Chapter 11/Measuring the Cost of Living F 319Chapter 16Measuring the Cost of LivingMULTIPLE CHOICE1.Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best baseball players can earn 200 times as much as Babe Ruth in 1931. However, prices have also risen since 1931. We can conclude thata.the best baseball players today are about 200 times better off than Babe Ruth was in 1931.b.because prices have also risen, the standard of living of baseball stars hasnt changed since 1931.c.one cannot make judgments about changes in the standard of living based on changes in prices and changes in incomes.d.one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931.ANSWER: d.one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931.TYPE: M DIFFICULTY: 1 SECTION: 11.02.When the consumer price index rises, the typical familya.has to spend more dollars to maintain the same standard of living.b.can spend fewer dollars to maintain the same standard of living.c.finds that its standard of living is not affected.d.can offset the effects of rising prices by saving more.ANSWER: a.has to spend more dollars to maintain the same standard of living.TYPE: M DIFFICULTY: 1 SECTION: 11.03.The consumer price index is used toa.track changes in the level of wholesale prices in the economy.b.monitor changes in the cost of living.c.monitor changes in the level of real GDP.d.track changes in the stock market.ANSWER: b.monitor changes in the cost of living.TYPE: M DIFFICULTY: 1 SECTION: 11.04.The term “inflation” is used to describe a situation in whicha.the overall level of prices in the economy is increasing.b.incomes in the economy are increasing.c.stock-market prices are rising.d.the economy is growing rapidly.ANSWER: a.the overall level of prices in the economy is increasing.TYPE: M DIFFICULTY: 1 SECTION: 11.05.When the overall level of prices in the economy is increasing, we say that the economy is experiencinga.economic growth.b.inflation.c.unemployment.d.deflation.ANSWER: b.inflation.TYPE: M DIFFICULTY: 1 SECTION: 11.06.The inflation rate is defined as thea.price level.b.change in the price level.c.price level divided by the price level in the previous period.d.percentage change in the price level from the previous period.ANSWER: d.the percentage change in the price level from the previous period.TYPE: M DIFFICULTY: 1 SECTION: 11.07.The CPI is a measure of the overall cost ofa.inputs purchased by a typical producer.b.goods and services bought by a typical consumer.c.goods and services produced in the economy.d.stocks on the New York Stock Exchange.ANSWER: b.goods and services bought by a typical consumer.TYPE: M DIFFICULTY: 1 SECTION: 11.18.Which of the following agencies calculates the CPI?a.the National Price Boardb.the Department Of Weight and Measurementsc.the Bureau of Labor Statisticsd.the Congressional Budget OfficeANSWER: c.the Bureau of Labor StatisticsTYPE: M DIFFICULTY: 1 SECTION: 11.19.The CPI is calculateda.weekly.b.monthly.c.quarterly.d.yearly.ANSWER: b.monthly.TYPE: M DIFFICULTY: 1 SECTION: 11.110.What is the basket of goods used to construct the CPI?a.a random sample of all goods and services produced in the economyb.the goods and services typically bought by consumers, according to Bureau of Labor Statistics surveysc.goods and services weighted by the ratio of expenditures on them relative to the consumption component of GDPd.the least and the most expensive goods and services in each major category of consumer expendituresANSWER: b.the goods and services typically bought by consumers, according to Bureau of Labor Statistics surveysTYPE: M DIFFICULTY: 1 SECTION: 11.111.Which goods are supposed to be included in the CPI?a.all goods and services produced in the economyb.all goods and services that typical consumers buyc.all goods and services in the consumption component of the GDP accountsd.all the goods, but not the services, in the consumption component of the GDP accountsANSWER: b.all goods and services that typical consumers buyTYPE: M DIFFICULTY: 1 SECTION: 11.112.In the CPI, goods and services are weighted according toa.how much consumers buy of each item.b.whether the goods and services are necessities or luxuries.c.the levels of production of the goods and services in the domestic economy.d.by the expenditures on them in the GDP national income accounts.ANSWER: a.how much consumers buy of each item.TYPE: M DIFFICULTY: 1 SECTION: 11.113.How are the weights on