Measuring Inflation 2 Practice Problems

(Question 17 on canvas)

(answer 17 on canvas)

(Question 18 on canvas)

(answer 18 on canvas)

Suppose a basket of goods and services has been selected to calculate the CPI and 2009 has been selected as the base year. In 2007, the basket's cost was $64; in 2009, the basket's cost was $68; and in 2011, the basket's cost was $70. The value of the CPI in 2011 was

102.94.

Suppose you know the value of the consumer price index (CPI) in year 2 as well as the inflation rate in year 2. Which of the following equations is valid for the CPI in year 1?

CPI in year 1 = (100 x CPI in year 2) / (Inflation rate in year 2 + 100)

The CPI is calculated

monthly

What basket of goods and services is used to construct the CPI?

the goods and services that are typically bought by consumers as determined by government surveys

The term inflation is used to describe a situation in which

the overall level of prices in the economy is increasing.

Core CPI is​

​the CPI excluding food and energy.

(Question 13 on canvas)

(Answer 13 on canvas)

(Question 14 on canvas)

(Answer 14 on canvas)

The price index was 128 in 2013, and the inflation rate was 24 percent between 2012 and 2013. The price index in 2012 was

103.2

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

The CPI

The CPI for all goods and services excluding food and energy is called

The core CPI

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

[(price of basket of goods and services in current year / price of basket in base year)] x 100

Which of the following is correct? a. The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers. b. The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers. c. The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers. d. The GDP deflator is more commonly used as a gauge of inflation than the CPI is.

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

In the calculation of the CPI, tea is given greater weight than beer if

consumers buy more tea than beer.

If the CPI was 125 this year and 120 last year, then... a. the cost of the CPI basket of goods and services increased by 4.2 percent this year. b. the price level increased by 4.2 percent this year. c. the inflation rate for this year was 4.2 percent. d. All of the above are correct

d. All of the above correct

If the quality of a good deteriorates while its price remains the same, then the value of a dollar

falls and the cost of living increases.

When the quality of a good improves while its price remains the same, the purchasing power of the dollar

increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for.

The consumer price index is used to

monitor changes in the cost of living over time.

If the quality of a good improves while its price remains the same, then the value of a dollar

rises and the cost of living decreases.

The substitution bias in the consumer price index refers to the

substitution by consumers toward goods that have become relatively less expensive and away from goods that have become relatively more expensive.

Which entity within the U.S. government is responsible for computing and reporting the CPI?

the Department of Labor

(Question 19 on canvas)

(Answer 19 on canvas)

(Question 20 on canvas)

(Answer 20 on canvas)