Principles Of Macroeconomics 6th Edition By N. Gregory Mankiw – Test Bank

Overview

Chapter 11
Measuring the Cost of Living

Multiple Choice

1. Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best baseball players can earn more than 400 times as much as Babe Ruth earned in 1931. However, prices have also risen since 1931. We can conclude that
a. the best baseball players today are about 400 times better off than Babe Ruth was in 1931.
b. because prices have also risen, the standard of living of baseball stars hasn’t changed since 1931.
c. one cannot make judgments about changes in the standard of living based on changes in prices and changes in incomes.
d. one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931.
ANS: D PTS: 1 DIF: 2 REF: 11-0
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Prices | Standard of living MSC: Interpretive

2. The consumer price index is used to
a. monitor changes in the level of wholesale prices in the economy.
b. monitor changes in the cost of living over time.
c. monitor changes in the level of real GDP over time.
d. monitor changes in the stock market.
ANS: B PTS: 1 DIF: 1 REF: 11-0
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: CPI MSC: Definitional

3. The consumer price index is used to
a. convert nominal GDP into real GDP.
b. turn dollar figures into meaningful measures of purchasing power.
c. characterize the types of goods and services that consumers purchase.
d. measure the quantity of goods and services that the economy produces.
ANS: B PTS: 1 DIF: 1 REF: 11-0
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: CPI MSC: Definitional

4. Which of the following is not correct?
a. The consumer price index gives economists a way of turning dollar figures into meaningful measures of purchasing power.
b. The consumer price index is used to monitor changes in the cost of living over time.
c. The consumer price index is used by economists to measure the inflation rate.
d. The consumer price index is used to measure the quantity of goods and services that the economy is producing.
ANS: D PTS: 1 DIF: 2 REF: 11-0
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: CPI MSC: Interpretive

5. When the consumer price index rises, the typical family
a. has to spend more dollars to maintain the same standard of living.
b. can spend fewer dollars to maintain the same standard of living.
c. finds that its standard of living is not affected.
d. can offset the effects of rising prices by saving more.
ANS: A PTS: 1 DIF: 1 REF: 11-0
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: CPI | Standard of living MSC: Definitional

6. When the consumer price index falls, the typical family
a. has to spend more dollars to maintain the same standard of living.
b. can spend fewer dollars to maintain the same standard of living.
c. finds that its standard of living is not affected.
d. can save less because they do not need to offset the effects of rising prices.
ANS: B PTS: 1 DIF: 2 REF: 11-0
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: CPI | Standard of living MSC: Interpretive

7. Economists use the term inflation to describe a situation in which
a. some prices are rising faster than others.
b. the economy’s overall price level is rising.
c. the economy’s overall price level is high, but not necessarily rising.
d. the economy’s overall output of goods and services is rising faster than the economy’s overall price level.
ANS: B PTS: 1 DIF: 1 REF: 11-0
NAT: Analytic LOC: Unemployment and inflation TOP: Inflation
MSC: Definitional

8. The term inflation is used to describe a situation in which
a. the overall level of prices in the economy is increasing.
b. incomes in the economy are increasing.
c. stock-market prices are rising.
d. the economy is growing rapidly.
ANS: A PTS: 1 DIF: 1 REF: 11-0
NAT: Analytic LOC: Unemployment and inflation TOP: Inflation
MSC: Definitional

9. When the overall level of prices in the economy is increasing, economists say that the economy is expe-riencing
a. economic growth.
b. stagflation.
c. inflation.
d. deflation.
ANS: C PTS: 1 DIF: 1 REF: 11-0
NAT: Analytic LOC: Unemployment and inflation TOP: Inflation
MSC: Definitional

10. The inflation rate is defined as the
a. price level in an economy.
b. change in the price level from one period to the next.
c. percentage change in the price level from the previous period.
d. price level minus the price level from the previous period.
ANS: C PTS: 1 DIF: 1 REF: 11-0
NAT: Analytic LOC: Unemployment and inflation TOP: Inflation rate
MSC: Definitional