Question : 41) If we compare the last 30 years of inflation : 1238495

41) If we compare the last 30 years of inflation as recorded by the CPI and the PCE price index, we find that the

A) two measures fluctuate together.

B) CPI inflation rate has consistently been at least 5 percentage points above the PCE price index inflation rate.

C) PCE price index inflation rate has consistently been at least 5 percentage points above the CPI inflation rate.

D) two measures give very different inflation rates for most years.

E) the CPI inflation rate was always positive, but the PCE price index inflation rate was frequently negative.

42) When we compare the records of the CPI and the PCE price index over time, the

A) two are very different in magnitude.

B) PCE price index tends to exceed the CPI.

C) CPI tends to exceed the PCE price index.

D) two measures are identical.

E) CPI tends to exceed the PCE price index when inflation is high, and the PCE price index tends to exceed the CPI when inflation is low.

43) When comparing the annual inflation rate in the United States based on the CPI with the annual inflation rate based on the PCE price index, the data show that the

A) CPI measure tends to exceed the PCE price index measure.

B) PCE price index measure tends to exceed the CPI measure.

C) CPI measure and the PCE price index measure are equal.

D) CPI measure and PCE price index measure move in opposite directions.

E) CPI deflator and PCE price index cannot be compared because they measure prices of different baskets of goods and services.

44) All of the following can create a bias in the CPI EXCEPT the

A) new goods bias.

B) outlet substitution bias.

C) commodity substitution bias.

D) GDP price index bias.

E) quality change bias.

45) An example of the new goods bias in the calculation of the CPI is a price increase in

A) butter relative to margarine.

B) an iPod player relative to a Walkman.

C) a 2013 Honda Civic Si Coupe relative to a 2013 Honda Civic Si Sedan.

D) textbooks bought through the campus bookstore relative to textbooks bought through Amazon.com.

E) a Caribbean cruise for a couple who has never been on a cruise before.

46) The price of dishwashers has remained relatively constant while the quality of dishwashers has improved. The CPI

A) is adjusted monthly to reflect the improvement in quality.

B) is increased monthly to reflect the increased quality of dishwashers.

C) has an upward bias if it is not adjusted to take account of the higher quality.

D) has an upward bias because it does not reflect the increased production of dishwashers.

E) should not take account of any quality changes because it is a price index not a quality index.

47) Joe buys chicken and beef. If the price of beef rises and the price of chicken does not change, Joe will buy ________ for the CPI.

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

48) The CPI bias was estimated by the Congressional Advisory Commission on the Consumer Price Index as

A) understating the actual inflation rate by about 5 percentage points a year.

B) understating the actual inflation rate by more than 5 percentage points a year.

C) overstating the actual inflation rate by about 1 percentage point a year.

D) overstating the actual inflation rate by more than 5 percentage points a year.

E) understating the actual inflation rate by about 1 percentage point a year.

49) A consequence of the CPI bias is that it

A) decreases government outlays.

B) increases international trade.

C) reduces outlet substitution bias.

D) distorts private contracts.

E) means that it is impossible to measure the inflation rate.

50) The fact that the CPI is a biased measure of the inflation rate means government outlays will

A) increase at a faster rate than the actual inflation rate.

B) increase at the same rate as the actual inflation rate.

C) increase at a slower rate than the actual inflation rate.

D) sometimes increase faster and sometimes increase slower than the actual inflation rate depending on whether the actual inflation rate exceeds 1.1 percent per year or is less than 1.1 percent per year.

E) None of the above because the bias in inflation measured using the CPI has nothing to do with government outlays.

51) The GDP deflator is a measure of

A) taxes and subsidies.

B) changes in quantities.

C) prices.

D) depreciation.

E) changes in nominal GDP.