Question 1

One problem with keeping the CPI basket fixed is it:

Accepted Answer

A)   doesn't accurately isolate price changes from behavior changes.
B)   doesn't allow for changes in people's preferences over time.
C)   can't properly predict when prices will change.
D)   doesn't really capture what a typical household may purchase in a base year.E) All of the above
F) A) and D)

Question 2

The Big Mac index compares:

Accepted Answer

A)   the cost of a Big Mac all over the world.
B)   the cost of a typical basket for consumers all over the world.
C)   typical food costs, as food is the largest component of all consumption baskets.
D)   typical food and energy costs across different locations.E) All of the above
F) B) and C)

Question 3

Social Security payments:

Accepted Answer

A)   began to be indexed to inflation in 1975.
B)   are now indexed using the PPI.
C)   are not adjusted using COLAs.
D)   began to be adjusted to 5% above the poverty line in 1987.E) B) and D)
F) All of the above

Question 4

This table shows the price-level adjustment as compared to the United States.  According to the information given in the table shown, if someone makes $40,000 in the U.S., what would his salary need to be in Mexico to maintain the same standard of living?

Accepted Answer

A)   $60,606
B)   $26,400
C)   $40,000
D)   $13,600E) A) and C)
F) A) and B)

Question 5

In 1976, the cost of a movie was $4. In 2012, it's $9. If the CPI for 1976 is 56, and 228 for 2012, to find the real 2012 value of a 1976 movie, we would multiply its nominal value in 1976 by the ratio of:

Accepted Answer

A)   (56/228) .
B)   (228/56) .
C)   (9/5) .
D)   (5/9) .E) A) and B)
F) B) and C)

Question 6

A dollar's value can change:

Accepted Answer

A)   over time.
B)   across different locations.
C)   Both of these statements are true.
D)   Neither of these statements is true.E) A) and D)
F) C) and D)

Question 7

Inflation is measured by examining the percent increase in the ________ from one year to the next.

Accepted Answer

A)   CPI
B)   price of gas
C)   GDP growth
D)   nominal GDPE) None of the above
F) C) and D)

Question 8

This table shows the price-level adjustment as compared to the United States.  According to the information in the table shown, if someone were earning $50,000 in Australia, approximately what would she need to earn in the United States to enjoy the same standard of living?

Accepted Answer

A)   $75,000
B)   $33,333
C)   $25,000
D)   $37,500E) C) and D)
F) None of the above

Question 9

The substitution of one good for another by consumers:

Accepted Answer

A)   due to price changes is captured by the CPI.
B)   due to changes in tastes/preferences is captured by the CPI.
C)   is captured by the CPI.
D)   is not captured by the CPI.E) A) and C)
F) None of the above

Question 10

Transactions costs are:

Accepted Answer

A)   the time and energy involved with creating an exchange.
B)   often cited as a reason why purchasing power parity doesn't hold.
C)   usually higher when transactions take place internationally.
D)   All of these statements are true.E) B) and D)
F) C) and D)

Question 11

According to the table shown, how do we interpret what happened between 2011 and 2014? The cost of living:

Accepted Answer

A)   increased 6 %.
B)   increased 1.06 %.
C)   decreased 2 %.
D)   decreased 0.98 %.E) A) and B)
F) A) and C)

Question 12

A market basket:

Accepted Answer

A)   looks like a really long shopping list for what firm's typically purchase.
B)   includes specific goods and services in fixed quantities that roughly correspond to a typical consumer's spending.
C)   only includes housing, food, and clothing, but not things like transportation.
D)   is what an economist creates in order to understand purchasing trends of households and firms.E) C) and D)
F) None of the above

Question 13

The urban consumers that the CPI is based on includes:

Accepted Answer

A)   bank tellers.
B)   greeters at Walmart.
C)   retired persons.
D)   All of these are included.E) B) and D)
F) C) and D)

Question 14

The ICP index:

Accepted Answer

A)   uses a broad market basket that tries to represent the full cost of living across countries.
B)   is an imperfect measure because of cultural differences.
C)   is an imperfect measure because of typical weather and geographical differences.
D)   All of these statements are true.E) C) and D)
F) A) and D)

Question 15

Social Security payments:

Accepted Answer

A)   now hold their value over time.
B)   are adjusted for inflation using the CPI.
C)   undergo cost-of-living adjustments.
D)   All of these statements are true.E) C) and D)
F) B) and D)

Question 16

Trade restrictions:

Accepted Answer

A)   increase the cost or difficulty of making exchanges across national borders.
B)   discourage people from fully taking advantage of lower prices in other countries.
C)   can explain why purchasing power parity doesn't typically hold.
D)   all of the above statements are true.E) B) and C)
F) A) and B)

Question 17

The reason economists create a market basket is to:

Accepted Answer

A)   track its changing prices to reflect changes in purchasing patterns of firms.
B)   see how the cost of buying the goods and services on the list changes over time.
C)   know how each individual consumer is being affected by changing prices.
D)   get a sense of how people buy items on a weekly basis.E) B) and D)
F) A) and B)

Question 18

The price index that measures the prices of goods and services purchased by firms is called the:

Accepted Answer

A)   PPI.
B)   CPI.
C)   RPI.
D)   PRI.E) B) and C)
F) None of the above

Question 19

When something is indexed:

Accepted Answer

A)   its value is automatically adjusted in proportion to the cost of living.
B)   it is expressed as nominal value multiplied by price index.
C)   its real value is converted into nominal terms for comparison.
D)   its relative rank in consumption items is compensated for relative to its cost.E) A) and C)
F) B) and D)

Question 20

This table shows the price-level adjustment as compared to the United States.  The information in the table shown:

Accepted Answer

A)   allows us to compare the standard of living in one country to another.
B)   has been indexed to the United States.
C)   shows that the typical good in Australia is more expensive than it is in the United States.
D)   All of these statements are true.E) B) and C)
F) None of the above

Exam 8: The Cost of Living

A dollar's value can change:

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Social Security payments:

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Social Security payments:

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In 1976, the cost of a movie was $4. In 2012, it's $9. If the CPI for 1976 is 56, and 228 for 2012, to find the real 2012 value of a 1976 movie, we would multiply its nominal value in 1976 by the ratio of:

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This table shows the price-level adjustment as compared to the United States. According to the information given in the table shown, if someone makes $40,000 in the U.S., what would his salary need to be in Mexico to maintain the same standard of living?

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When something is indexed:

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The reason economists create a market basket is to:

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A market basket:

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One problem with keeping the CPI basket fixed is it:

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The Big Mac index compares:

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This table shows the price-level adjustment as compared to the United States. The information in the table shown:

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The price index that measures the prices of goods and services purchased by firms is called the:

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This table shows the price-level adjustment as compared to the United States. According to the information in the table shown, if someone were earning $50,000 in Australia, approximately what would she need to earn in the United States to enjoy the same standard of living?

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Inflation is measured by examining the percent increase in the ________ from one year to the next.

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Transactions costs are:

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According to the table shown, how do we interpret what happened between 2011 and 2014? The cost of living:

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Trade restrictions:

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The urban consumers that the CPI is based on includes:

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The ICP index:

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The substitution of one good for another by consumers:

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