Multiple Choice Quiz


1	Economists generally agree that the consumer price index is
		A)	of absolutely no use in measuring inflation.
		B)	useful generally but biased toward understating the increase in the cost of living.
		C)	useful generally but biased toward overstating the increase in the cost of living.
		D)	absolutely perfect in measuring the increase in the cost of living.


2	If there is substitution between goods within the consumer price index, then if one increases in price 4% while another increases in price 2% there will be some slight shift in consumption away from the first good and toward the second good. The consumer price index
		A)	explicitly accounts for this fact so it properly measures increases in the overall cost-of-living.
		B)	fails to account for this fact so it overstates increases in the overall cost-of-living.
		C)	fails to account for this fact so it understates increases in the overall cost-of-living.
		D)	need not account for this fact to properly measure increases in the overall cost-of-living.


3	If consumers shift their buying patterns from relatively expensive specialty stores to discount stores or warehouse clubs as a result of general price increases then the consumer price index will
		A)	properly measure increases in the overall cost-of-living because it explicitly accounts for this fact.
		B)	overstate increases in the overall cost-of-living because it fails to account for this fact.
		C)	understate increases in the overall cost-of-living because it fails to account for this fact.
		D)	properly measure increases in the overall cost-of-living because it need not account for this fact.


4	If the auditors from the Bureau of Labor Statistics conduct their pricing surveys during the workweek and if consumers shift their buying patterns to weekends and holidays when stores are having their sales then the consumer price index will
		A)	properly measure increases in the overall cost-of-living because it explicitly accounts for this fact.
		B)	overstate increases in the overall cost-of-living because it fails to account for this fact.
		C)	understate increases in the overall cost-of-living because it fails to account for this fact.
		D)	properly measure increases in the overall cost-of-living because it need not account for this fact.


5	If goods are of higher quality than when they were originally priced for the base year then the consumer price index will
		A)	properly measure increases in the overall cost-of-living because it explicitly accounts for this fact.
		B)	overstate increases in the overall cost-of-living because it fails to account for this fact.
		C)	understate increases in the overall cost-of-living because it fails to account for this fact.
		D)	properly measure increases in the overall cost-of-living because it need not account for this fact.


6	If goods are introduced at relatively high prices, see large price declines while they become generally adopted by the public, and all of this occurs prior to these goods being included in the consumer price index, then the consumer price index will
		A)	properly measure increases in the overall cost-of-living because it explicitly accounts for this fact.
		B)	overstate increases in the overall cost-of-living because it fails to account for this fact.
		C)	understate increases in the overall cost-of-living because it fails to account for this fact.
		D)	properly measure increases in the overall cost-of-living because it need not account for this fact.


7	If the consumer price index were "fixed" to account for the flaws highlighted by the Boskin Commission the result would be
		A)	higher personal income taxes.
		B)	lower personal income taxes.
		C)	higher Social Security checks.
		D)	a higher poverty line.


8	If the consumer price index were "fixed" to account for the flaws highlighted by the Boskin Commission the result would be
		A)	higher rates of poverty.
		B)	lower personal income taxes.
		C)	lower Social Security checks.
		D)	a higher poverty line.


9	If the consumer price index were "fixed" to account for the flaws highlighted by the Boskin Commission the result would be
		A)	lower rates of poverty.
		B)	lower personal income taxes.
		C)	higher Social Security checks.
		D)	a higher poverty line.


10	The Boskin Commission estimated that the consumer price index
		A)	overstates increases in the cost-of-living by 11 percentage points annually.
		B)	overstates increases in the cost-of-living by 1.1 percentage points annually.
		C)	understates increases in the cost-of-living by 1.1 percentage points annually.
		D)	measures the increases in the cost-of-living accurately.

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