Chapter 11 Test Questions

Question 1

When consumer spending is broken down into the major categories of goods and services, the largest single category is spending on transportation

T or F

Answer 1

False

Question 2

If the value of the consumer price index is 110 in 2005 and 121 in 2006, then the inflation rate is 11 percent for 2006

T or F

Answer 2

False

Question 3

Data from the Bureau of Labor statistics show that consumer spending on medical care is about equal to consumer spending in recreation and consumer spending on education and communication

T or F

Answer 3

True

Question 4

The CPI is always 1 in the base year

T or F

Answer 4

False

Question 5

Inflation can be measured using either the GDP deflator or the consumer price index

T or F

Answer 5

True

Question 6

When the quality of a good deteriorates while its price remains the same, the purchasing power of the dollars…

Answer 6

Decreases, so the CPI understates the changes in the cost of living if the quality change is not accounted for

Question 7

A decrease in the price of large tractors imported into the United States from Russia…

Answer 7

Leaves both the GDP deflator and the consumer price index unchanged

Question 8

In the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the largest

Answer 8

Food and beverages

Question 9

In the basket of goods that is used to compute the consumer price index, the three largest categories of consumer spending are

Answer 9

Housing, transportation, food and beverages

Question 10

If the CPI was 90 in 1975 and is 225 today, then 100 today purchases the same amount of goods and services as…

Answer 10

40$ purchased in 1975

Question 11

When box office receipts are not corrected for inflation, the most popular movie of all time is..

Answer 11

Avatar

Question 12

Suppose you know the value of the consumer price index in year 1 as well as the inflation rate in year 2. Which of the following equations is valid for the CPI in year 2?

Answer 12

CPI in year 2= ((CPI in year 1)(inflation rate in year 2) + (100)(CPI in year 1)) / (100)

Question 13

The price index was 110 in the first year, 100 in the second year, and 96 in the third year. The economy experienced…

Answer 13

9.1 percent deflation between the first and second years, and 4 percent deflation between the second and third years