HW 1

In 1969 Malcom bought a Pontiac Firebird for $2,500. If the price index was 36.7 in 1969 and the price index was 235 in 2013, then what is the price of the Firebird in 2013 dollars?

$16,008.17

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $77; in 2013, the basket's cost was $82; and in 2014, the basket's cost was $90. The value of the CPI in 2014 was

116.9 and the inflation rate was 9.8%

Because of inflation, purchasing power of money

decreases

If the CPI was 95 in 1955 and is 475 today, then $100 today purchases the same amount of goods and services as

$20.00 purchased in 1955

Which of the following is the correct formula for calculating consumer price index?

(price of basket goods and services in current year/price of basket in base year) X 100

In 1970 , Professor Plum earned $12,000; in 1980, he earned $36,000. If the CPI was 40 in 1970, 70 in 1980, and 130 in 1990, then in real terms, professor Plum's salary was highest in

1980 and the lowest in 1990

If the consumer price index was 96 in 2012, 100 in 2013, and 102 in 2014, then the base year must be

2013

The market basket used to calculate the CPI in Aquilonia is 4 loaves of bread, 6 gallons of milk, 2 shirts, and 2 pairs of pants. In 2005, bread cost $1.00 per loaf, milk cost $1.50 per gallon, shirts cost $6.00 each, and pants cost $10.00 per pair. In 2006, bread cost $1.50 per loaf, milk cost $2.00 per gallon, shirts cost $7.50 each, and pants cost $12.00 per pair. Using 2005 as the base year, what was Aquilonia's inflation rate in 2006?

24.4%

For an imaginary economy, the value of the consumer price index was 140 in 2013 and 146.5 in 2014. The economy's inflation rate for 2014 was

4.6%

If the nominal interest rate is 8% and the rate of inflation is 3%, then the real interest rate is

5%

The CPI was 220 in 2012 and 231 in 2013. Phil borrowed money in 2012 and repaid the loan in 2013. If the nominal interest rate on the loan was 10%, then the real interest rate was

5%

Which good has more weight in the CPI calculation?

Housing

Which of the following is not correct?

The consumer price index is used to measure the quantity of goods and services that the economy is producing.

There are regional differences in prices. Which of the following may have the highest difference in prices

hair-cuts

In 2009 Real Interest rate is greater than nominal interest rate, it implies

inflation is negative

In the US, since 2008 real interest rate is negative. It implies

inflation rate is more than nominal interest rate

When looking at a graph of nominal and real interest rates you notice that nominal rates almost always lie above real rates. From this you conclude

inflation rate is positive

If inflation rate is 3% and a bank gives you 1% interest on your deposit, you are

losing

The consumer price index is used to

monitor changes in the cost of living over time

The inflation rate is defined as the

percentage change in the price level from the previous period

If consumer price index increases from previous year to this year, inflation rate is

positive

The inflation rate that you are likely to hear on the nightly news is calculated from

the CPI

The CPI is a measure of the overall cost of

the goods and services

The consumer price index is used to

turn dollar figures into meaningful measures of purchasing power