68. If the Boskin Commission's conclusion is correct, then the CPI ______ the \
Social Security benefits to the CPI is ______ the federal government billions of dollars.
A. understates; costing
B. overstates; costing
C. understates; saving
D. measures; saving
69. If the Boskin Commission's conclusion is correct, then the CPI ______ the \
living standards over time has been _____.
A. understates; overestimated
B. understates; underestimated
C. overstates; underestimated
D. measures; overestimated
70. If the official CPI inflation rate is 4%, the \
of the Boskin Commission. A. -4% B. 0% C. 2% D. 6%
71. Suppose the CPI does indeed overstate the inflation rate. When the CPI increases by 5% and household
incomes increase by 5%, we should conclude that real incomes of households have:
A. increased.
B. stayed constant.
C. decreased.
D. increased more slowly than has inflation.
72. When statisticians fail to take into account improvements in the quality of goods and services, the CPI will tend
to ______ the rate of inflation.
A. understate
B. precisely measure
C. be unrelated to
D. overstate
73. Suppose manufacturers introduce a new model car to replace a car currently included in the CPI basket. The
price of the new car is 10 percent higher than the discontinued model, but the new car has additional safety features and amenities. In this situation the CPI will tend to ______ inflation as a result of ______ bias.
A. overstate; substitution
B. understate; quality adjustment
C. accurately measure; substitution
D. overstate; quality adjustment
74. The quality adjustment bias of the CPI refers to the failure of statisticians to:
A. allow for the possibility that consumers switch from products whose prices are rising.
B. allow for the possibility that consumers switch stores at which they shop.
C. take into account improvements in goods and services.
D. take into account price changes in goods and services.
75. Product improvements make it difficult for the statisticians who construct the CPI to distinguish between ______
changes and ______ changes.
A. price; quality
B. quantity; price
C. quantity; quality
D. income; price
76. The substitution bias in the CPI refers to the failure of statisticians to:
A. allow for the possibility that consumers switch from products whose prices are rising.
B. allow for the possibility that consumers switch stores at which they shop.
C. take into account improvements in goods and services.
D. take into account new products purchased by consumers.
77. When statisticians fail to allow for the possibility that consumers switch from products with rising prices to those
whose prices are stable or falling, the CPI will tend to ______ the rate of inflation.
A. understate
B. precisely measure
C. be unrelated to
D. overstate
78. Suppose that the price of chicken rises sharply compared to the price of turkey. In response, consumers buy
more turkey and less chicken than they did in the CPI base year. In this situation the CPI will tend to ______ inflation as a result of ______ bias.
A. overstate; substitution
B. understate; substitution
C. accurately measure; substitution
D. overstate; quality adjustment
79. Two types of bias that tend to cause the CPI to overstate the \
______ bias.
A. substitution; quality adjustment
B. price; quantity
C. aggregation; price
D. quality adjustment; price adjustment
80. The substitution bias in the CPI arises because the CPI:
A. is based on a fixed basket of goods and services.
B. does not adequately allow for improvements in products.
C. measures prices at two different times.
D. understates the \
81. When consumers substitute a cheaper good for a more expensive one, the CPI will ______ the change in the
cost of living. A. equal
B. understate
C. precisely measure
D. overstate
82. The price level is:
A. the rate of inflation.
B. a measure of overall prices at a particular point in time.
C. the percentage change in a price index such as the CPI.
D. the price of a specific good in comparison to the prices of other goods and services.
