Chapter 11 - Measuring the Cost of Living
suppose a basket of goods and services has been selected to calculate the CPI and Year 1 has been selected as the base year. In Year 1, the basket's cost was $50; in Year 2, the basket's cost was $52; and in Year 3, the basket's cost was $55. The value of the CPI in Year 3 was
110.0
when consumer spending is broken down into two major categories of goods and services, the largest single category is spending on transportation
False
The CPI is a measure of the overall cost of the goods and services bought by
a typical consumer, and the CPI is computed and reported by the Bureau of Labor Statistics.
Persistent increases in the overall level of prices have been the norm.
bought by firms
changes in the quality of a good
can lead to either an increase or a decrease in the value of a dollar.
One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI
fails to account for the introduction of new goods
Each week, the BLS computes and reports the consumer price index
false
The BLS does not try to account for quality changed in the goods and services in the basket used to compute the CPI
false
the largest sector in consumer price index market basket is food and beverage purchases
false
there is no longer much debate among economists concerning the severity of and the solution to the problem in using the CPI to measure the cost of living
false
by far the largest category of goods and services in the CPI basket
housing
The CPI differed from the GDP deflator in that
increases in the prices of foreign produced goods that are sold to US consumers show up in the CPI but not in the GDP deflator
during periods of deflation, the nominal interest rate will be
lower than the real interest rate
It is possible to observe a positive nominal interest rate together with negative real interest rate
true
Persistent increases in the overall level of prices have been the norm.
true
The BLS determines which prices are most important to the typical consumer by surveying consumers
true
The real interest rate tells you how fast the purchasing power of your bank account rises over time.
true
When the price of Italian wine rises, this change is reflected in the US CPI but not in the US GDP deflator
true
The consumer price index is used to
turn dollar figures into meaningful measures of purchasing power