumers. ANS: 7 DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): Definitiona& 152. The 3D* Def&ator ref&ects a. the prices of a&& fina& goods and services current&y produced domestica&&y- as does the )*I. 0. the price of a fixed 0as:et of goods and services purchased 0y a typica& consumer- as does the )*I. c. the prices of a&& fina& goods and services current&y produced domestica&&y- .hi&e the )*I ref&ects the price of a fixed 0as:et of goods and services purchased 0y a typica& consumer. d. the price of a fixed 0as:et of goods and services purchased 0y a typica& consumer- .hi&e the )*I ref&ects the prices of a&& fina& goods and services produced domestica&&y. ANS: ) DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): Definitiona&

155. The )*I differs from the 3D* def&ator in that a. the )*I is a price index- .hi&e the 3D* def&ator is an inf&ation index. 0. su0stitution 0ias is not a pro0&em .ith the )*I- 0ut it is a pro0&em .ith the 3D* def&ator. c. increases in the prices of foreign produced goods that are so&d to 1.S. consumers sho. up in the )*I 0ut not in the 3D* def&ator. d. increases in the prices of domestica&&y produced goods that are so&d to the 1.S. government sho. up in the )*I 0ut not in the 3D* def&ator. ANS: ) DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): Interpretive 156. The )*I differs from the 3D* def&ator in that a. the )*I is an inf&ation index- .hi&e the 3D* def&ator is a price index. 0. su0stitution 0ias is not a pro0&em .ith the )*I- 0ut it is a pro0&em .ith the 3D* def&ator. c. increases in the prices of foreign produced goods that are so&d to 1.S. consumers sho. up in the 3D* def&ator 0ut not in the )*I. d. increases in the prices of domestica&&y produced goods that are so&d to the 1.S. government sho. up in the 3D* def&ator 0ut not in the )*I. ANS: D DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): Interpretive 158. An increase in the price of dairy products produced domestica&&y .i&& 0e ref&ected in a. 0oth the 3D* def&ator and the consumer price index. 0. neither the 3D* def&ator nor the consumer price index. c. the 3D* def&ator 0ut not in the consumer price index. d. the consumer price index 0ut not in the 3D* def&ator. ANS: A DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): App&icative 159. An increase in the price of 0read produced domestica&&y .i&& 0e ref&ected in a. 0oth the 3D* def&ator and the consumer price index. 0. neither the 3D* def&ator nor the consumer price index. c. the 3D* def&ator 0ut not in the consumer price index. d. the consumer price index 0ut not in the 3D* def&ator. ANS: A DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): App&icative 16%. If the price of domestica&&y produced po.er too&s increases- then a. the consumer price index and the 3D* def&ator .i&& 0oth increase. 0. the consumer price index .i&& increase- and the 3D* def&ator .i&& 0e unaffected. c. the consumer price index .i&& 0e unaffected- and the 3D* def&ator .i&& increase. d. the consumer price index and the 3D* def&ator .i&& 0oth 0e unaffected. ANS: A DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): App&icative
1 /
161. A Japanese automo0i&e company produces cars in the 1nited States- .ith some of those cars 0eing exported to other nations and some of them 0eing so&d .ithin the 1nited States. If the prices of these cars increase- then a. the 3D* def&ator and the )*I .i&& 0oth increase. 0. the 3D* def&ator .i&& increase and the )*I .i&& 0e unchanged. c. the 3D* def&ator .i&& 0e unchanged and the )*I .i&& increase. d. the 3D* def&ator and the )*I .i&& 0oth 0e unchanged. ANS: A DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): App&icative
1 #
16 . A decrease in the price of domestica&&y produced industria& ro0ots .i&& 0e ref&ected in a. 0oth the 3D* def&ator and the consumer price index. 0. neither the 3D* def&ator nor the consumer price index. c. the 3D* def&ator 0ut not in the consumer price index. d. the consumer price index 0ut not in the 3D* def&ator. ANS: ) DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): App&icative 16/. A decrease in the price of domestica&&y produced nuc&ear reactors .i&& 0e ref&ected in a. 0oth the 3D* def&ator and the consumer price index. 0. neither the 3D* def&ator nor the consumer price index. c. the 3D* def&ator 0ut not in the consumer price index. d. the consumer price index 0ut not in the 3D* def&ator. ANS: ) DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): App&icative 16#. In the 1nited States- if the price of imported oi& rises so that the prices of gaso&ine and heating oi& rise- then the a. 3D* def&ator rises much more than does the consumer price index. 0. consumer price index rises much more than does the 3D* def&ator. c. 3D* def&ator and the consumer price index rise 0y a0out the same amount. d. consumer price index rises s&ight&y more than does the 3D* def&ator. ANS: 7 DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): Definitiona& 162. In genera&- if a consumer good is produced domestica&&y and consumed domestica&&y- a decrease in its price .i&& have .hich of the fo&&o.ing effectsC a. The consumer price index .i&& decrease re&ative&y more than .i&& the 3D* def&ator. 0. The consumer price index and the 3D* def&ator .i&& decrease 0y the same amount. c. The consumer price index .i&& decrease re&ative&y &ess than .i&& the 3D* def&ator. d. (ne cannot genera&iKe a0out the decrease in the consumer price index re&ative to the decrease in the 3D* def&ator. ANS: A DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): Interpretive 165. In genera&- if a consumer good is produced domestica&&y and consumed domestica&&y- an increase in its price .i&& have .hich of the fo&&o.ing effectsC a. The consumer price index .i&& increase re&ative&y more than .i&& the 3D* def&ator. 0. The consumer price index and the 3D* def&ator .i&& increase 0y the same amount. c. The consumer price index .i&& increase re&ative&y &ess than .i&& the 3D* def&ator. d. (ne cannot genera&iKe a0out the increase in the consumer price index re&ative to the increase in the 3D* def&ator. ANS: A DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): Interpretive 166. The price of DOD p&ayers increases dramatica&&y- causing a 1 percent increase in the )*I. The price increase .i&& most &i:e&y cause the 3D* def&ator to increase 0y a. more than 1 percent. 0. &ess than 1 percent. c. 1 percent. d. None of the a0ove is correctG this particu&ar price increase .i&& not affect the 3D* def&ator. ANS: 7 DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): App&icative
1 2
168. The consumer price index and the 3D* def&ator are t.o a&ternative measures of the overa&& price &eve&. ,hich of the fo&&o.ing statements a0out the t.o measures is correctC a. The t.o measures are constructed different&y- 0ut they a&.ays indicate the same inf&ation rate. 0. The su0stitution 0ias app&ies e<ua&&y to 0oth measures. c. A change in the price of Porean te&evisions is ref&ected in the 1.S. consumer price index 0ut not in the 1.S. 3D* def&ator. d. A&& of the a0ove are correct. ANS: ) DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): Interpretive 169. If the price of Ita&ian shoes imported into the 1nited States increases- then a. 0oth the 3D* def&ator and the consumer price index .i&& increase. 0. neither the 3D* def&ator nor the consumer price index .i&& increase. c. the 3D* def&ator .i&& increase- 0ut the consumer price index .i&& not increase. d. the consumer price index .i&& increase- 0ut the 3D* def&ator .i&& not increase. ANS: D DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): App&icative 18%. If the price of Spanish o&ives imported into the 1nited States decreases- then a. 0oth the 3D* def&ator and the consumer price index .i&& decrease. 0. neither the 3D* def&ator nor the consumer price index .i&& decrease. c. the 3D* def&ator .i&& decrease- 0ut the consumer price index .i&& not decrease. d. the consumer price index .i&& decrease- 0ut the 3D* def&ator .i&& not decrease. ANS: D DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): App&icative 181. A decrease in the price of &arge tractors imported into the 1nited States from !ussia a. &eaves the 3D* def&ator unchanged 0ut decreases the consumer price index. 0. decreases the 3D* def&ator 0ut &eaves the consumer price index unchanged. c. decreases 0oth the 3D* def&ator and the consumer price index. d. &eaves 0oth the 3D* def&ator and the consumer price index unchanged. ANS: D DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): App&icative 18 . Suppose that 1.S. mining companies purchase 3erman$made ore truc:s at a reduced price. 7y itse&f- .hat effect .i&& this purchase have on the 3D* def&ator and on the consumer price indexC a. The consumer price index and the 3D* def&ator .i&& 0oth fa&&. 0. The consumer price index and the 3D* def&ator .i&& 0oth 0e unaffected. c. The consumer price index .i&& fa&&- and the 3D* def&ator .i&& 0e unaffected. d. The consumer price index .i&& 0e unaffected- and the 3D* def&ator .i&& fa&&. ANS: 7 DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): App&icative 18/. +ost- 0ut not a&&- ath&etic appare& so&d in the 1nited States is imported from other nations. If the price of ath&etic appare& increases- the 3D* def&ator .i&& a. increase &ess than .i&& the consumer price index. 0. increase more than .i&& the consumer price index. c. not increase- 0ut the consumer price index .i&& increase. d. increase- 0ut the consumer price index .i&& not increase. ANS: A DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): App&icative
1 5
18#. An increase in the price of Irish .his:ey regu&ar&y purchased 0y Americans .i&& 0e ref&ected in a. 0oth the 1.S. 3D* def&ator and the 1.S. )*I. 0. neither the 1.S. 3D* def&ator nor the 1.S. )*I. c. the 1.S. 3D* def&ator- 0ut not the 1.S. )*I. d. the 1.S. )*I- 0ut not the 1.S. 3D* def&ator. ANS: D DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): App&icative 182. ,hich is the most accurate statement a0out the 3D* def&ator and the consumer price indexC a. The 3D* def&ator compares the price of a fixed 0as:et of goods and services to the price of the 0as:et in the 0ase year- .hereas the consumer price index compares the price of current&y produced goods and services to the price of the same goods and services in the 0ase year. 0. The consumer price index compares the price of a fixed 0as:et of goods and services to the price of the 0as:et in the 0ase year- .hereas the 3D* def&ator compares the price of current&y produced goods and services to the price of the same goods and services in the 0ase year. c. 7oth the 3D* def&ator and the consumer price index compare the price of a fixed 0as:et of goods and services to the price of the 0as:et in the 0ase year. d. 7oth the 3D* def&ator and the consumer price index compare the price of current&y produced goods and services to the price of the same goods and services in the 0ase year. ANS: 7 DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): Definitiona& 185. The consumer price index and the 3D* def&ator are t.o a&ternative measures of the overa&& price &eve&. ,hich of the fo&&o.ing statements a0out the t.o measures is correctC a. The )*I invo&ves a 0ase yearG the 3D* def&ator does not invo&ve a 0ase year. 0. The )*I can 0e used to compute the inf&ation rateG the 3D* def&ator cannot 0e used to compute the inf&ation rate. c. The )*I ref&ects the prices of goods and services produced domestica&&yG the 3D* def&ator ref&ects the prices of a&& goods and services 0ought 0y consumers. d. The )*I ref&ects a fixed 0as:et of goods and servicesG the 3D* def&ator ref&ects current production of goods and services. ANS: D DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): Interpretive 186. The 0as:et of goods in the consumer price index changes a. occasiona&&y- as does the group of goods used to compute the 3D* def&ator. 0. automatica&&y- as does the group of goods used to compute the 3D* def&ator. c. occasiona&&y- .hereas the group of goods used to compute the 3D* def&ator changes automatica&&y. d. automatica&&y- .hereas the group of goods used to compute the 3D* def&ator changes occasiona&&y. ANS: ) DIF: !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator +S): Interpretive 188. In 1969 and 198%a. the 1.S. inf&ation rate as measured 0y the 3D* def&ator .as higher than that measured 0y the )*Iand the difference .as exp&ained 0y rapid&y rising prices of goods exported 0y the 1.S. 0. the 1.S. inf&ation rate as measured 0y the )*I .as higher than that measured 0y the 3D* def&atorand the difference .as exp&ained 0y rapid&y rising prices of goods exported 0y the 1.S. c. the 1.S. inf&ation rate as measured 0y the 3D* def&ator .as higher than that measured 0y the )*Iand the difference .as exp&ained 0y rapid&y rising oi& prices. d. the 1.S. inf&ation rate as measured 0y the )*I .as higher than that measured 0y the 3D* def&atorand the difference .as exp&ained 0y rapid&y rising oi& prices. ANS: D DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator 4 Inf&ation rate +S): Definitiona&

189. ,hich of the fo&&o.ing is the most accurate statementC a. In the 196%s- the &ate 198%s- 199%s- and %%%s- the 3D* def&ator and the )*I 0oth sho.ed high rates of inf&ation. 0. In the 196%s- 0oth the 3D* def&ator and the consumer price index sho.ed high rates of inf&ationand in the &ate 198%s- 199%s- and %%%s- 0oth measures sho.ed &o. rates of inf&ation. c. In the 196%s- 0oth the 3D* def&ator and the consumer price index sho.ed &o. rates of inf&ationand in the &ate 198%s- 199%s- and %%%s- 0oth measures sho.ed high rates of inf&ation. d. In the 196%s- the &ate 198%s- 199%s- and %%%s- the 3D* def&ator and the )*I 0oth sho.ed &o. rates of inf&ation. ANS: 7 DIF: 1 !"F: #$1 NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )*I 4 3D* def&ator 4 Inf&ation rate +S): Definitiona&
1 6
Se!"2 # Measuring the Cost of Living # Corre!ting E!ono'i! /aria*+es for the Effe!ts of $nf+ation
MULT$%LE CHO$CE 1. The primary purpose of measuring the overa&& &eve& of prices in the economy is to a. a&&o. for the measurement of 3D*. 0. a&&o. consumers to :no. .hat :inds of prices to expect in the future. c. a&&o. for the comparison of do&&ar figures from different points in time. d. a&&o. for the comparison of do&&ar figures from the same point in time.
ANS: ) DIF: 1 !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): Definitiona& . 7a0e !uthAs 19/1 sa&ary .as @8%-%%%. 3overnment statistics sho. a consumer price index of 12. for 19/1 and %6 for %%6. !uthAs 19/1 sa&ary .as e<uiva&ent to a %%6 sa&ary of a0out a. @2-86#. 0. @1-%89-#6#. c. @1- 15-%%%. d. @15-25%-%%%.
ANS: 7 DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative /. ,hen .e express 7a0e !uths 19/1 sa&ary in todays do&&ars and compare his sa&ary to those of current Ne. Lor: Lan:ee p&ayers- .e find that the current median sa&ary of todays Lan:ees is a. a0out three <uarters of !uths sa&ary. 0. a0out the same as !uths sa&ary. c. a0out t.ice !uths sa&ary. d. more than four times !uths sa&ary.
ANS: D DIF: 1 !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): Definitiona& #. In 19/1- *resident Ber0ert Boover .as paid a sa&ary of @62-%%%. 3overnment statistics sho. a consumer price index of 12. for 19/1 and %6 for %%6. *resident Boovers 19/1 sa&ary .as e<uiva&ent to a %%6 sa&ary of a0out a. @22%6. 0. @1-% 1-/8 . c. @1-1#%-%%%. d. @12-2 2-%%%.
ANS: 7 DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative
1 8
2.

Lou :no. that a candy 0ar cost five cents in 195 . Lou a&so :no. the )*I for 195 and the )*I for today. ,hich of the fo&&o.ing .ou&d you use to compute the price of the candy 0ar in todayAs pricesC a. five cents =195 )*I ; todayAs )*I> 0. five cents ==todayAs )*I $ 195 )*I>;195 )*I> c. five cents =todayAs )*I ; 195 )*I> d. five cents todayAs )*I $ five cents 195 )*I.
ANS: ) DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): Interpretive 5. Lou :no. that a candy 0ar costs sixty cents today. Lou a&so :no. the )*I for 195 and the )*I for today. ,hich of the fo&&o.ing .ou&d you use to compute the price of the candy 0ar in 195 pricesC a. sixty cents =todayAs )*I $ 195 )*I> 0. sixty cents =195 )*I $ todayAs )*I> c. sixty cents =todayAs )*I ; 195 )*I> d. sixty cents =195 )*I ; todayAs )*I>
ANS: D DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): Interpretive 6. If the )*I .as 92 in 1922 and is #62 todaythen @1%% today purchases the same amount of goods and services as a. @#.62 purchased in 1922. 0. @ %.%% purchased in 1922. c. @92.%% purchased in 1922. d. @2%% purchased in 1922.
ANS: 7 DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative 8. If the )*I .as 82 in 1962 and is as a. @/6.68 purchased in 1962. 0. @#%.%% purchased in 1962. c. @15#.61 purchased in 1962. d. @ 5#.61 purchased in 1962. 2 todaythen @1%% today purchases the same amount of goods and services
ANS: A DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative 9. If the )*I .as 1%# in 1956 and is /9% todaythen @1% in 1956 purchased the same amount of goods and services as a. @ .56 purchases today. 0. @/6.2% purchases today. c. @/9.%% purchases today. d. @1%#.%% purchases today.
ANS: 7 DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative 1%. If the )*I .as 1%8 in 19# and is # % todaythen @1% in 19# purchased the same amount of goods and services as a. @ .26 purchases today. 0. @ 8.89 purchases today. c. @/1. % purchases today. d. @/8.89 purchases today.
ANS: D DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative

11.
1 9
The )*I .as 195 in %%2- and the )*I .as 95.2 in 198 . If your parents put aside @1-%%% for you in 198 then ho. much .ou&d you have needed in %%2 in order to 0uy .hat you cou&d have 0ought .ith the @1-%%% in 198 C a. @#9 ./2 0. @1-95%.%% c. @ -%/1.%9 d. @992%.%%
ANS: ) DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative 1 . The )*I .as 16 in %%6- and the )*I .as #5.2 in 198 . If your parents put aside @1-%%% for you in 198 then ho. much .ou&d you have needed in %%6 in order to 0uy .hat you cou&d have 0ought .ith the @1-%%% in 198 C a. @ 6%./2 0. @1- 22.%% c. @ -598.9 d. @/-598.9
ANS: D DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative 1/. In 1959- FritK 0ought a Ford +ustang for @ -2%%. If the price index .as /5.6 in 1959 and the price index .as 18% in %%5- then .hat is the price of the Ford +ustang in %%5 do&&arsC a. @2%9.6 0. @5-855.#9 c. @9-651.28 d. @1 - 51.28
ANS: D DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative 1#. "the& purchased a 0ag of groceries in 196% for @8. She purchased the same 0ag of groceries in %%5 for @ 2. If the price index .as /8.8 in 196% and the price index .as 18% in %%5- then .hat is the price of the 196% 0ag of groceries in %%5 do&&arsC a. @2./9 0. @ 2.%% c. @ 9.11 d. @/6.11
ANS: D DIF: / !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): Ana&ytica& 12. In 19#9- Sycamore- I&&inois 0ui&t a hospita& for a0out @2%%-%%%. In 1986- the county restored the courthouse for a0out @ .# mi&&ion. A price index for nonresidentia& construction .as 1# in 19#9- 9 in 1986- and 11#.2 in %%%. According to these num0ers- the hospita& cost a0out a. @/.5 mi&&ion in %%% do&&ars- .hich is &ess than the cost of the courthouse restoration in %%% do&&ars. 0. @/.5 mi&&ion in %%% do&&ars- .hich is more than the cost of the courthouse restoration in %%% do&&ars. c. @#.1 mi&&ion in %%% do&&ars- .hich is &ess than the cost of the courthouse restoration in %%% do&&ars. d. @#.1 mi&&ion in %%% do&&ars- .hich is more than the cost of the courthouse restoration in %%% do&&ars.
ANS: D DIF: / !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): Ana&ytica&
1/%
15.

In 19#9- Sycamore- I&&inois 0ui&t a hospita& for a0out @2%%-%%%. In 1986- the county restored the courthouse for a0out @1.6 mi&&ion. A price index for nonresidentia& construction .as # in 19#9- 1%8 in 1986- and 1 5.2 in %%%. According to these num0ers- the hospita& cost a0out a. @ .1 mi&&ion in %%% do&&ars- .hich is &ess than the cost of the courthouse restoration in %%% do&&ars. 0. @ .1 mi&&ion in %%% do&&ars- .hich is more than the cost of the courthouse restoration in %%% do&&ars. c. @ .5 mi&&ion in %%% do&&ars- .hich is &ess than the cost of the courthouse restoration in %%% do&&ars. d. @ .5 mi&&ion in %%% do&&ars- .hich is more than the cost of the courthouse restoration in %%% do&&ars.
ANS: D DIF: / !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): Ana&ytica& Scenario 24-1 The price tag on a tennis 0a&& in 1962 read @%.1%- and the price tag on a tennis 0a&& in %%2 read @1.%%. The )*I in 1962 .as 2 ./- and the )*I in %%2 .as 191./. 16. Refer to S!enario 24#&- The price of a 1962 tennis 0a&& in %%2 do&&ars is a. @%.%/. 0. @%. 6. c. @%./6. d. @1.%%.
ANS: ) DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative 18. Refer to S!enario 24#&- In 1962 do&&ars- a 1962 tennis 0a&& cost @%.1% and a %%2 tennis 0a&& cost a. @%. 6- so tennis 0a&&s .ere cheaper in 1962. 0. @%. 6- so tennis 0a&&s .ere cheaper in %%2. c. @/.55- so tennis 0a&&s .ere cheaper in 1962. d. @/.55- so tennis 0a&&s .ere cheaper in %%2.
ANS: A DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative Scenario 24-2 The price tag on a go&f 0a&& in 1962 read @%. %- and the price tag on a go&f 0a&& in %%2 read @ .%%. The )*I in 1962 .as 2 ./- and the )*I in %%2 .as 191./. 19. Refer to S!enario 24#2- The price of a 1962 go&f 0a&& in %%2 do&&ars is a. @%.%2. 0. @%.2/. c. @%.6/. d. @ .%%.
ANS: ) DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative %. Refer to S!enario 24#2- In 1962 do&&ars- a 1962 go&f 0a&& cost @%. % and a %%2 go&f 0a&& cost a. @%.22- so go&f 0a&&s .ere cheaper in 1962. 0. @%.22- so go&f 0a&&s .ere cheaper in %%2. c. @6./ - so go&f 0a&&s .ere cheaper in 1962. d. @6./ - so go&f 0a&&s .ere cheaper in %%2.
ANS: A DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative

1.
1/1
Benri earned a sa&ary of @2%-%%% in %%1 and @6%-%%% in %%5. The consumer price index .as 166 in %%1 and 52.2 in %%5. BenriAs %%1 sa&ary in %%5 do&&ars is a. @ 2-%%%.%%. 0. @//-///.//. c. @##- 2%.%% d. @62-%%%.%%.
ANS: D DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative . Benri earned a sa&ary of @2%-%%% in %%1 and @6%-%%% in %%5. The consumer price index .as 166 in %%1 and 52.2 in %%5. BenriAs %%5 sa&ary in %%1 do&&ars is a. @/2-%%%.%%. 0. @#5-555.56. c. @51-92%.%% d. @1%2-%%%.%%.
ANS: 7 DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative /. Jane&&e earned a sa&ary of @#%-%%% in 1995 and @52-%%% in %%5. The consumer price index .as 15% in 1995 and 55 in %%5. Jane&&es 1995 sa&ary in %%5 do&&ars is a. @ #-%5%.12. 0. @# -#%%.%%. c. @#/-522.16. d. @55-2%%.%%.
ANS: D DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative #. Jane&&e earned a sa&ary of @#%-%%% in 1995 and @52-%%% in %%5. The consumer price index .as 15% in 1995 and 55 in %%5. Jane&&es %%5 sa&ary in 1995 do&&ars is a. @/9-%96.6#. 0. @#/-%5 .2%. c. @58-9%%.%%. d. @1%8-%5 .2%.
ANS: A DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative 2. De.ey earned a sa&ary of @62-%%% in %%1 and @92-%%% in %%5. The consumer price index .as 166 in %%1 and 55 in %%5. De.eys %%1 sa&ary in %%5 do&&ars is a. @/6-611.85. 0. @#9-9%5.% . c. @55-62%.%%. d. @11 -611.85.
ANS: D DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative 5. De.ey earned a sa&ary of @62-%%% in %%1 and @92-%%% in %%5. The consumer price index .as 166 in %%1 and 55 in %%5. De.eys %%5 sa&ary in %%1 do&&ars is a. @#6-658./5. 0. @5/- 1#. 9. c. @8#-22%.%%. d. @1# -658./5.
ANS: 7 DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative
1/
6.

Iggie too: a university teaching Ho0 as an assistant professor in 196# at a sa&ary of @1%-%%%. 7y %%/- she had 0een promoted to fu&& professor- .ith a sa&ary of @2%-%%%. If the price index .as 2% in 196# and 18% in %%/then .hat is IggieAs 196# sa&ary in %%/ do&&arsC a. @ -666.68 0. @18-%%% c. @ 5-%%% d. @/5-%%%
ANS: D DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative 8. Iggie too: a university teaching Ho0 as an assistant professor in 196# at a sa&ary of @1%-%%%. 7y %%/- she had 0een promoted to fu&& professor- .ith a sa&ary of @2%-%%%. If the price index .as 2% in 196# and 18% in %%/then .hat is IggieAs %%/ sa&ary in 196# do&&arsC a. @1/-888.89 0. @#%-%%% c. @52-%%% d. @18%-%%%
ANS: A DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative 9. Ar&o is offered a Ho0 in Des +oines- .here the )*I is 8%- and a Ho0 in Ne. Lor:- .here the )*I is 1 2. Ar&oAs Ho0 offer in Des +oines is for @# -%%%. Bo. much does the Ne. Lor: Ho0 have to pay in order for the t.o sa&aries to represent the same purchasing po.erC a. @# -%%% 0. @52-5 2 c. @58-88% d. @189-%%%
ANS: 7 DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative /%. Ar&o is offered a Ho0 in Des +oines- .here the )*I is 5%- and a Ho0 in Ne. Lor:- .here the )*I is 1 2. Ar&oAs Ho0 offer in Des +oines is for @#8-%%%. Bo. much does the Ne. Lor: Ho0 have to pay in order for the t.o sa&aries to represent the same purchasing po.erC a. @ /-%#% 0. @2 -%%% c. @69- %% d. @1%%-%%%
ANS: D DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative /1. !u0en earned a sa&ary of @5%-%%% in %%1 and @8%-%%% in %%5. The consumer price index .as 166 in %%1 and 1. 2 in %%5. !u0enAs %%1 sa&ary in %%5 do&&ars is a. @62-%%%G thus- !u0enAs purchasing po.er increased 0et.een %%1 and %%5. 0. @62-%%%G thus- !u0enAs purchasing po.er decreased 0et.een %%1 and %%5. c. @82-%%%G thus- !u0enAs purchasing po.er increased 0et.een %%1 and %%5. d. @82-%%%G thus- !u0enAs purchasing po.er decreased 0et.een %%1 and %%5.
ANS: A DIF: / !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): Ana&ytica&

/ .
1//
!u0en earned a sa&ary of @5%-%%% in %%1 and @8%-%%% in %%5. The consumer price index .as 166 in %%1 and 1. 2 in %%5. !u0enAs %%5 sa&ary in %%1 do&&ars is a. @ %-%%%G thus- !u0enAs purchasing po.er increased 0et.een %%1 and %%5. 0. @ %-%%%G thus- !u0enAs purchasing po.er decreased 0et.een %%1 and %%5. c. @5#-%%%G thus- !u0enAs purchasing po.er increased 0et.een %%1 and %%5. d. @5#-%%%G thus- !u0enAs purchasing po.er decreased 0et.een %%1 and %%5.
ANS: ) DIF: / !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): Ana&ytica& //. In 196%- *rofessor *&um earned @1 -%%%G in 198%- he earned @ #-%%%G and in 199%- he earned @/5-%%%. If the )*I .as #% in 196%- 5% in 198%- and 1%% in 199%- then in rea& terms- *rofessor *&umAs sa&ary .as highest in a. 198% and &o.est in 196%. 0. 198% and &o.est in 199%. c. 199% and &o.est in 196%. d. 199% and &o.est in 198%.
ANS: A DIF: / !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): Ana&ytica& /#. In 196%- *rofessor *&um earned @1 -%%%G in 198%- he earned @ #-%%%G and in 199%- he earned @/5-%%%. If the )*I .as #% in 196%- 6% in 198%- and 1/% in 199%- then in rea& terms- *rofessor *&umAs sa&ary .as highest in a. 196% and &o.est in 198%. 0. 196% and &o.est in 199%. c. 198% and &o.est in 196%. d. 198% and &o.est in 199%.
ANS: D DIF: / !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): Ana&ytica& Scenario 24-3 3rant 3ant .as a doctor in 19## and earned @1 -%%% that year. Bis daughter- 3retta 3ant- is a doctor today and she earned @ 1%-%%% in %%2. The price index .as 16.5 in 19## and 18# in %%2. /2. Refer to S!enario 24#,. 3rant 3ants 19## income in %%2 do&&ars is a. @1-1#6.8/. 0. @11/-#2#.22. c. @1 2-#2#.22. d. @1-995-8%%.%%.
ANS: ) DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative /5. Refer to S!enario 24#,. 3retta 3ants %%2 income in 19## do&&ars is a. @11-9/1.8 . 0. @ %-%85.95. c. @1-982-#2#.22. d. @ -192-#2#.22.
ANS: 7 DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative /6. Refer to S!enario 24#,. In rea& terms- 3retta 3ants income amounts to a0out .hat percentage of 3rant 3ants incomeC a. 56 percent 0. 156 percent c. 1%#2 percent d. 162% percent
1/#
ANS: 7 DIF: / !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): Ana&ytica& /8. Refer to S!enario 24#,. In rea& terms- 3rant 3ants income amounts to a0out .hat percentage of 3retta 3ants incomeC a. 2.61 percent 0. 9.5 percent c. 29.6 percent d. 56.# percent
ANS: ) DIF: / !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): Ana&ytica& Scenario 24-4 ?uinn has Ho0 offers in ,rexington and across the country in )har&ievi&&e. The ,rexington Ho0 .ou&d pay a sa&ary of @2%-%%% per year- and the )har&ievi&&e Ho0 .ou&d pay a sa&ary of @#%-%%% per year. The )*I in ,rexington is 12%and the )*I in )har&ievi&&e is 9%. /9. Refer to S!enario 24#4- The ,rexington sa&ary in )har&ievi&&e do&&ars is a. @/%-%%%.%%. 0. @//-///.//. c. @#2-%%%.%% d. @8/-///.//.
ANS: A DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative #%. Refer to S!enario 24#4- The )har&ievi&&e sa&ary in ,rexington do&&ars is a. @ #-%%%.%%. 0. @ 5-555.56. c. @5%-%%%.%% d. @55-555.56.
ANS: D DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative #1. Refer to S!enario 24#4- If ?uinn on&y cares a0out maximiKing her purchasing po.er- then she shou&d a. ta:e the )har&ievi&&e Ho0. 0. ta:e the ,rexington Ho0. c. ta:e either Ho0 0ecause they 0oth have the same purchasing po.er. d. The ans.er cannot 0e determined from the information given 0ecause a sa&ary is not the same as purchasing po.er.
ANS: A DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative # . Suppose the )*I .as 1%8 in 1956- and suppose one must spend @9/5 today to o0tain the same 0as:et of goods and services that cou&d 0e 0ought for @ %% in 1956. Then todays )*I is a. 115.56. 0. 1/1.%8. c. /96.##. d. 2%2.##.
ANS: D DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative

#/.
1/2
Suppose todays )*I is 1/#.82- and suppose one must spend @28% today to purchase the same 0as:et of goods and services that cou&d 0e 0ought for @#%% in 1989. Then the )*I in 1989 .as a. #. 6. 0. 5%.58. c. 9/.%%. d. 192.2/.
ANS: ) DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative ##. In 195#- one cou&d 0uy a chi&i dog and a root 0eer for @1. 2. Today the same chi&i dog and root 0eer cost @ .92. ,hich pair of )*Is .ou&d imp&y that the cost in todayAs do&&ars .as the same for 0oth mea&sC a. 5% in 195# and 1#1.5 today 0. 62 in 195# and 1 5.# today c. 8% in 195# and 11 today d. 9% in 195# and 1%8.2 today
ANS: A DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative #2. In 196 - one cou&d 0uy a 0ag of chips- a pound of ham0urger- a pac:age of 0uns- and a sma&& 0ag of charcoa& for a0out @ .2%. If the same goods today cost @5.%%- then .hich pair of )*Is .ou&d ma:e the cost in todayAs do&&ars the same for 0oth yearsC a. 5% in 196 and 12% today 0. 52 in 196 and 125 today c. 62 in 196 and 15% today d. 9% in 196 and 1#2.8 today
ANS: 7 DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative #5. In 196 - one cou&d 0uy mode& roc:et engines for @1.2% each. If those same engines cost @ .2% each todaythen .hich pair of )*Is .ou&d ma:e the engine prices in todayAs do&&ars the same for 0oth yearsC a. 5% in 196 and 92 today 0. 5% in 196 and 1 % today c. 9% in 196 and 1#% today d. 95 in 196 and 15% today
ANS: D DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative #6. *iper is offered a Ho0 in Seatt&e that pays @2%-%%% and a Ho0 in 7oston that pays @5%-%%%. ,hich pair of )*Is .ou&d ma:e the t.o sa&aries have the same purchasing po.erC a. 8% in Seatt&e and 1%% in 7oston 0. 1 2 in Seatt&e and 12% in 7oston c. 1%% in Seatt&e and 1 #.2 in 7oston d. 1%% in Seatt&e and 1#% in 7oston
ANS: 7 DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative #8. +avis is offered a Jo0 in +inneapo&is that pays @8%-%%%. She is offered a simi&ar Ho0 in +emphis that pays @5#-%%%. ,hich pair of )*Is .ou&d ma:e the t.o sa&aries have the same purchasing po.erC a. 9% in +inneapo&is and 8% in +emphis 0. 9% in +inneapo&is and 6 in +emphis c. 9% in +inneapo&is and 55 in +emphis d. 9% in +inneapo&is and 2% in +emphis
1/5
ANS: 7 DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: )omparing do&&ar figures +S): App&icative #9. ,hen 0ox office receipts are corrected for inf&ation- the most popu&ar movie of a&& time is a. Star Wars. 0. Titanic. c. Gone With the Wind. d. The Sound of Music. DIF: 1 !"F: #$ '(): 1nemp&oyment and inf&ation T(*: Inf&ation
ANS: ) NAT: Ana&ytic +S): Definitiona& 2%.
Indexation refers to a. a process of adHusting the nomina& interest rate so that it is e<ua& to the rea& interest rate. 0. using a &a. or contract to automatica&&y correct a do&&ar amount for the effects of inf&ation. c. using a price index to def&ate do&&ar va&ues. d. an adHustment made 0y the 7ureau of 'a0or Statistics to the )*I so that the index is in &ine .ith the 3D* def&ator. DIF: 1 !"F: #$ '(): The study of economics and definitions of economics +S): Definitiona&
ANS: 7 NAT: Ana&ytic T(*: Indexation 21.
A )('A automatica&&y raises the .age .hen a. 3D* increases. 0. taxes increase. c. the consumer price index increases. d. the producer price index increases. DIF: 1 !"F: #$ '(): The study of economics and definitions of economics +S): Definitiona&
ANS: ) NAT: Ana&ytic T(*: )('A 2 .
)onsternation )orporation has an agreement .ith its .or:ers to index comp&ete&y the .age of its emp&oyees using the )*I. )onsternation )orporation current&y pays its production &ine .or:ers @6.2% an hour and is schedu&ed to index their .ages today. If the )*I is current&y 1/% and .as 1 2 a year ago- the firm shou&d increase the hour&y .ages of its .or:ers 0y a. @%.%#. 0. @%. 9. c. @%./%. d. @%.2%. DIF: !"F: #$ '(): The study of economics and definitions of economics +S): App&icative
ANS: ) NAT: Ana&ytic T(*: Indexation 2/.
)onsternation )orporation has an agreement .ith its .or:ers to index comp&ete&y the .age of its emp&oyees using the )*I. )onsternation )orporation current&y pays its production &ine .or:ers @8.%% an hour and is schedu&ed to index their .ages today. If the )*I is current&y 15% and .as 1 8 a year ago- the firm shou&d increase the hour&y .ages of its .or:ers 0y a. @%. 2. 0. @1.5%. c. @ .%%. d. @ .25. DIF: !"F: #$ '(): The study of economics and definitions of economics +S): App&icative
ANS: ) NAT: Ana&ytic T(*: Indexation

2#.
1/6
Socia& Security payments are indexed for inf&ation using the )*I. A recent ne.spaper editoria& c&aimed that Socia& Security recipients are harmed 0y years of &o. inf&ation 0ecause they do not receive as &arge an increase in their payments as they do in years of high inf&ation. ,hich of the fo&&o.ing statements is correctC a. The ne.spaper editoria& is correct under a&& circumstances. 0. The ne.spaper editoria& is correct if the mar:et 0as:et consumed 0y Socia& Security recipients is the same as the mar:et 0as:et used to compute the )*I. c. The ne.spaper editoria& cou&d 0e correct if the prices of the goods consumed 0y Socia& Security recipients change at a different rate than the prices of the goods in the mar:et 0as:et used to compute the )*I d. The ne.spaper editoria& is incorrect under a&& circumstances.
ANS: ) DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: Socia& Security 4 Indexation +S): Interpretive 22. (f Socia& Security 0enefits and federa& income tax 0rac:ets- .hich is indexedC a. 7oth are indexed. 0. (n&y Socia& Security 0enefits are indexed. c. (n&y federa& income tax 0rac:ets are indexed. d. Neither is indexed. DIF: !"F: #$ '(): The study of economics and definitions of economics +S): Interpretive
ANS: A NAT: Ana&ytic T(*: Indexation 25.
+arion co&&ected Socia& Security payments of @ % a month in 1982. If the price index rose from 9% to 1%8 0et.een 1982 and 1985- then her Socia& Security payments for 1985 shou&d have 0een a. @ 8. 0. @ /8. c. @ 26. d. @ 5#. DIF: !"F: #$ '(): The study of economics and definitions of economics +S): App&icative
ANS: D NAT: Ana&ytic T(*: Indexation 26.
+arion co&&ected Socia& Security payments of @ 2% a month in 1982. If the price index rose from 9% to 1%8 0et.een 1982 and 1985- then her Socia& Security payments for 1985 shou&d have 0een a. @ 58. 0. @ 9 . c. @/%%. d. @/28. DIF: !"F: #$ '(): The study of economics and definitions of economics +S): App&icative
ANS: ) NAT: Ana&ytic T(*: Indexation 28.
,hich of the fo&&o.ing statements is correct a0out the re&ationship 0et.een inf&ation and interest ratesC a. There is no re&ationship 0et.een inf&ation and interest rates. 0. The interest rate is determined 0y the rate of inf&ation. c. In order to fu&&y understand inf&ation- .e need to :no. ho. to correct for the effects of interest rates. d. In order to fu&&y understand interest rates- .e need to :no. ho. to correct for the effects of inf&ation.
ANS: D DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: Interest rates 4 Inf&ation +S): Interpretive
1/8
29.

,hich of the fo&&o.ing is not correctC a. If the inf&ation rate exceeds the nomina& interest rate- then the purchasing po.er of an interest$ earning deposit fa&&s over time. 0. If there is def&ation- then the purchasing po.er of an interest$earning deposit rises 0y more than the nomina& interest rate over time. c. The higher the rate of inf&ation- the sma&&er the increase in the purchasing po.er of an interest$ earning deposit. d. The purchasing po.er of an interest$earning deposit can increase or decrease over time- 0ut it cannot stay the same.
ANS: D DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: Interest rates 4 Inf&ation +S): Interpretive 5%. ,hich of the fo&&o.ing statements is correct a0out the re&ationship 0et.een the nomina& interest rate and the rea& interest rateC a. The rea& interest rate is the nomina& interest rate times the rate of inf&ation. 0. The rea& interest rate is the nomina& interest rate minus the rate of inf&ation. c. The rea& interest rate is the nomina& interest rate p&us the rate of inf&ation. d. The rea& interest rate is the nomina& interest rate divided 0y the rate of inf&ation.
ANS: 7 DIF: 1 !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: Nomina& interest rate 4 !ea& interest rate +S): Definitiona& 51. The nomina& interest rate te&&s you a. ho. fast the num0er of do&&ars in your 0an: account rises over time. 0. ho. fast the purchasing po.er of your 0an: account rises over time. c. the num0er of do&&ars in your 0an: account today. d. the purchasing po.er of your 0an: account today.
ANS: A DIF: 1 !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: Nomina& interest rate +S): Definitiona& 5 . The rea& interest rate te&&s you a. ho. fast the num0er of do&&ars in your 0an: account rises over time. 0. ho. fast the purchasing po.er of your 0an: account rises over time. c. the num0er of do&&ars in your 0an: account today. d. the purchasing po.er of your 0an: account today.
ANS: 7 DIF: 1 !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: !ea& interest rate +S): Definitiona& 5/. ,hich of the fo&&o.ing statements a0out rea& and nomina& interest rates is correctC a. !ea& interest rates can 0e either positive or negative- 0ut nomina& interest rates must 0e positive. 0. !ea& interest rates and nomina& interest rates must 0e positive. c. !ea& interest rates must 0e positive- 0ut nomina& interest rates can 0e either positive or negative. d. !ea& interest rates and nomina& interest rates can 0e either positive or negative.
ANS: A DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: Nomina& interest rate 4 !ea& interest rate +S): Interpretive 5#. ,hich of the fo&&o.ing statements a0out rea& and nomina& interest rates is correctC a. ,hen the nomina& interest rate is rising- the rea& interest rate is necessari&y risingG .hen the nomina& interest rate is fa&&ing- the rea& interest rate is necessari&y fa&&ing. 0. If the nomina& interest rate is # percent and the inf&ation rate is / percent- then the rea& interest rate is 6 percent. c. An increase in the rea& interest rate is necessari&y accompanied 0y either an increase in the nomina& interest rate- an increase in the inf&ation rate- or 0oth. d. ,hen the inf&ation rate is positive- the nomina& interest rate is necessari&y greater than the rea& interest rate.

ANS: D DIF: / !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: Nomina& interest rate 4 !ea& interest rate +S): Ana&ytica& 52. As &ong as prices are rising over time- then a. the nomina& interest rate exceeds the rea& interest rate. 0. the rea& interest rate exceeds the nomina& interest rate. c. the rea& interest rate is positive. d. the nomina& interest rate is a 0etter indicator than the rea& interest rate of ho. fast the purchasing po.er of your 0an: account is changing over time.
1/9
ANS: A DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: Nomina& interest rate 4 !ea& interest rate +S): Interpretive 55. If the nomina& interest rate is 8 percent and the rate of inf&ation is / percent- then the rea& interest rate is a. $2 percent. 0. 1.56 percent. c. 2 percent. d. 11 percent.
ANS: ) DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: !ea& interest rate +S): App&icative 56. If the nomina& interest rate is 5 percent and the rate of inf&ation is a. $# percent. 0. percent. c. # percent. d. 8 percent. percent- then the rea& interest rate is
ANS: ) DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: !ea& interest rate +S): App&icative 58. If the nomina& interest rate is 5 percent and the rate of inf&ation is 9 percent- then the rea& interest rate is a. $/ percent. 0. $%.// percent. c. / percent. d. 12 percent.
ANS: A DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: !ea& interest rate +S): App&icative 59. If the nomina& interest rate is 2 percent and the rate of inf&ation is 9 percent- then the rea& interest rate is a. $# percent. 0. $%.## percent. c. # percent. d. 1# percent.
ANS: A DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: !ea& interest rate +S): App&icative 6%. If the nomina& interest rate is 1.2 percent and the rate of inf&ation is $%.2 percent- then the rea& interest rate is a. $# percent. 0. $ percent. c. 1 percent. d. percent.
ANS: D DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: !ea& interest rate +S): App&icative
1#%
61.

If the nomina& interest rate is 6.2 percent and the rate of inf&ation is $ .2 percent- then the rea& interest rate is a. $1% percent. 0. $2 percent. c. 2 percent. d. 1% percent.
ANS: D DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: !ea& interest rate +S): App&icative 6 . If the nomina& interest rate is 8 percent and the rea& interest rate is 2.2 percent- then the inf&ation rate is a. $ .2 percent. 0. %.#2 percent. c. .2 percent. d. 1/.2 percent. DIF: !"F: #$ '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: ) NAT: Ana&ytic +S): App&icative 6/.
If the nomina& interest rate is 8 percent and the rea& interest rate is #.2 percent- then the inf&ation rate is a. $/.2 percent. 0. %.68 percent. c. /.2 percent. d. 1 .2 percent. DIF: !"F: #$ '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: ) NAT: Ana&ytic +S): App&icative 6#.
If the nomina& interest rate is 6 percent and the rea& interest rate is $ .2 percent- then the inf&ation rate is a. $9.2 percent. 0. $#.2 percent. c. #.2 percent. d. 9.2 percent. DIF: !"F: #$ '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: D NAT: Ana&ytic +S): App&icative 62.
If the nomina& interest rate is # percent and the rea& interest rate is $ .2 percent- then the inf&ation rate is a. $5.2 percent. 0. $1.2 percent. c. 1.2 percent. d. 5.2 percent. DIF: !"F: #$ '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: D NAT: Ana&ytic +S): App&icative 65.
If the nomina& interest rate is # percent and the rea& interest rate is 6 percent- then the inf&ation rate is a. $/ percent. 0. %.62 percent. c. / percent. d. 11 percent. DIF: !"F: #$ '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: A NAT: Ana&ytic +S): App&icative 66.
If the nomina& interest rate is 2 percent and the rea& interest rate is 6 percent- then the inf&ation rate is a. $ percent. 0. %.# percent. c. percent. d. 1 percent.

ANS: A NAT: Ana&ytic +S): App&icative 68. DIF: !"F: #$ '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
1#1
The consumer price index .as 2 in %%5 and /# in %%6. The nomina& interest rate during this period .as 5.2 percent. ,hat .as the rea& interest rate during this periodC a. .2 percent 0. #.% percent c. 5.65 percent d. 1%.2 percent
ANS: A DIF: / !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: !ea& interest rate +S): Ana&ytica& 69. The consumer price index .as 2 in %%5 and /5 in %%6. The nomina& interest rate during this period .as 5.2 percent. ,hat .as the rea& interest rate during this periodC a. 1.5 percent 0. #.9 percent c. 5.8 percent d. 11.# percent
ANS: A DIF: / !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: !ea& interest rate +S): Ana&ytica& 8%. During a certain year- the consumer price index increased from 12% to 129 and the purchasing po.er of a persons 0an: account increased 0y /.2 percent. For that yeara. the nomina& interest rate .as 5 percent. 0. the nomina& interest rate .as 9.2 percent. c. the inf&ation rate .as /.2 percent. d. the inf&ation rate .as 9.2 percent.
ANS: 7 DIF: / !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: Nomina& interest rate +S): Ana&ytica& 81. The )*I .as 1 % in %%% and 1/ in %%1. Dorgan 0orro.ed money in %%% and repaid the &oan in %%1. If the nomina& interest rate on the &oan .as 1 percent- then the rea& interest rate .as a. percent. 0. 1% percent. c. 1 percent. d. percent.
ANS: A DIF: / !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: !ea& interest rate +S): Ana&ytica& 8 . Suppose that over the past year- the rea& interest rate .as / percent and the inf&ation rate .as $1 percent. It fo&&o.s that a. the do&&ar va&ue of savings increased at percent- and the purchasing po.er of savings increased at / percent. 0. the do&&ar va&ue of savings increased at percent- and the purchasing po.er of savings increased at # percent. c. the do&&ar va&ue of savings increased at # percent- and the purchasing po.er of savings increased at percent. d. the do&&ar va&ue of savings increased at # percent- and the purchasing po.er of savings increased at / percent.
ANS: A DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: Nomina& interest rate 4 !ea& interest rate +S): App&icative
1#
8/.

Suppose that over the past year- the rea& interest rate .as 5 percent and the inf&ation rate .as $ percent. It fo&&o.s that a. the do&&ar va&ue of savings increased at # percent- and the purchasing po.er of savings increased at 5 percent. 0. the do&&ar va&ue of savings increased at # percent- and the purchasing po.er of savings increased at 8 percent. c. the do&&ar va&ue of savings increased at 8 percent- and the purchasing po.er of savings increased at # percent. d. the do&&ar va&ue of savings increased at 8 percent- and the purchasing po.er of savings increased at 5 percent.
ANS: A DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: Nomina& interest rate 4 !ea& interest rate +S): App&icative 8#. Suppose that over the past year- the rea& interest rate .as 2 percent and the inf&ation rate .as / percent. It fo&&o.s that a. the do&&ar va&ue of savings increased at 2 percent- and the purchasing po.er of savings increased at percent. 0. the do&&ar va&ue of savings increased at 2 percent- and the purchasing po.er of savings increased at 8 percent. c. the do&&ar va&ue of savings increased at 8 percent- and the purchasing po.er of savings increased at percent. d. the do&&ar va&ue of savings increased at 8 percent- and the purchasing po.er of savings increased at 2 percent.
ANS: D DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: Nomina& interest rate 4 !ea& interest rate +S): App&icative 82. Suppose that over the past year- the rea& interest rate .as 5 percent and the inf&ation rate .as # percent. It fo&&o.s that a. the do&&ar va&ue of savings increased at 5 percent- and the purchasing po.er of savings increased at percent. 0. the do&&ar va&ue of savings increased at 5 percent- and the purchasing po.er of savings increased at 1% percent. c. the do&&ar va&ue of savings increased at 1% percent- and the purchasing po.er of savings increased at percent. d. the do&&ar va&ue of savings increased at 1% percent- and the purchasing po.er of savings increased at 5 percent.
ANS: D DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: Nomina& interest rate 4 !ea& interest rate +S): App&icative 85. !a&ph puts money in the 0an: and earns a 2 percent nomina& interest rate. If the inf&ation rate is after one yeara. !a&ph .i&& have / percent more money- .hich .i&& purchase 2 percent more goods. 0. !a&ph .i&& have / percent more money- .hich .i&& purchase 6 percent more goods. c. !a&ph .i&& have 2 percent more money- .hich .i&& purchase / percent more goods. d. !a&ph .i&& have 2 percent more money- .hich .i&& purchase 6 percent more goods. percent- then
ANS: ) DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: Nomina& interest rate 4 !ea& interest rate +S): App&icative 86. Sophia deposits @1-%%% in a savings account that pays an annua& interest rate of # percent. (ver the course of a year- the inf&ation rate is 1 percent. At the end of the year- Sophia has a. @/% more in her account- and her purchasing po.er has increased 0y @1%. 0. @/% more in her account- and her purchasing po.er has increased 0y @#%. c. @#% more in her account- and her purchasing po.er has increased 0y @/%. d. @2% more in her account and her purchasing po.er has increased 0y @#%.

ANS: ) DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: Nomina& interest rate 4 !ea& interest rate +S): App&icative 88.
1#/
+axine deposits @1%% in a 0an: account that pays an annua& interest rate of %M. A year &ater- after +axine has accumu&ated @ % in interest- she .ithdra.s her @1 %. +axines purchasing po.er a. did not change if the inf&ation rate .as %M. 0. decreased if the inf&ation rate .as $ M. c. increased if the inf&ation rate .as 2M. d. +ore than one of the a0ove is correct.
ANS: ) DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: Interest rates 4 Inf&ation rate +S): App&icative 89. Ja:e &oaned "&.ood @2-%%% for one year at a nomina& interest rate of 1% percent. After "&.ood repaid the &oan in fu&&- Ja:e comp&ained that he cou&d 0uy # percent fe.er goods .ith the money "&.ood gave him than he cou&d 0efore he &oaned "&.ood the @2-%%%. From this- .e can conc&ude that the rate of inf&ation during the year .as a. $# percent. 0. # percent. c. 5 percent. d. 1# percent. DIF: !"F: #$ '(): 1nemp&oyment and inf&ation T(*: Inf&ation rate
ANS: D NAT: Ana&ytic +S): App&icative 9%.
+s. Ta:e 0orro.ed @1-%%% from her 0an: for one year at an interest rate of 1% percent. During that year- the price &eve& .ent up 0y 12 percent. ,hich of the fo&&o.ing statements is correctC a. +s. Ta:e .i&& repay the 0an: fe.er do&&ars than she initia&&y 0orro.ed. 0. +s. Ta:eAs repayment .i&& give the 0an: &ess purchasing po.er than it origina&&y &oaned her. c. +s. Ta:eAs repayment .i&& give the 0an: greater purchasing po.er than it origina&&y &oaned her. d. +s. Ta:eAs repayment .i&& give the 0an: the same purchasing po.er that it origina&&y &oaned her.
ANS: 7 DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: Nomina& interest rate 4 !ea& interest rate +S): App&icative 91. ,hich of the fo&&o.ing is not correctC a. The 1.S. economy has never experienced def&ation. 0. Since 1952- the 1.S. nomina& interest rate has exceeded the 1.S. rea& interest rate. c. Since 1952- the 1.S. economy has experienced rising consumer prices every year. d. During def&ation- the rea& interest rate exceeds the nomina& interest rate.
ANS: A DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: 1.S. interest rates 4 1.S. inf&ation rate +S): Interpretive 9 . ,hich of the fo&&o.ing is correctC a. Nomina& and rea& interest rates a&.ays move together. 0. Nomina& and rea& interest rates never move together. c. Nomina& and rea& interest rates do not a&.ays move together. d. Nomina& and rea& interest rates a&.ays move in opposite directions.
ANS: ) DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: Nomina& interest rate 4 !ea& interest rate +S): Interpretive
1##
9/.

In the 1nited States in the &ate 196%s- nomina& interest rates .ere high and inf&ation rates .ere very high. As a resu&t- rea& interest rates .ere a. very high. 0. high. c. &o.- 0ut never negative. d. &o.- and in some years they .ere negative.
ANS: D DIF: !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: 1.S. interest rates +S): Interpretive 9#. In the 1nited States- nomina& interest rates .ere a. high in the 196%s and 199%s. 0. &o. in the 196%s and 199%s. c. high in the 196%s and &o. in the 199%s. d. &o. in the 196%s and high in the 199%s.
ANS: ) DIF: 1 !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: 1.S. interest rates +S): Definitiona& 92. In the 1nited States- rea& interest rates .ere a. high in the 196%s and 199%s. 0. &o. in the 196%s and 199%s. c. high in the 196%s and &o. in the 199%s. d. &o. in the 196%s and high in the 199%s.
ANS: D DIF: 1 !"F: #$ NAT: Ana&ytic '(): The study of economics and definitions of economics T(*: 1.S. interest rates +S): Definitiona&

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Chapter 24 Measuring the Cost of Living

)hapter #;+easuring the )ost of 'iving

)hapter #;+easuring the )ost of 'iving

)hapter #;+easuring the )ost of 'iving

)hapter #;+easuring the )ost of 'iving

)hapter #;+easuring the )ost of 'iving

)hapter #;+easuring the )ost of 'iving

%% price per unit %%/ price per unit a. 0. c. ANS: a. 0. c.

percent increase in the price of food or a / percent

)hapter #;+easuring the )ost of 'iving

)hapter #;+easuring the )ost of 'iving

Se!"" # Measuring the Cost of Living

ANS: 7 NAT: Ana&ytic T(*: )*I /.

ANS: 7 NAT: Ana&ytic T(*: )*I #.

ANS: D NAT: Ana&ytic T(*: )*I 2.

)hapter #;+easuring the )ost of 'iving

ANS: 7 NAT: Ana&ytic +S): Definitiona& 8.

ANS: A NAT: Ana&ytic +S): Definitiona& 9.

ANS: ) NAT: Ana&ytic +S): Definitiona& 1%.

ANS: ) NAT: Ana&ytic +S): Definitiona& 11.

ANS: D NAT: Ana&ytic +S): Definitiona&

)hapter #;+easuring the )ost of 'iving

ANS: 7 NAT: Ana&ytic +S): Interpretive 1/.

Se!"& # Measuring the Cost of Living # The Consu'er %ri!e $n(e)

ANS: 7 NAT: Ana&ytic T(*: )*I .

ANS: ) NAT: Ana&ytic T(*: )*I /.

)hapter #;+easuring the )ost of 'iving

ANS: ) NAT: Ana&ytic T(*: )*I #.

ANS: 7 NAT: Ana&ytic T(*: )*I 8.

)hapter #;+easuring the )ost of 'iving

ANS: A NAT: Ana&ytic T(*: )*I 11.

ANS: D NAT: Ana&ytic T(*: )*I 1 .

ANS: A NAT: Ana&ytic T(*: )*I 1/.

ANS: 7 NAT: Ana&ytic T(*: )*I 1#.

ANS: 7 NAT: Ana&ytic T(*: )*I

)hapter #;+easuring the )ost of 'iving

ANS: ) NAT: Ana&ytic T(*: )*I 15.

ANS: D NAT: Ana&ytic T(*: )*I 16.

ANS: 7 NAT: Ana&ytic T(*: )*I 18.

ANS: ) NAT: Ana&ytic T(*: )*I 19.

ANS: A NAT: Ana&ytic T(*: )*I %.

)hapter #;+easuring the )ost of 'iving

ANS: ) NAT: Ana&ytic +S): Definitiona& .

ANS: A NAT: Ana&ytic +S): Interpretive /.

DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation

If %% is the 0ase year- then the inf&ation rate in %%2 e<ua&s a. 0. c. d.

ANS: D NAT: Ana&ytic +S): Interpretive #.

DIF: !"F: #$1 '(): 1nemp&oyment and inf&ation

ANS: 7 NAT: Ana&ytic T(*: )*I 2.

)hapter #;+easuring the )ost of 'iving

ANS: D NAT: Ana&ytic T(*: )*I 5.

ANS: ) NAT: Ana&ytic T(*: )*I 6.

ANS: ) NAT: Ana&ytic T(*: )*I 8.

ANS: ) NAT: Ana&ytic T(*: )*I 9.

ANS: 7 NAT: Ana&ytic +S): App&icative /%.

ANS: ) NAT: Ana&ytic +S): App&icative

)hapter #;+easuring the )ost of 'iving

ANS: 7 NAT: Ana&ytic +S): App&icative / .

ANS: 7 NAT: Ana&ytic +S): App&icative //.

ANS: 7 NAT: Ana&ytic +S): App&icative /#.

ANS: D NAT: Ana&ytic +S): App&icative /2.

ANS: 7 NAT: Ana&ytic +S): App&icative /5.

)hapter #;+easuring the )ost of 'iving

ANS: 7 NAT: Ana&ytic T(: )I /.

ANS: 7 NAT: Ana&ytic T(: )I #.

ANS: D NAT: Ana&ytic T(: )I 2.

ANS: 7 NAT: Ana&ytic T(: )I .

ANS: ) NAT: Ana&ytic T(: )I /.

ANS: ) NAT: Ana&ytic T(: )I #.

ANS: 7 NAT: Ana&ytic T(: )I 8.

ANS: A NAT: Ana&ytic T(: )I 11.

ANS: D NAT: Ana&ytic T(: )I 1 .

ANS: A NAT: Ana&ytic T(: )I 1/.

ANS: 7 NAT: Ana&ytic T(: )I 1#.

ANS: 7 NAT: Ana&ytic T(: )I

ANS: ) NAT: Ana&ytic T(: )I 15.

ANS: D NAT: Ana&ytic T(: )I 16.

ANS: 7 NAT: Ana&ytic T(: )I 18.

ANS: ) NAT: Ana&ytic T(: )I 19.

ANS: A NAT: Ana&ytic T(: )I %.

ANS: 7 NAT: Ana&ytic T(: )I 2.

ANS: D NAT: Ana&ytic T(: )I 5.

ANS: ) NAT: Ana&ytic T(: )I 6.

ANS: ) NAT: Ana&ytic T(: )I 8.

ANS: ) NAT: Ana&ytic T(: )I 9.

ANS: ) NAT: Ana&ytic T(: )I #9.

ANS: A NAT: Ana&ytic T(: )I 5%.

ANS: A NAT: Ana&ytic T(: )I

ANS: ) NAT: Ana&ytic T(: )I 5#.

ANS: 7 NAT: Ana&ytic T(: )I 52.

ANS: ) NAT: Ana&ytic T(: )I 55.

ANS: A NAT: Ana&ytic T(: )I 56.

ANS: 7 NAT: Ana&ytic T(: )I 58.

ANS: A NAT: Ana&ytic T(: )I 61.

ANS: 7 NAT: Ana&ytic T(: )I 6 .

ANS: 7 NAT: Ana&ytic T(: )I 6/.

ANS: ) NAT: Ana&ytic T(: )I 6#.

ANS: A NAT: Ana&ytic T(: )I

ANS: 7 NAT: Ana&ytic T(: )I 65.

ANS: 7 NAT: Ana&ytic T(: )I 69.

ANS: A NAT: Ana&ytic T(: )I

ANS: ) NAT: Ana&ytic T(: )I 81.

ANS: A NAT: Ana&ytic T(: )I 8 .

ANS: A NAT: Ana&ytic T(: )I 8/.

ANS: A NAT: Ana&ytic T(: )I 8#.

ANS: 7 NAT: Ana&ytic T(: )I 85.

ANS: A NAT: Ana&ytic T(: )I 86.

ANS: D NAT: Ana&ytic T(: )I 88.

ANS: D NAT: Ana&ytic T(: )I 89.

ANS: D NAT: Ana&ytic T(: )I 9%.

ANS: A NAT: Ana&ytic T(: )I 91.

ANS: A NAT: Ana&ytic T(: )I 9 .

ANS: A NAT: Ana&ytic T(: )I 95.

ANS: A NAT: Ana&ytic T(: )I

ANS: A NAT: Ana&ytic T(: )I 98.

ANS: A NAT: Ana&ytic T(: )I 99.