Question : 31) Because the CPI overstates inflation, A) when wages linked : 1240915

31) Because the CPI overstates inflation,

A) when wages are linked to the CPI, workers’ wages become too low as time passes.

B) as time passes, government payments are increasingly lower than intended.

C) as time passes, government outlays are increased by more than necessary to compensate for inflation.

D) workers do not receive adequate compensation for price changes.

E) most contracts use the GDP deflator to measure inflation.

32) Between the base period and the next period, prices stay constant. The GDP price index in the next period

A) cannot be calculated without knowing how much the quantity changed.

B) will equal 0 because there is no change.

C) is equal to 100 because there is no change.

D) is equal to 1 because there is no change.

E) is equal to 50 because there is no change.

33) The GDP deflator is

A) a measure of the level of production.

B) always greater than 100.

C) the price level during the base year.

D) a measure of the price level.

E) equal to nominal GDP during the base year.

34) The GDP deflator measures

A) the price level.

B) the quantity level.

C) real GDP.

D) nominal GDP.

E) the quality of the goods and services in GDP.

35) If the GDP price index is 137, this value means that prices have increased

A) 137 percent in the last year.

B) 37 percent in the last year.

C) 37 percent since the base year.

D) 137 percent since the base year.

E) 63 percent since the base year.

36) For the purpose of measuring the cost of living for consumers, one reason the GDP price index is NOT a good substitute for the CPI is because the GDP price index

A) compares a current year basket of goods with a base year basket of goods.

B) compares current year’s prices with base year’s prices.

C) includes the prices of exported goods, which are not consumed in the United States.

D) and the CPI move in the same direction over time.

E) has a larger bias than does the CPI.

37) If Caterpillar Inc. raises the price of earth-moving equipment that it manufactures in Illinois, then the CPI will ________ and the GDP deflator will ________.

A) increase; increase

B) increase; not change

C) not change; increase

D) not change; not change

E) increase; increase by less than the CPI

38) If the price of used cars rises, then the CPI will ________ and the GDP deflator will ________.

A) increase; increase

B) increase; not change

C) not change; increase

D) not change; not change

E) increase; increase by more than the CPI

39) If the price of rocket fuel imported from Russia and used by NASA suddenly increases, then the U.S. CPI will ________ and the U.S. GDP deflator will ________.

A) increase; increase

B) increase; not change

C) not change; increase

D) not change; not change

E) increase; increase by more than the CPI

40) 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 two inflation rates

A) move in opposite directions.

B) remained constant over the forty year period after 1979.

C) steadily increased over the forty year period after 1979.

D) move up and down in similar but not identical ways.

E) both fluctuate, but the fluctuations have little relationship to each other.