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| 1 | |
Consumer price index measures: |
| | A) | The cost of a standard basket of goods and services in the base year relative to the cost of the same basket of goods and services in a given year |
| | B) | The cost of a standard basket of goods and services in the previous year relative to the cost of the same basket of goods and services in a given year |
| | C) | The cost of a standard basket of goods and services in a given year relative to the cost of the same basket of goods and services in the base year |
| | D) | The cost of a standard basket of goods and services in a given year relative to the cost of the same basket of goods and services in the previous year |
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| 2 | |
In year 1, the consumer price index is 1.07 and in year 2, the consumer price index is 1.13. If Sarah earns $50,000 in year 1, what is the minimum salary she must earn in year 2 to keep up with inflation? |
| | A) | $47,345 |
| | B) | $52,804 |
| | C) | $53,000 |
| | D) | $56,000 |
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| 3 | |
If the consumer price in index was 1.60 in 2010 and 1.80 in 2011, the rate of inflation is: |
| | A) | 12.5% |
| | B) | 20% |
| | C) | 80% |
| | D) | 180% |
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| 4 | |
Suppose that we shop for a basket of goods in 2010 and it costs $250, and that we shop for the same basket of goods in 2011 and it costs $350. If we use 2010 as the base year, then the CPI in 2011 is: |
| | A) | 0.714 |
| | B) | 1 |
| | C) | 1.40 |
| | D) | 3.50 |
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| 5 | |
Suppose the last year consumer price index was 1.20. If the inflation rate is 4%, then the consumer price index of the current year is equal to |
| | A) | 1.04 |
| | B) | 1.24 |
| | C) | 1.248 |
| | D) | 1.604 |
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| 6 | |
Which of the following is true based on the figure below?
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| | A) | The price level has increased since 1965 |
| | B) | The price level has declined since 1965 |
| | C) | The price level was at its highest in 1980 |
| | D) | The base year is 1965 |
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| 7 | |
To express a nominal quantity in real terms, we: |
| | A) | Index it by the CPI |
| | B) | Index it by the inflation rate |
| | C) | Deflate it by the inflation rate |
| | D) | Deflate it by the CPI |
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| 8 | |
The bias that the CPI based inflation rate overstates the true rate of inflation due to failing to account for improvements in the quality of the goods is known as: |
| | A) | Substitution bias |
| | B) | Quality adjustment bias |
| | C) | Indexing bias |
| | D) | Deflation bias |
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| 9 | |
Which of the following statements is true? |
| | A) | Changes in relative prices imply a significant amount of inflation |
| | B) | If all prices in the economy (including salaries) increase by 10% each year, then relative prices should have increased by 10% |
| | C) | If all prices in the economy (including salaries) increase by 10% each year, then relative prices have not changed |
| | D) | Price level and relative price mean the same thing |
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| 10 | |
If inflation is 8% and the price of oil has increased by only 5%, then the relative price of oil: |
| | A) | Has decreased by 5% |
| | B) | Has increased by 5% |
| | C) | Has increased by 3% |
| | D) | Has decreased by 3% |
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