ECO Exam 2 CH11

The ______ is responsible for calculating and reporting the CPI. Department of Weight and Measurements Bureau of Labor Statistics Congressional Budget Office National Price Board

Bureau of Labor Statistics

A general increase in the price level of goods and services in an economy describes deflation. stagflation. inflation. economic growth.

Inflation refers to the general increase in the price level of goods and services in an economy, while deflation refers to the general decrease in the price level of an economy. Economic growth is the change in GDP over time. Stagflation occurs when the inflation rate is high, but economic growth is slow with higher unemployment.

The consumer price index is a perfect measure of inflation in our economy. True False

The consumer price index is not a perfect measure of inflation in our economy. It has several noticeable limitations including substitution bias, the introduction of new goods, and unmeasured quality changes.

If the nominal interest rate is 2 percent and the real interest rate is 4 percent, then the inflation rate is -2 percent. 0 percent. 6 percent. 2 percent.

The inflation rate is equal to the nominal interest rate minus the real interest rate. 2 - 4 = -2 percent.

Inflation can only be measured by the consumer price index and not by the GDP deflator. True False

false Inflation can be measured using both the consumer price index and the GDP deflator. However, the CPI is used more frequently when examining changes in prices for consumer goods.

Which of the following statements is correct regarding the CPI and the GDP deflator? The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers. The GDP deflator can be used to compare inflation levels over time while the CPI cannot. The CPI is better than the GDP deflator at reflecting the prices of goods and services bought by consumers. The CPI can be used to compare inflation levels over time while the GDP deflator cannot.

The CPI is better than the GDP deflator at reflecting the prices of goods and services bought by consumers.

The _______ is the most commonly reported measure of inflation by the media. unemployment rate GDP deflator Down Jones Industrial Average CPI

The CPI is the most commonly reported measure of inflation by the media. The CPI measures the overall cost of goods and services bought by a representative consumer.

The Bureau of Labor Statistics reports the CPI quarterly. daily. monthly. weekly.

monthly

Which of the following pairs of values of the consumer price index (CPI) is consistent with an inflation rate of 10% from 2013 to 2014? CPI in 2013 = 100; CPI in 2014 = 108 CPI in 2013 = 90; CPI in 2014 = 99 CPI in 2013 = 100; CPI in 2014 = 91 CPI in 2013 = 90; CPI in 2014 = 100

90*(1.10) = 99. The CPI value in 2013 of 90 is consistent with a CPI value of 99 in 2014.

Coffee is weighted more than tea in the calculation of the CPI if coffee is more accessible to the typical consumer. it costs more to produce coffee than it costs to produce tea. consumers buy more coffee than tea. the price of coffee is greater than the price of tea.

Coffee is weighted more than tea in the calculation of the CPI if consumers buy more coffee than tea. Weights in the CPI are determined by the importance of the good to the consumer.

commonly used as a measure of inflation? the CPI better reflects the prices of goods and services bought by consumers. the CPI is calculated more often than other inflation measures like the GDP deflator. the CPI cannot be used to gauge inflation. the CPI is easier to measure.

the CPI better reflects the prices of goods and services bought by consumers.

The Bureau of Labor Statistics calculates the CPI. True False

true The Bureau of Labor Statistics is responsible for calculating the CPI. The BLS reports the CPI monthly.

Jenny earned a salary of $54,000 in 2010 and a salary of $60,000 in 2014. The consumer price index in 2010 was 220.5. The consumer price index was 236.2 in 2014. Jenny's 2010 salary in 2014 dollars is $56,012 $54,540 $57,845 $52,660

$54,000*(236.2/220.5) = $57,845.

Jenny earned a salary of $56,000 in 2010 and a salary of $60,000 in 2014. The consumer price index in 2010 was 220.5. The consumer price index was 236.2 in 2014. Jenny's 2010 salary in 2014 dollars is $56,012 $55,540 $59,987 $52,660

$56,000*(236.2/220.5) = $59,987.

A candy bar cost $0.85 in 2014. The value for the CPI in 1962 is 30.4 and the value of the CPI for 2014 is 236.2, what is the price of a candy bar in 1962 dollars? $0.78 $0.11 $0.24 $0.13

0.85*(30.4/236.2) = $0.11.

Suppose the consumer price index is 89 in 2008, 94 in 2010, 100 in 2012, and 103 in 2014. If Social Security Benefits were $1,000 in 2014 and we index them for inflation, the Social Security benefits would have been ________ in 2008. $864.08 $886.04 $970.87 $1,000

If you know that a value from year y has been indexed, to find the value in a previous year x, you would multiply the value times the ratio of CPIx/CPIy. In this case, you would multiply $1,000 by 89/103 to obtain $864.08

The difference between the nominal interest rate and the inflation rate is equal to the real interest rate. True False

Real Interest Rate = Nominal Interest rate - Inflation. That is, the real interest rate is simply the nominal interest rate minus inflation.

Substitution bias is a problem when measuring the consumer price index because consumers are eager to buy new products as they are introduced, despite their lack of full information about the quality of those products until they buy and use them. prices of goods and services do not change in the same proportion from year to year. the introduction of new goods gives consumers access to a greater variety of products. consumers are slow to adjust their buying patterns from year to year in response to price changes.

Substitution bias is a problem when measuring the consumer price index because prices of goods and services do not change in the same proportion from year to year. Consumers adjust consumption in response to these asymmetric changes.

The best measure for changes in the price level of a consumer basket of goods and services over time is the PPI since it measures changes in a basket of goods and services produced over time. CPI since it measures changes in the prices of a basket of goods and services consumed by a typical consumer over time. GDP deflator or the CPI since each provides an identical measure of inflation. GDP deflator since it measures the changes in prices of goods and services produced domestically over time.

The CPI is the best measure for changes in the price level of a consumer basket of goods and services over time. The CPI measures the overall cost of goods and services bought by a representative consumer.

A measure of the overall cost of a basket of goods and services purchased by a typical consumer is the Consumer Price Index (CPI). Producer Price Index (PPI). Real Wage. GDP deflator

The CPI measures the overall cost of a basket of goods and services that a typical consumer buys, while the real wage measures wages after being adjusted for inflation. The GDP deflator is the ratio of nominal to real GDP, while the producer price index measures changes in the costs of production for domestic producers

he GDP deflator is the most commonly reported indicator for inflation because: The GDP deflator better reflects the prices of goods and services bought by consumers than other measures like the CPI. The GDP deflator is calculated more often than other measures of inflation like the CPI. The GDP deflator is not more commonly reported than the CPI. The GDP deflator is easier to measure than other indicators of inflation like the CPI.

The GDP deflator is not more commonly reported than the CPI. The CPI better reflects the prices of goods and services bought by consumers.

If the nominal interest rate is 5 percent and the real interest rate is 3 percent, then the inflation rate is -3 percent. 0 percent. 3 percent. 2 percent.

The inflation rate is equal to the nominal interest rate minus the real interest rate. 5 - 3 = 2 percent.

The introduction of new goods creates a problem when measuring the CPI because the CPI is based on a fixed basket of goods and services and does not reflect increased value as a result of a larger variety of goods. prices of goods and services do not change in the same proportion from year to year. substitution bias suggests consumers will not adjust consumption patterns as prices change. consumers are slow to adjust their buying patterns from year to year in response to price changes.

The introduction of new goods creates a problem when measuring the CPI because the CPI is based on a fixed basket of goods and services and does not reflect increased value as a result of a larger variety of goods. It is difficult to measure the increased value as a result of new and improved goods.

Jenny earned a salary of $55,000 in 2010 and a salary of $60,000 in 2014. The consumer price index in 2010 was 220.5. The consumer price index was 236.2 in 2014. Jenny's 2010 salary in 2014 dollars is $58,916. True False

True $55,000*(236.2/220.5) = $58,916.

If the nominal interest rate is 2 percent and the inflation rate is 1 percent, then the real interest rate is 2 percent. -1 percent. 1 percent. 0 percent.

The real interest rate is equal to the nominal rate minus the inflation rate. 2 - 1 = 1 percent.

The CPI value in 2013 is 100 and the annual inflation rate is 6%. The CPI value in 2014 is 106. True False

True Given a CPI value of 100 in 2013 with an annual inflation rate of 6%, the CPI value in 2014 is 100*(1.06) = 106

The consumer price index is the only measure of inflation used in the United Sates. True False

false There are several measures of inflation that are used in the U.S. including the GDP deflator.

The CPI is able to measure changes in the quality of goods over time imprecisely because it is relatively simple to measure quality changes. precisely because it is relatively complicated to measure quality changes. imprecisely because it is relatively complicated to measure quality changes. perfectly because it is relatively simple to measure quality changes

imprecisely because it is relatively complicated to measure quality changes. It is difficult to measure quality changes in goods over time, and this creates an imprecise measurement in the CPI. There is still a lot of discussion among economists about the best way to correct these measurement errors.