Question : 7.2   The CPI and Other Price Level Measures 1) If we : 1240912

 

7.2   The CPI and Other Price Level Measures

 

1) If we compare the CPI to a perfect cost of living index, we find that they are

A) the same thing.

B) different because the cost of living has nothing to do with prices.

C) different because the CPI does not measure prices.

D) different because the CPI uses a fixed basket and has some measurement difficulties.

E) not the same because the CPI has a fixed reference base period.

 

2) Economists agree that the CPI

A) is a near perfect measure of the cost of living.

B) has no relation to the cost of living.

C) is a possibly biased measure of the cost of living.

D) almost always shows the cost of living rising less rapidly than is the case in reality.

E) overstates inflation by about 4.1 percentage points a year.

 

3) When economists speak of the CPI bias, they are referring to

A) the tendency for the CPI to overstate price changes.

B) the tendency for the CPI to understate price changes.

C) the tendency for the CPI to understate inflation.

D) errors in measuring the prices used in the CPI.

E) the tendency for government officials to impose their values on the data.

4) Which of the following is NOT a source of bias in the CPI?

i.quality change bias

ii.new goods bias

iii.quantity change bias

A) i only

B) ii only

C) iii only

D) i and ii

E) ii and iii

 

5) Which of the following makes the Consumer Price Index a less accurate measure of the cost of living?

i.The monthly price survey conducted to collect information about prices is very unreliable.

ii.The existence of a new goods bias in the calculation of the CPI

iii.The existence of a quality change bias in the calculation of the CPI

A) i only

B) ii only

C) ii and iii

D) i and ii

E) i, ii, and iii

 

6) Which of the following is a bias in the CPI?

i.new goods bias

ii.index change bias

iii.commodity substitution bias

A) i only

B) ii only

C) iii only

D) i and iii

E) i, ii, and iii

7) The CPI is biased because it

A) takes into account the changes in product quality.

B) takes into account the changes in technology.

C) does not always take into account the changes in product quality.

D) accurately measures the cost of living but not the cost of producing.

E) does not include services.

 

8) If the CPI is used as a cost of living index, incomes that are adjusted to reflect the changes in the CPI will

A) increase by more than the actual change in the cost of living.

B) decrease by more than the actual change in the cost of living.

C) increase by more than the actual change in quantities.

D) decrease by more than the actual change in quantities.

E) generally rise by about 2 percent a year because the standard of living generally rises by about 2 percent a year.

 

9) The presence of new goods that are of higher quality than the old goods leads the BLS to

A) update the market basket every time a new good is available.

B) do nothing because at least some people still buy the old goods.

C) try to separate price differences from improvements in quality.

D) actually understate the cost of living when calculating the CPI.

E) immediately update the reference base period used in calculating the CPI.

10) When a good gets better from one year to the next, the CPI has a what is called

A) new goods bias.

B) quality change bias.

C) commodity substitution bias.

D) outlet substitution bias.

E) magnitude of change bias.