ANSWER: C

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10. If the consumer price index (CPI) at the end of 1996 was 125 and the CPI at the end of 1997 was 131, then the rate of inflation during 1997 was a. zero –prices were stable during 1997

b. 4.8 percent

c. 6.0 percent

d. 125 percent

ANSWER: B

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11. Frank's nominal income in 1998 is $45,000. Suppose the CPI in 1998 is 150. What is Frank's real income? a. $51,750

b. $45,000

c. $38,250

d. $30,000

ANSWER: D

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12. A change in the price of imports bought by consumers will be

a. reflected in the GDP deflator

b. reflected in GDP

c. reflected in the CPI

d. reflected in net national income

ANSWER: C

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13. All of the following but one are problems associated with the CPI

a. substitution bias

b. the introduction of new goods and services

c. unmeasured quality changes

d. The CPI is not based on a fixed basket of goods and services

ANSWER: D

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