Multiple Choice Questions
1. The consumer price index measures approximately the same economic phenomenon as
a. Nominal GDP.
b. Real GDP.
c. The GDP deflator.
d. The unemployment rate.
2. The largest component in the basket of goods and services used to compute the CPI is
a. Food and beverages.
b. Housing.
c. Medical care.
d. Apparel.
3. If a Pennsylvania gun manufacturer raises the price of rifles it sells to the U.S. Army, its price hikes will increase
a. Both the CPI and the GDP deflator.
b. Neither the CPI nor the GDP deflator.
c. The CPI but not the GDP deflator.
d. The GDP deflator but not the CPI.
4. Because consumers can sometimes substitute cheaper goods for those that have risen in price,
a. The CPI overstates inflation.
b. The CPI understates inflation.
c. The GDP deflator overstates inflation.
d. The GDP deflator understates inflation.
5. If the consumer price index is 200 in year 1980 and 300 today, then $600 in 1980 has the same purchasing power as _________ today.
a. $400
b. $500
c. $700
d. $900
6. You deposit $2,000 in a savings account, and a year later you have $2,100. Meanwhile, the consumer price index rises from 200 to 204. In this case, the nominal interest rate is _________ percent, and the real interest rate is _________ percent.
a. 1, 5
b. 3, 5
c. 5, 1
d. 5, 3