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2. The CPI and the Cost of Living 23 CLICKER QUESTIONS

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4. © 2013 Pearson CHECKPOINT 23.1 A.the average price of all the goods and services that consumers buy B.the prices of the consumption goods and services that have increased C.the average of the prices paid by urban consumers for a fixed market basket of goods and services D.consumer confidence in the economy E.the average of the costs paid by businesses to produce a fixed market basket of consumption goods and services Question 1 The Consumer Price Index (CPI) measures ________.

5. © 2013 Pearson CHECKPOINT 23.1 A.166.7 B.66.7 C.120.0 D.60.0 E.300.0 Question 2 Suppose that at base period prices, the market basket of consumption goods and services costs $180 and at current period prices the same market basket of goods and services costs $300. The CPI in the current period is ____.

6. © 2013 Pearson CHECKPOINT 23.1 A.10.4 percent B.8.6 percent C.90.9 percent D.82.3 percent E.9.09 percent Question 3 If in June 2009, the CPI was 82.3 and in 2010, it was 90.9, then the inflation rate in 2010 was _______.

7. © 2013 Pearson CHECKPOINT 23.2 A.more beef and create a new goods bias B.more chicken and create a commodity substitution bias C.the same quantity of beef and chicken and create a commodity substitution bias D.less chicken and beef and create a quality change bias E.more chicken and eliminate the commodity substitution bias Question 4 Joe buys chicken and beef. If the price of beef rises and the price of chicken falls, Joe will buy ____ in the CPI.

8. © 2013 Pearson CHECKPOINT 23.2 A.The CPI is an accurate measure of the cost of living. B.The GDP price index is a good alternative to the CPI as a measure of the cost of living. C.The core inflation rate is the inflation rate of energy and food prices. D.The PCE inflation rate is generally lower than the CPI inflation rate. E.The core inflation rate exceeds the CPI inflation rate. Question 5 Which of the following statements is true?

9. © 2013 Pearson CHECKPOINT 23.2 A.decreases government outlays B.increases international competition C.reduces outlet substitution bias D.distorts private contracts E.is impossible to measure the inflation rate Question 6 A consequence of the CPI bias is that it _______.

10. © 2013 Pearson CHECKPOINT 23.2 A.adjusts the CPI basket monthly to reflect the improved quality B.selects a new CPI basket every month C.uses a process that eliminates any upward bias in the CPI D.does the best job it can to estimate the effect of the improved quantity on the price E.does not take account of any quality changes because the CPI is not an index of quality Question 7 The price of dishwashers has increased while at the same time the quality of a dishwasher has improved. The BEA ______.

11. © 2013 Pearson CHECKPOINT 23.3 A.$2.74 a pound B.$1.69 a pound C.$1.66 a pound D.$1.74 a pound E.$1.28 a pound Question 8 In 2011, apples cost $1.49 a pound. The CPI was 120 in 2011 and 140 in 2012. If the real price in 2012 was the same as in 2011, the price apples in 2010 was _______.

12. © 2013 Pearson CHECKPOINT 23.3 A.decreased because the PCE price index rose B.increased because all personal saving is real C.increased because the inflation rate fell D.increased because the PCE price index rose by less than the increase in personal saving E.was the same as it was in November Question 9 Personal saving was $534.2 billion in December 2009, compared with $506.3 billion in November 2009. The PCE price index increased 0.1 percent in December, compared with 0.3 percent in November. In December, real personal saving ______.

13. © 2013 Pearson CHECKPOINT 23.3 A.0 percent a year B.6 percent a year C.2.5 percent a year D.16 percent a year E.14 percent a year Question 10 You borrow at a nominal interest rate of 10 percent a year. If the inflation rate is 4 percent a year, then you pay a real interest rate of ________.