Q1. Steve Walker, CFA, is attending an economics lecture, during which the lecturer makes the following two statements about consumer price inflation:

Statement 1: High-definition televisions are considerably more expensive than traditional models. This means consumers are spending more money per television unit, which represents a form of inflation.

Statement 2: Employment contracts with cost-of-living increases based on the Consumer Price Index result in optimal economic decisions because they adjust wage costs automatically for the rate of inflation.

Should Walker agree or disagree with these statements?

          Statement 1          Statement 2

A) Agree                                          Agree

B) Disagree                                    Disagree

C) Disagree                                    Agree

Q2. The consumer price index tends to:

A)     understate the inflation rate because its market basket is fixed and does not consider that consumers will substitute away from goods that have risen dramatically in price.

B)     overstate the inflation rate, because its market basket is fixed and does not consider that consumers will substitute away from goods that have risen dramatically in price.

C)     overstate the inflation rate because its market basket is variable and takes into consideration that consumers will substitute away from goods that have risen dramatically in price.

Q3. David Landau, CFA, was discussing the biases associated with the Consumer Price Index (CPI). He was also discussing the effect of these biases on determining the inflation rate of an economy. Which of the following is least likely a source of bias in CPI data and does the CPI generally understate or overstate the true rate of inflation?

        Not a source of bias  CPI bias direction

A)    Consumer preferences      Overstate

B)    Quality changes         Understate

C)    Outlet substitution     Overstate

Q4. The current annual inflation rate, as measured by using the Consumer Price Index (CPI), is best defined as:

A)   percentage change in the CPI from its base period.

B)   percentage change in the CPI from a year ago.

C)   increase in the CPI from a year ago.

答案和详解如下：

Q1. Steve Walker, CFA, is attending an economics lecture, during which the lecturer makes the following two statements about consumer price inflation:

Statement 1: High-definition televisions are considerably more expensive than traditional models. This means consumers are spending more money per television unit, which represents a form of inflation.

Statement 2: Employment contracts with cost-of-living increases based on the Consumer Price Index result in optimal economic decisions because they adjust wage costs automatically for the rate of inflation.

Should Walker agree or disagree with these statements?

          Statement 1          Statement 2

A) Agree                                          Agree

B) Disagree                                    Disagree

C) Disagree                                    Agree

Correct answer is B)

Walker should disagree with both statements. Price changes resulting from increases in the quality of goods, or from consumers choosing to substitute more expensive goods for less expensive ones, do not represent inflation and should not be reflected in price indexes. However, the Consumer Price Index does change based on these and other effects, causing it to overstate the rate of inflation by roughly 1% per year. Bias in the CPI means that it is only an approximation of the actual inflation faced by workers, so both workers’ and employers’ decisions based on CPI-adjusted wages may be less than optimal.

Q2. The consumer price index tends to:

A)     understate the inflation rate because its market basket is fixed and does not consider that consumers will substitute away from goods that have risen dramatically in price.

B)     overstate the inflation rate, because its market basket is fixed and does not consider that consumers will substitute away from goods that have risen dramatically in price.

C)     overstate the inflation rate because its market basket is variable and takes into consideration that consumers will substitute away from goods that have risen dramatically in price.

Correct answer is B)

The CPI uses a relatively small market basket and tends to overstate the inflation rate because it does not consider that consumers will substitute away from goods that have risen dramatically in price.

Q3. David Landau, CFA, was discussing the biases associated with the Consumer Price Index (CPI). He was also discussing the effect of these biases on determining the inflation rate of an economy. Which of the following is least likely a source of bias in CPI data and does the CPI generally understate or overstate the true rate of inflation?

        Not a source of bias  CPI bias direction

A)    Consumer preferences      Overstate

B)    Quality changes         Understate

C)    Outlet substitution     Overstate

Correct answer is A)

The four sources of bias associated with CPI data are: new goods, quality changes, commodity substitution, and outlet substitution. As a result, in 1996 a Congressional Advisory Commission concluded that the CPI tends to overstate the true rate of inflation by 1.1% per year.

Q4. The current annual inflation rate, as measured by using the Consumer Price Index (CPI), is best defined as:

A)   percentage change in the CPI from its base period.

B)   percentage change in the CPI from a year ago.

C)   increase in the CPI from a year ago.

Correct answer is B)

The inflation rate is the percentage change in the price index from a year earlier.

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gh v

[此贴子已经被作者于2009-5-23 21:10:41编辑过]

thanks

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