PE CHAPTER24

Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best baseball players can earn more than 400 times as much as Babe Ruth earned in 1931. However, prices have also risen since 1931. We can conclude that

• the best baseball players today are about 400 times better off than Babe Ruth was in 1931.

• because prices have also risen, the standard of living of baseball stars hasn't changed since 1931.

• one cannot make judgments about changes in the standard of living based on changes in prices and changes in incomes.

• 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.

The consumer price index is used to

A. monitor changes in the level of wholesale prices in the economy.

B. monitor changes in the cost of living over time.

C. monitor changes in the level of real GDP over time.

D. monitor changes in the stock market.

• A

• B

• C

• D

When the consumer price index rises, the typical family

A. 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.

• A

• B

• C

• D

When the consumer price index falls, the typical family

A. 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 save less because they do not need to offset the effects of rising prices.

• A

• B

• C

• D

Economists use the term inflation to describe a situation in which

A. some prices are rising faster than others.

B. the economy's overall price level is rising.

C. the economy's overall price level is high, but not necessarily rising.

D. the economy's overall output of goods and services is rising faster than the economy's overall price level.

• A

• B

• C

• D

When the overall level of prices in the economy is increasing, economists say that the economy is experiencing

A. economic growth.

B. stagflation.

C. inflation.

D. deflation.

• A

• B

• C

• D

The inflation rate you are likely to hear on the nightly news is calculated from

A. the GDP deflator.

B. the CPI.

C. the Dow Jones Industrial Average.

D. the unemployment rate.

• A

• B

• C

• D

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because

A. the CPI is easier to measure.

B. the CPI is calculated more often than the GDP deflator is.

C. the CPI better reflects the goods and services bought by consumers.

D. the GDP deflator cannot be used to gauge inflation.

• A

• B

• C

• D

The CPI is a measure of the overall cost of

A. the inputs purchased by a typical producer.

B. the goods and services purchased by a typical consumer.

C. the goods and services produced in the economy.

D. the stocks on the New York Stock Exchange.

• A

• B

• C

• D

Which of the following agencies calculates the CPI?

A.the National Price Board

B. the Department Of Weight and Measurements

C. the Bureau of Labor Statistics

D. the Congressional Budget Office

• A

• B

• C

• D