Ch.
24 - Sample Questions
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____ 1. Which of the following is correct?
a. The GDP deflator is better than the CPI at reflecting the goods and services bought by
consumers.
b. The CPI is better than the GDP deflator at reflecting the goods and services bought by
consumers.
c. The GDP deflator and the CPI are equally good at reflecting the goods and services bought
by consumers.
d. The GDP deflator is more commonly used as a gauge of inflation than the CPI is.
____ 2. Suppose a basket of goods and services has been selected to calculate the CPI and 2002 has been selected as
the base year. In 2002, the basket’s cost was $50; in 2004, the basket’s cost was $52; and in 2006, the
basket’s cost was $54.60. The value of the CPI in 2006 was
a. 91.6.
b. 104.6.
c. 109.2.
d. 154.6.
Table 24-1
The table below pertains to Pieway, an economy in which the typical consumer’s basket consists of 10
bushels of peaches and 15 bushels of pecans.
Year Price of Price of
Peaches Pecans
2005 $11 per bushel $6 per bushel
2006 $9 per bushel $10 per bushel
____ 3. Refer to Table 24-1. If 2005 is the base year, then the inflation rate in 2006 was
a. 16.7 percent.
b. 20 percent.
c. 40 percent.
d. 44.1 percent.
____ 4. In 1931, President Herbert Hoover was paid a salary of $75,000. Government statistics show a consumer
price index of 15.2 for 1931 and 207 for 2007. President Hoover’s 1931 salary was equivalent to a 2007
salary of about
a. $5507.
b. $1,021,382.
c. $1,140,000.
d. $15,525,000.
____ 5. If the consumer price index was 100 in the base year and 107 in the following year, then the inflation rate was
a. 1.07 percent.
b. 7 percent.
c. 10.7 percent.
d. 107 percent.
____ 6. Assume an economy experienced a positive rate of inflation between 2003 and 2004 and again between 2004
and 2005. However, the inflation rate was lower between 2004 and 2005 than it was between 2003 and 2004.
Which of the following scenarios is consistent with this assumption?
a. The CPI was 100 in 2003, 110 in 2004, and 105 in 2005.
b. The CPI was 100 in 2003, 120 in 2004, and 135 in 2005.
c. The CPI was 100 in 2003, 105 in 2004, and 130 in 2005.
d. The CPI was 100 in 2003, 90 in 2004, and 88 in 2005.
____ 7. Henri earned a salary of $50,000 in 2001 and $70,000 in 2006. The consumer price index was 177 in 2001
and 265.5 in 2006. Henri's 2006 salary in 2001 dollars is
a. $35,000.00.
b. $46,666.67.
c. $61,950.00
d. $105,000.00.
____ 8. Suppose today’s CPI is 134.85, and suppose one must spend $580 today to purchase the same basket of goods
and services that could be bought for $400 in 1989. Then the CPI in 1989 was
a. 24.27.
b. 60.68.
c. 93.00.
d. 195.53.
____ 9. The nominal interest rate tells you
a. how fast the number of dollars in your bank account rises over time.
b. how fast the purchasing power of your bank account rises over time.
c. the number of dollars in your bank account today.
d. the purchasing power of your bank account today.
____ 10. During a certain year, the consumer price index increased from 150 to 159 and the purchasing power of a
person’s bank account increased by 3.5 percent. For that year,
a. the nominal interest rate was 6 percent.
b. the nominal interest rate was 9.5 percent.
c. the inflation rate was 3.5 percent.
d. the inflation rate was 9.5 percent.
Ch.24 - Sample Questions
Answer Section
MULTIPLE CHOICE
1. ANS: B PTS: 1 DIF: 2 REF: 24-0
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: CPI | GDP deflator MSC: Interpretive
2. ANS: C PTS: 1 DIF: 2 REF: 24-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: CPI MSC: Applicative
3. ANS: B PTS: 1 DIF: 2 REF: 24-1
NAT: Analytic LOC: Unemployment and inflation TOP: Inflation rate
MSC: Applicative
4. ANS: B PTS: 1 DIF: 2 REF: 24-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Comparing dollar figures MSC: Applicative
5. ANS: B PTS: 1 DIF: 2 REF: 24-1
NAT: Analytic LOC: Unemployment and inflation TOP: Inflation rate
MSC: Applicative
6. ANS: B PTS: 1 DIF: 2 REF: 24-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: CPI | Inflation rate MSC: Applicative
7. ANS: B PTS: 1 DIF: 2 REF: 24-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Comparing dollar figures MSC: Applicative
8. ANS: C PTS: 1 DIF: 2 REF: 24-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Comparing dollar figures MSC: Applicative
9. ANS: A PTS: 1 DIF: 1 REF: 24-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Nominal interest rate MSC: Definitional
10. ANS: B PTS: 1 DIF: 3 REF: 24-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Nominal interest rate MSC: Analytical
