Question 1

Social Security payments:

Accepted Answer

A)  began to be indexed to inflation in 1975.
B)  are now indexed using the CPI.
C)  are adjusted using COLAs.
D)  All of these statements are true.E) C) and D)
F) B) and C)

Question 2

Transactions costs prevent purchasing power parity from holding because:

Accepted Answer

A)  they make creating exchanges too costly in some places.
B)  they include the expense of transporting the goods to be sold in another country.
C)  the price of a good sold in another country must include the cost of getting it there,which can be high and cause a large price differential.
D)  All of these statements are true.E) None of the above
F) C) and D)

Question 3

A dollar:

Accepted Answer

A)  changes in value over time.
B)  can reflect the cost of living in terms of the goods it can purchase.
C)  has no worth itself,but represents goods we can buy with it.
D)  All of these statements are true.E) B) and D)
F) B) and C)

Question 4

Nontradables:

Accepted Answer

A)  are goods or services that can't be taken from place to place very easily or at all.
B)  are goods or services that are cultural specific and not typically traded for that reason.
C)  are goods or services that are not allowed across a country's borders.
D)  are goods or services that are not allowed to leave a country.E) All of the above
F) A) and B)

Question 5

Now that Social Security payments are indexed:

Accepted Answer

A)  the nominal value is adjusted to maintain a constant real value.
B)  the real value is adjusted to maintain a constant nominal value.
C)  the payments are adjusted so retirees can buy more with their payments over time.
D)  the payments are not adjusted enough,so retirees can buy less with their payments over time.E) B) and D)
F) B) and C)

Question 6

The consumer price index:

Accepted Answer

A)  measures the increase in the cost of the market basket relative to the cost in a given base year.
B)  is always 100 in the base year.
C)  helps us understand how the cost of living today compares with the cost of living at some time in the past.
D)  All of these statements are true.E) A) and B)
F) A) and C)

Question 7

This table shows the price-level adjustment as compared to the United States. 
According to the information in the table shown,if someone were to make $35,000,she would be able to buy more goods and services if she lived in:

Accepted Answer

A)  Australia.
B)  the United States.
C)  Mexico.
D)  China.E) B) and C)
F) A) and B)

Question 8

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) A) and B)
F) B) and C)

Question 9

An example of a nontradable good is:

Accepted Answer

A)  a bottle of wine from a remote valley in France.
B)  a rare gemstone found in South Africa.
C)  a haircut by a renowned Italian hairstylist in Florence.
D)  All of these would be considered a nontradable good.E) A) and C)
F) B) and C)

Question 10

When the CPI increases from one year to the next:

Accepted Answer

A)  the cost of living has increased.
B)  inflation has occurred.
C)  people need to spend more money to buy the same amount of goods as the previous year.
D)  All of these statements are true.E) A) and B)
F) All of the above

Question 11

One fundamental idea in macroeconomics about inflation is:

Accepted Answer

A)  if all prices rise,then inflation doesn't really affect anyone's purchasing power.
B)  when all prices rise,inflation occurs and everyone is worse off.
C)  keeping prices constant is the only way to ensure increasing purchasing power over time.
D)  if all prices decline,the purchasing power of everyone declines.E) C) and D)
F) A) and D)

Question 12

We calculate many different kinds of price indexes:

Accepted Answer

A)  in order to capture a complete picture of how price changes are affecting the economy.
B)  to see how the prices of different groups of goods are changing.
C)  to measure how different groups of people in the economy are being affected by changing prices.
D)  All of these statements are true.E) All of the above
F) A) and B)

Question 13

While the CPI focuses on changes to prices for consumers,the PPI:

Accepted Answer

A)  measures the prices of goods and services purchased by firms.
B)  stands for the producer price index.
C)  looks specifically at the prices changes that affect the typical producer.
D)  All of these statements are true.E) B) and C)
F) A) and B)

Question 14

The producer price index is considered a good predictor of future consumer prices because:

Accepted Answer

A)  increases in input prices eventually make it to consumers when they buy the final product.
B)  increases in input prices are accounted for in PPI,and therefore this automatically adjusts the CPI.
C)  increases in input prices are observed first in the PPI,adjusting the CPI downward.
D)  None of these statements is true.E) A) and D)
F) A) and C)

Question 15

Which of the following reasons can explain why purchasing power parity doesn't hold?

Accepted Answer

A)  Transactions costs
B)  Nontradables
C)  Trade restrictions
D)  All of these are reasons why purchasing power parity doesn't hold.E) None of the above
F) A) and D)

Question 16

Nontradables are cited as a reason why purchasing power parity doesn't hold because:

Accepted Answer

A)  goods that you can't transport cannot be sold for a profit elsewhere,even if the price differs in different locations.
B)  there is no economic opportunity to profit if the goods cannot be sold in another market for another price.
C)  location-specific goods are impossible to calculate a price elsewhere for.
D)  All of these statements are true.E) A) and B)
F) None of the above

Question 17

The CPI basket of goods represents those goods and services purchased by urban consumers because:

Accepted Answer

A)  it represents 87 percent of our population.
B)  it represents over 90 percent of our population.
C)  it represents 78 percent of our population.
D)  it represents 60 percent of our population.E) None of the above
F) B) and D)

Question 18

PPP is the acronym for:

Accepted Answer

A)  producer purchasing power.
B)  purchasing power parity.
C)  producer power parity.
D)  purchasing price power.E) B) and D)
F) B) and C)

Question 19

Indexing Social Security payments is done using:

Accepted Answer

A)  the CPI.
B)  the PPI.
C)  the GDP deflator.
D)  the RPI.E) All of the above
F) C) and D)

Question 20

The consumers that the CPI is based on does not include:

Accepted Answer

A)  the unemployed.
B)  the retired.
C)  persons in prison.
D)  The CPI does not include any of these.E) B) and D)
F) C) and D)

Exam 25: The Cost of Living

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

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While the CPI focuses on changes to prices for consumers,the PPI:

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Transactions costs prevent purchasing power parity from holding because:

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Nontradables:

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One fundamental idea in macroeconomics about inflation is:

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We calculate many different kinds of price indexes:

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The consumer price index:

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Social Security payments:

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When the CPI increases from one year to the next:

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Indexing Social Security payments is done using:

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Now that Social Security payments are indexed:

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The consumers that the CPI is based on does not include:

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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 to make $35,000,she would be able to buy more goods and services if she lived in:

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An example of a nontradable good is:

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A dollar:

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The CPI basket of goods represents those goods and services purchased by urban consumers because:

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The producer price index is considered a good predictor of future consumer prices because:

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PPP is the acronym for:

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Nontradables are cited as a reason why purchasing power parity doesn't hold because:

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Which of the following reasons can explain why purchasing power parity doesn't hold?

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