Question 1

Which of the following is correct?
A)The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers.
B)The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers.
C)The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers.
D)The GDP deflator is more commonly used as a gauge of inflation than the CPI is.

Accepted Answer

The CPI is specifically designed to measure the prices of goods and services consumed by households, making it a more accurate reflection of their consumption patterns than the GDP deflator. The GDP deflator, on the other hand, measures the overall prices of goods and services produced in an economy, which includes investment spending and government purchases in addition to household consumption.

Question 2

Which of the following statements is correct?
A)The CPI can be used to compare dollar figures from different points in time.
B)The percentage change in the CPI is a measure of the inflation rate, but the percentage change in the GDP deflator is not a measure of the inflation rate.
C)Compared to the consumer price index (CPI), the GDP deflator is the more common gauge of inflation.
D)The GDP deflator better reflects the goods and services bought by consumers than does the CPI.

Accepted Answer

The CPI is specifically designed to compare dollar figures from different points in time, making statement A correct. Statement B is incorrect because both the percentage change in the CPI and the GDP deflator can be used as measures of the inflation rate. Statement C is also incorrect as the CPI is actually the more common gauge of inflation. Statement D is incorrect as the CPI is specifically designed to reflect the goods and services bought by consumers, while the GDP deflator measures the prices of all goods and services produced domestically.

Question 3

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.

Accepted Answer

The CPI is considered a better gauge of inflation than the GDP deflator because it is designed to reflect the goods and services commonly purchased by individual consumers. The GDP deflator, on the other hand, includes a broader range of goods and services, including those used by businesses and the government, which may not be as relevant for tracking changes in consumer prices over time.

Question 4

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.

Accepted Answer

The CPI is the most widely used measure of inflation. It measures the change in the prices of a basket of goods and services purchased by consumers.

Question 5

The economy's inflation rate is the
A)price level in the current period.
B)change in the price level from the previous period.
C)change in the gross domestic product from the previous period.
D)percentage change in the price level from the previous period.

Accepted Answer

The inflation rate is defined as the percentage change in the price level from one period to the next.

Quiz 24: Measuring the Cost of Living

Which of the following is correct?

Which of the following statements is correct?

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

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

The economy's inflation rate is the