ap econ chapter 23 quiz
If higher prices cause buyers to shop at discount stores, the CPI has
an outlet substitution bias
the items included in the cpi are
goods and services consumed by the typical urban household
Economists agree that the CPI
is a possibly biased measure of the cost of living
the more money an average household spends on one specific type of good or service per month, the
larger the relative importance of that item in the cpi market basket
If the CPI decreases from one year to the next, then the inflation rate is
negative
the difference between nominal and real is
nominal is measured in current dollars and real is measured in dollars of a given year
explain the difference between a nominal value and a real value
nominal value considers prices of the current year, but real value considers the prices adjusted from the base year
when discussing the cpi, the term "commodity substitution bias" refers to changes in
prices that lead households to change the items they buy
to find the cost of the cpi market basket in the base period prices we have to multiply the
quantities in the cpi market basket by the base period prices
to compare the real price of gas in 1975 to the real price in 2013, we need to know
the two prices in both years and the cpi in both years
what item accounts for the second largest share in the cpi basket
transportation
in the current year, the cpi is 160 and during the previous year the cpi was 181. the inflation rate between these years is
-11.6%
February 2010, the price of gasoline in the Florida was $2.629 per gallon and the CPI was 202.4 with a base period of 1982 to 1984. What was the real price of gasoline per gallon in base period dollars?
$1.29 per gallon
suppose the base reference period is 1982-1984. if your nominal wage rate is $8/hour when the cpi is 180, what is your wage rate in 1982-1984 dollars
$4.44
if the cpi this year is 175.2 and next year the cpi is 176.1, what was the inflation rate over the year
0.5%
the value of the cpi for the reference base period is always
100
the inflation rate between last year and this year was 14%. the cpi was 118 this year. what was the cpi last year
103.5
if the base year cpi market basket costs $250 and next year the cpi market basket costs $275, what is the next year's cpi
110
A country's CPI was 84.5 last year and 100.0 this year. The inflation rate was
18.3%
the reference base period that the bls uses to measure the cpi is
1982-1984
To measure the CPI, the BLS economic assistants check the prices of
about 80,000 goods and services every year
is the cpi a biased measure of the inflation rate? explain your answer
cpi is a biased measure of inflation because it is an overestimate due to outlet substitution, good substitution, new goods, and quality improvements
when the price of, say, a package of rice changes, what must the bls do next
determine if the size, quality, weight, or packing of the rice has changed and adjust the price accordingly
core inflation
excludes prices of food and energy
the consumer price index measures the average of the prices paid by urban consumers for a ___ of consumer goods and services
fixed market basket
for the cpi to provide an accurate measure of the prices paid by urban consumers, it is necessary to
have a market basket that is consistent and corresponds to what normal households actually purchase
according to the cpi basket, the largest category of items in the households' budgets is
housing
which of the following is a bias in the cpi i. new goods bias ii. index change bias iii. commodity substitution bias
i an iii
constructing the cpi involves which of the following stages i. conducting the monthly price survey ii. converting the cpi to an international index iii. selecting the cpi market basket
i and iii
When the nominal price of a good increases over time, must its real price also increase? why or why not?
if nominal price rises, real price would not increase if the country had just experienced a recession
which of the following statements about the cpi is correct i. the only significant bias in the cpi is the commodity substitution bias ii. the cpi probably overstates the inflation by approximately 1.1% per year iii. as far as the bias in the cpi is concerned, the new goods bias and the outlet substitution bias are irrelevant
ii
define the nominal wage rate and the real wage rate. can the nominal wage rate increase faster than the real wage rate?
nominal wage rate is the wage rate in current dollars, but real wage rate considers the reference base year. nominal can increase faster than real due to inflation
the inflation rate is the
percentage change in the CPI from one year to the next year.
the consumer price index (cpi) measures the changes of the...
prices paid by urban consumers for a fixed market basket of consumer goods and services
Suppose the CPI for this year is 133.7. This number means that
prices rose 33.7% over the base year
When the CPI rises ________, the inflation rate is ________.
rapidly; high
the period for which the consumer price index is defined to equal 100 is called the
reference base period
When the cost of the CPI market basket increases from one year to the next, we know that
the prices of the goods and services contained in the cpi market basket have increased on the average
The presence of new goods that are of higher quality than the old goods leads the BLS to
try to separate price differences from improvements in quality
If a private wage contract is agreed upon with a cost of living adjustment such that wage hikes are equal to increases in the CPI,
workers benefit because the cpi increases more rapidly than does the true cost of living
if you have the cost of the cpi market basket at current prices and the cost of the cpi market basket at base period prices, how do you calculate the cpi
(cost of current cpi market basket/cost of base cpi market basket) x100
If the cost of the CPI market basket at current period prices is $1000 and the cost of the CPI market basket at base period prices is $250, the CPI is
400
formula for inflation rate
CPI this year - CPI last year / CPI last year x 100
If the CPI is used as a cost of living index, incomes that are adjusted to reflect the changes in the CPI will
increase by more than the actual change in the cost of living
deflation is a situation in which
inflation rate is negative