Part I. Multiple Choice Questions 1. What purpose does the Consumer Price Index (CPI) serve? A monitors changes in the cost of living over time B. adjusts the cost of living ver time C. understates the standard of living D. overstates the cost of living 2. If the prices of Brazilian-made shoes imported into the US increase, then which of the following will occur? A. Both US GDP deflator and its consumer price index will increase. B. Both US GDP deflator and its consumer price index will decrease. C. US GDP deflator will increase, but its consumer price index remains constant. D. US consumer price index will increase, but its GDP deflator remains constant 3. In the consumer price index, goods and services are weighted according to which of the following? A. how much a typical consumer buys of each item B. whether the items are necessities or luxuries C. how much of each item is produced in the domestic economy Dhow much is spent on them in the national income accounts 5. In a CLOSED economy, national saving equals which of the following? A. income plus the sum of consumption and government expenditures Bincome minus the sum of consumption and government expenditures C. GDP plus consumption expenditures D. GDP minus consumption expenditures 6. Suppose the current market interest rate for loanable funds is below the equilibrium level. Which of the following best describes this situation? A There is a shortage of loanable funds B. There is a surplus of loanable funds C. There is a shortage of loanable funds D. There is a surplus of loanable funds 7. Suppose that Congress were to introduce a new investment tax credit. What would happen in the market for loanable funds? A. The demand for loanable funds would shift left, and interest rates would fall. B. The demand for loanable funds would shift right, and interest rates would rise. C. The supply of loanable funds would shift left, and interest rates would rise. D. The supply of loanable funds would shift right, and interest rates would fall. 8. Suppose the consumer price index (CPI) at the end of 2016 was 125 and the CPI at the end of 2017 was 131. Then what was the rate of inflation during 2017? A zero percent, prices were stable during 2017 B. 4.8 percent C. 6.0 percent D. 125 percent 9. John's nominal income in 2008 was $45,000. The consumer price index in 2008 was 150. What is Frank's real income? A $51,750 B. $45,000 C. $38,250 D. $30,000