Economics Cpi Market Quiz
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- 1.
The Idea of diminishing returns means that Real GDP _______ as the quantity of labor increases.
- A.
Does not change
- B.
Decreases at a slower rate
- C.
Increases at a slower rate
- D.
Decreases at a faster rate
- E.
Increases at a faster rate
Correct Answer
C. Increases at a slower rateExplanation
The idea of diminishing returns states that as the quantity of labor increases, the additional output produced (Real GDP) will increase, but at a decreasing rate. This means that each additional unit of labor added will contribute less to the overall increase in Real GDP compared to the previous unit of labor. Therefore, Real GDP increases at a slower rate as the quantity of labor increases.Rate this question:
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- 2.
The consumer price index measures the average of the prices by urban customers for a _______ of consumer goods and services.
- A.
Fixed Market Basket
- B.
Random Selection
- C.
Subjective Selection
- D.
Least-cost market basket
- E.
Changing Selection
Correct Answer
A. Fixed Market BasketExplanation
The consumer price index measures the average of the prices by urban customers for a fixed market basket of consumer goods and services. This means that a specific set of goods and services is selected and the prices of these items are tracked over time to determine changes in the cost of living. The fixed market basket ensures consistency in the items being measured, allowing for accurate comparisons of price levels over time.Rate this question:
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- 3.
The value of the CPI for the reference period is always
- A.
100
- B.
0
- C.
50
- D.
10
- E.
None of the above we do not know
- F.
None of the above we do not know
Correct Answer
A. 100Explanation
The value of the CPI for the reference period is always 100 because the Consumer Price Index (CPI) is designed to measure the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. The reference period is set as the base period, which is assigned a value of 100. This allows for easy comparison of price changes over time, as any value above 100 indicates an increase in prices, while any value below 100 indicates a decrease in prices.Rate this question:
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- 4.
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.
At the same quantity of beef and chicken and create a commodity substitution bias
- B.
More beef and crease a quality change bias
- C.
More chicken and create a commodity substitution bias
- D.
More chicken and eliminate the commodity substitution bias
- E.
Less chicken and beef and crease a quality change bias
Correct Answer
C. More chicken and create a commodity substitution biasExplanation
If the price of beef rises and the price of chicken remains the same, Joe will buy more chicken and create a commodity substitution bias. This means that Joe will switch from buying beef to buying more chicken because it has become relatively cheaper compared to beef. The increase in the price of beef has made it less attractive to Joe, leading to a shift in his consumption pattern towards chicken. This change in consumption behavior introduces a bias in the calculation of the Consumer Price Index (CPI), as it does not account for the substitution effect and assumes that the consumer continues to purchase the same quantities of goods despite price changes.Rate this question:
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- 5.
The production function graphs the relationship between
- A.
Real GDP and the quantity of labor employed
- B.
Nominal GDP and Real GDP
- C.
Real GDP and capital
- D.
Nominal GDP and the quantity of labor employed
- E.
Real GDP and the supply of labor
Correct Answer
A. Real GDP and the quantity of labor employedExplanation
The production function graphs the relationship between Real GDP and the quantity of labor employed. This means that as the quantity of labor employed increases, the Real GDP also increases. The production function shows how the input of labor affects the output of goods and services in an economy. It helps to understand the relationship between the amount of labor used in production and the resulting level of economic output.Rate this question:
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- 6.
Consumers in Beachland consume only two goods, sodas, and DVDs. If they spend $10 on sodas and $90 on DVDs a month, how many sodas and DVDs are in their CPI market basket if the price of a soda is $1 and the price of a DVD is $9?
- A.
1 Soda and 9 DVDs
- B.
It is impossible to determine the market basket without more information
- C.
9 Sodas and 1 DVD
- D.
10 Sodas and 10 DVDs
- E.
10 Sodas and 9 DVDs
Correct Answer
D. 10 Sodas and 10 DVDsExplanation
The correct answer is 10 Sodas and 10 DVDs. This can be determined by dividing the amount spent on sodas ($10) by the price of a soda ($1), which gives us 10 sodas. Similarly, dividing the amount spent on DVDs ($90) by the price of a DVD ($9), gives us 10 DVDs. Therefore, the CPI market basket for Beachland consumers consists of 10 sodas and 10 DVDs.Rate this question:
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- 7.
A formula for the CPI is
- A.
(Cost of CPI market basket at current period prices / Cost of CPI market base at base period prices) x 100
- B.
(Cost of CPI market basket this year x Cost of CPI market basket at base period prices) / 100
- C.
(Cost of CPI market basket at base period prices / Cost of CPI market basket at current period prices) x 100
- D.
(Cost of CPI market basket at current period prices / Cost of CPI market basket at next year's prices) x 100
Correct Answer
A. (Cost of CPI market basket at current period prices / Cost of CPI market base at base period prices) x 100Explanation
The formula for the CPI calculates the Consumer Price Index by dividing the cost of the CPI market basket at current period prices by the cost of the CPI market basket at base period prices, and then multiplying the result by 100. This formula allows for the comparison of price changes over time, as it measures the average price change of a fixed basket of goods and services.Rate this question:
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- 8.
If the price index was 100 last year and today it is 167, what is the inflation rate over this period?
- A.
67 percent
- B.
167 percent
- C.
-67 percent
- D.
-6.7 percent
Correct Answer
A. 67 percentExplanation
The inflation rate over this period can be calculated by finding the percentage increase in the price index. The price index has increased from 100 to 167, which is an increase of 67 points. To find the percentage increase, we divide this increase by the initial price index (100) and multiply by 100. Therefore, the inflation rate over this period is 67 percent.Rate this question:
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- 9.
If the cost of the CPI market basket at current period prices is $1000 and the cost of the CPI market basket at base period prices is $250, the CPI is
- A.
400
- B.
100
- C.
250
- D.
2.50
- E.
4.0
Correct Answer
A. 400Explanation
The CPI (Consumer Price Index) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. In this case, the cost of the CPI market basket at the current period prices is $1000, while the cost at the base period prices is $250. To calculate the CPI, we divide the current period cost by the base period cost and multiply by 100. So, (1000/250) * 100 = 400. Therefore, the CPI is 400.Rate this question:
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- 10.
An example of the new goods bias in the calculation of the CPI is a price increase in
- A.
Butter relative to margarine
- B.
A Caribbean cruise for a couple who has never been on a cruise before
- C.
An iPod player relative to a walkman
- D.
A 2013 Honda Civic Si Coupe relative to a 2013 Honda Civic Si Sedan
Correct Answer
C. An iPod player relative to a walkmanExplanation
The correct answer is an iPod player relative to a walkman. The new goods bias in the calculation of the CPI refers to the fact that the CPI may not accurately capture changes in consumer preferences when new goods are introduced to the market. In this case, the introduction of the iPod player, which is a new and innovative product, may lead to a higher price increase compared to the older and more traditional walkman. This bias can result in an overestimation of inflation if the CPI does not account for the changing preferences of consumers towards newer goods.Rate this question:
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- 11.
Job rationing occurs when the real wage rate is
- A.
Below the equilibrium wage rate so there is an excess supply of labor
- B.
Above the equilibrium wage rate so there is an excess supply of labor
- C.
Equal to the equilibrium wage rate so there is no excess supply of labor
- D.
Above the equilibrium wage rate so there is a shortage of labor
- E.
Both answers A and D are correct because whenever the real wage rate is above or below the equilibrium wage rate, there is an excess supply of labor
Correct Answer
B. Above the equilibrium wage rate so there is an excess supply of laborExplanation
When the real wage rate is above the equilibrium wage rate, it means that employers are offering higher wages than what is considered the market equilibrium. This can lead to an excess supply of labor because more workers are willing to work at higher wages, creating a surplus of labor. This can happen when there is a mismatch between the demand for labor and the supply of labor, resulting in job rationing. Therefore, answer D is the correct explanation for the given answer.Rate this question:
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- 12.
If New Zealand is operating at potential GDP, which of the following is true?i) New Zealand only has frictional and structural unemploymentii) There is no inflation in New Zealandiii) New Zealnds has positive net exports
- A.
I only
- B.
I and iii
- C.
I and ii
- D.
Ii only
- E.
I, ii, and iii
Correct Answer
A. I onlyExplanation
If New Zealand is operating at potential GDP, it means that the economy is producing at its maximum sustainable level without causing inflationary pressures. In this case, there would only be frictional and structural unemployment present, as these types of unemployment are considered normal and unavoidable in any economy. On the other hand, there would be no inflation, as the economy is already operating at its full capacity. However, the statement about positive net exports is not necessarily true or related to potential GDP. Therefore, the correct answer is i only.Rate this question:
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- 13.
The level of real GDP the economy produces at full employment is called
- A.
Potential GDP
- B.
Lucas GDP
- C.
Sustainable GDP
- D.
Nominal GDP
- E.
Maximum GDP
Correct Answer
A. Potential GDPExplanation
Potential GDP refers to the level of real GDP that an economy can produce at full employment. It represents the maximum output that can be achieved when all resources are fully utilized. It is a measure of the economy's productive capacity and is often used as a benchmark for assessing the overall health and growth potential of an economy. Potential GDP takes into account the available labor force, capital stock, and technology. It is an important concept in macroeconomics as it helps policymakers understand the economy's long-term growth potential and make informed decisions to achieve full employment and sustainable economic growth.Rate this question:
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Current Version
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Mar 22, 2023Quiz Edited by
ProProfs Editorial Team -
Apr 05, 2016Quiz Created by
Tjohnston523
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