Chapter 11- Measuring the Cost of Living

One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI a. fails to measure all changes in the quality of goods. b. displays a housing bias. c. accounts for changes in prices of some goods, but prices of certain goods are assumed to remain constant. d. All of the above are correct.

A

Suppose the price index was 110 in 2004, 120 in 2005, and 125 in 2006. Which of the following statements is correct? a. The economy experienced inflation between 2004 and 2005 and between 2005 and 2006. b. The inflation rate was positive between 2004 and 2005, and it was negative between 2005 and 2006. c. The inflation rate was higher between 2005 and 2006 than it was between 2004 and 2005. d. All of the above are correct.

A

During a certain year, the consumer price index increased from 150 to 159 and the purchasing power of a person's bank account increased by 3.5 percent. For that year, a. the nominal interest rate was 6 percent. b. the nominal interest rate was 9.5 percent. c. the inflation rate was 3.5 percent. d. the inflation rate was 9.5 percent.

B

Table 24-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. Refer to Table 24-12. Suppose Will's 2009 food expenditures in 2011 dollars amount to $5,750. Then the inflation rate for 2011 is about a. 9.08 percent. b. 9.52 percent. c. 10.24 percent. d. 10.78 percent.

B

The table below pertains to Napandsnack, an economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs. Refer to Table 24-5. If the base year is 2011, then the CPI a. increased from 2009 to 2010 and increased from 2010 to 2011. b. increased from 2009 to 2010 and decreased from 2010 to 2011. c. decreased from 2009 to 2010 and increased from 2010 to 2011. d. decreased from 2009 to 2010 and decreased from 2010 to 2011.

B

The table below pertains to Napandsnack, an economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs. Refer to Table 24-5. The cost of the basket a. increased from 2009 to 2010 and increased from 2010 to 2011. b. increased from 2009 to 2010 and decreased from 2010 to 2011. c. decreased from 2009 to 2010 and increased from 2010 to 2011. d. decreased from 2009 to 2010 and decreased from 2010 to 2011.

B

From 2008 to 2009, the CPI for medical care increased from 150.8 to 164.4. What was the inflation rate for medical care? a. 4.4 percent b. 7.6 percent c. 9.0 percent d. 12.1 percent

C

If the CPI was 108.00 in 1942 and is 336.96 today, then $10 in 1942 purchased the same amount of goods and services as a. $2.57 purchases today. b. $28.89 purchases today. c. $31.20 purchases today. d. $38.89 purchases today.

C

If the consumer price index was 88 in 2009, 95 in 2010, and 100 in 2011, then the base year must be a. 2009. b. 2010. c. 2011. d. The base year cannot be determined from the given information.

C

In 1972, one could buy model rocket engines for $1.50 each. If those same engines cost $2.50 each today, then which pair of CPIs would make the engine prices in today's dollars the same for both years? a. 60 in 1972 and 95 today b. 60 in 1972 and 120 today c. 90 in 1972 and 150 today d. 96 in 1972 and 154 today

C

Pauline is offered a Job in Minneapolis that pays $80,000. She is offered a similar job in Louisville that pays $71,200. Which pair of CPIs would ensure that the two salaries have the same purchasing power? a. 90 in Minneapolis and 83 in Louisville b. 90 in Minneapolis and 72 in Louisville c. 100 in Minneapolis and 89 in Louisville d. 105 in Minneapolis and 90 in Louisville

C

Table 24-11. Megan's salary for three consecutive years, along with other values, are presented in the table below. Refer to Table 24-11. Megan's 2008 salary in 2010 dollars is a. $51,458. b. $62,226. c. $69,960. d. $75,554.

C

Ethel purchased a bag of groceries in 1970 for $8. She purchased the same bag of groceries in 2006 for $25. If the price index was 38.8 in 1970 and the price index was 180 in 2006, then what is the price of the 1970 bag of groceries in 2006 dollars? a. $5.39 b. $25.00 c. $29.11 d. $37.11

D

If the nominal interest rate is 1.5 percent and the rate of inflation is -0.5 percent, then the real interest rate is a. -4 percent. b. -2 percent. c. 1 percent. d. 2 percent.

D

If the nominal interest rate is 7.5 percent and the rate of inflation is -2.5 percent, then the real interest rate is a. -10 percent. b. -5 percent. c. 5 percent. d. 10 percent.

D

If the price of Spanish olives imported into the United States decreases, then a. both the GDP deflator and the consumer price index will decrease. b. neither the GDP deflator nor the consumer price index will decrease. c. the GDP deflator will decrease, but the consumer price index will not decrease. d. the consumer price index will decrease, but the GDP deflator will not decrease.

D

Jake loaned Elwood $5,000 for one year at a nominal interest rate of 10 percent. After Elwood repaid the loan in full, Jake complained that he could buy 4 percent fewer goods with the money Elwood gave him than he could before he loaned Elwood the $5,000. From this, we can conclude that the rate of inflation during the year was a. -4 percent. b. 4 percent. c. 6 percent. d. 14 percent.

D

The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. Refer to Table 24-4. If the base year is 2006, then the inflation rate in 2005 was a. -44.5%. b. -30.8%. c. 7.7%. d. 12.5%.

D