Question 1

An increase in the price of dairy products produced domestically will be reflected in

Accepted Answer

The answer of An increase in the price of dairy...

Question 2

An increase in the price of bread produced domestically will be reflected in

Accepted Answer

Both the GDP deflator and the consumer price index (CPI) measure inflation, but they do so from different perspectives. The GDP deflator reflects the prices of all domestically produced goods and services, while the CPI measures the prices of a basket of goods and services purchased by households, including bread. Therefore, an increase in the price of domestically produced bread would be reflected in both the GDP deflator and the CPI.

Question 3

Suppose OPEC succeeds in raising world oil prices by 300 percent. This price increase causes inventors to look at alternative sources of fuel for internal-combustion engines. A hydrogen-powered engine is developed which is cheaper to operate than gasoline engines. Which problems in the construction of the CPI does this situation represent?

Accepted Answer

The answer of Suppose OPEC succeeds in raising world oil...

Question 4

One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI

Accepted Answer

The answer of One of the widely acknowledged problems with...

Question 5

The GDP Deflator reflects

Accepted Answer

The GDP Deflator reflects the prices of all final goods and services currently produced domestically, while the CPI reflects the price of a fixed basket of goods and services purchased by a typical consumer. Therefore, the correct choice is C.

Question 6

Recent changes in methods used to compute the CPI have made the

Accepted Answer

Recent changes in methods used to compute the CPI have made the upward bias in the CPI inflation rate less severe than it used to be. One significant change was the introduction of the Chained CPI in 2002, which takes into account consumers' tendency to switch to lower-priced goods when prices of specific items rise.

Question 7

An important difference between the GDP deflator and the consumer price index is that

Accepted Answer

The answer of An important difference between the GDP deflator...

Question 8

Which of the following statements best represents economists' beliefs about the bias in the CPI as a measure of the cost of living?

Accepted Answer

There is still debate among economists on the severity of the CPI bias and what to do about it. While some economists believe that the CPI is biased upwards and overstates inflation, others believe that it is biased downwards and understates inflation. Furthermore, there is ongoing debate on how to adjust the CPI to account for changes in the quality of goods and services over time. Therefore, economists do not agree on the severity of the CPI bias or what actions should be taken to address it.

Question 9

The GDP deflator reflects the

Accepted Answer

The GDP deflator is calculated by taking the nominal GDP (measured in current prices) and dividing it by the real GDP (measured in prices from a base year). This ratio reflects the current level of prices relative to the level of prices in the base year, meaning choice B is the correct answer. The other choices do not accurately describe what the GDP deflator measures.

Question 10

The CPI differs from the GDP deflator in that

Accepted Answer

The answer of The CPI differs from the GDP deflator...

Question 11

Which of these events would cause the consumer price index to overstate the increase in the cost of living?

Accepted Answer

The answer of Which of these events would cause the...

Question 12

The CPI and the GDP deflator

Accepted Answer

The CPI (Consumer Price Index) and the GDP (Gross Domestic Product) deflator both measure price changes over time, but they use different methods and have different scopes. However, they do generally move together in the same direction, as changes in consumer prices and changes in overall economic output tend to be correlated.

Question 13

Michelle bought word-processing software in 2009 for $75. Michelle's cousin, Barry, bought an upgrade of the same software in 2010 for $75. To which problem in the construction of the CPI is this situation most relevant?

Accepted Answer

This situation is most relevant to the problem of unmeasured quality change, as the software being purchased is an upgraded version of the same product. This means that the newer version likely has improvements in quality that are not accounted for in the CPI.

Question 14

Which of the following is the most accurate statement about the effects of quality change on the CPI?

Accepted Answer

The answer of Which of the following is the most...

Question 15

The problems with using the consumer price index as a measure of the cost of living are important because

Accepted Answer

Many government programs use the CPI to adjust for changes in the overall level of prices. Therefore, any errors or deficiencies in the CPI could lead to incorrect adjustments, which could have significant impacts on government spending and the overall economy. Choices A, B, and D are also valid concerns but are not directly related to the importance of the CPI as a measure of the cost of living.

Question 16

The CPI differs from the GDP deflator in that

Accepted Answer

The Consumer Price Index (CPI) includes the prices of goods and services, including those produced abroad, that are purchased by consumers, whereas the GDP deflator measures the prices of all domestically produced goods and services in the economy, regardless of whether they are consumed by individuals, the government, or foreigners. Thus, increases in the prices of foreign-produced goods that are sold to U.S. consumers affect the CPI but not the GDP deflator.

Question 17

Suppose lawn mowers are part of the market basket used to compute the CPI. Suppose also that the quality of lawn mowers deteriorates while the price of lawn mowers stays the same. If the Bureau of Labor Statistics is able to precisely adjust the CPI for the improvement in quality, then, other things equal,

Accepted Answer

The answer of Suppose lawn mowers are part of the...

Question 18

For some racquet sports, there have been increases in the size of the racquets; also, the methods and materials used for making racquets have improved. To which problem in the construction of the CPI is this situation most relevant?

Accepted Answer

The situation described is most relevant to unmeasured quality change, as the improvements in racquet size and materials result in a better and more expensive product, which would not be reflected in price changes measured by the CPI if the methodology does not account for quality improvements.

Question 19

Several studies in the 1990s concluded that the consumer price index overstated inflation by about

Accepted Answer

The answer of Several studies in the 1990s concluded that...

Question 20

Two alternative measures of the overall level of prices are

Accepted Answer

The GDP deflator and the consumer price index are two alternative measures of the overall level of prices. The GDP deflator measures the changes in prices of all goods and services produced in an economy, whereas the consumer price index measures the changes in prices of goods and services consumed by households. Both measures are important to understand the overall level of inflation in an economy. The inflation rate and the GDP deflator are also closely related, as the inflation rate is the percentage change in the general level of prices as measured by the GDP deflator. However, the choice of the consumer price index and the GDP deflator as the two alternative measures of the overall level of prices is preferable, as it captures the different aspects of inflation that affect different segments of the economy.

Quiz 16: Measuring the Cost of Living

An increase in the price of dairy products produced domestically will be reflected in

An increase in the price of bread produced domestically will be reflected in

One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI

The GDP Deflator reflects

Recent changes in methods used to compute the CPI have made the

An important difference between the GDP deflator and the consumer price index is that

Which of the following statements best represents economists' beliefs about the bias in the CPI as a measure of the cost of living?

The GDP deflator reflects the

The CPI differs from the GDP deflator in that

Which of these events would cause the consumer price index to overstate the increase in the cost of living?

The CPI and the GDP deflator

Michelle bought word-processing software in 2009 for $75. Michelle's cousin, Barry, bought an upgrade of the same software in 2010 for $75. To which problem in the construction of the CPI is this situation most relevant?

Which of the following is the most accurate statement about the effects of quality change on the CPI?

The problems with using the consumer price index as a measure of the cost of living are important because

The CPI differs from the GDP deflator in that

For some racquet sports, there have been increases in the size of the racquets; also, the methods and materials used for making racquets have improved. To which problem in the construction of the CPI is this situation most relevant?

Several studies in the 1990s concluded that the consumer price index overstated inflation by about

Two alternative measures of the overall level of prices are