ECO 201 Ch 6
Consternation Corporation has an agreement with its workers to index completely the wage of its employees using the CPI. Consternation Corporation currently pays its production line workers $7.50 an hour and is scheduled to index their wages today. If the CPI is currently 130 and was 125 a year ago, the firm should increase the hourly wages of its workers by
$0.30
In 1969, Malcolm 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
Janelle earned a salary of $40,000 in 1996 and $65,000 in 2006. The consumer price index was 160 in 1996 and 266 in 2006. Janelle's 2006 salary in 1996 dollars is
$39,097.74
Harry spent $39,000 in 2009 and $42,000 in 2014 on goods and services. The consumer price index was 220 for 2009 and 231 for 2014. Harry's 2009 spending in 2014 dollars is about
$40,950
In the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the smallest?
apparel
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
When the consumer price index rises, the typical family
has to spend more dollars to maintain the same standard of living
The CPI is a measure of the overall cost of the goods and services bought by
a typical consumer
If 2010 is the base year, the the inflation rate in 2015 equals
((CPI in 2015 - CPI in 2014)/CPI in 2014) * 100
Refer to Table 24-6. If the base year is 2011, the the economy's inflation rate in 2011 was
-3.3 percent
Refer to Table 24-14. The inflation rate in 2013 was approximately
1.5%
Refer to Table 24-7. If the base year is 2009, then the economy's inflation rate is
10 percent in 2010 and 6.36 percent in 2011
Refer to Table 24-10. If 2008 is the base year, then the consumer price index was
100.00 in 2008, 110.03 in 2009, and 129.20 in 2010
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 $50; in 2014, the basket's cost was $52; and in 2016, the basket's cost was $55. The value of the CPI in 2016 was
110.0
Refer to Table 24-5. If the base year is 2004, then the CPI in 2005 was
112.5
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%
The consumer price index was 225 in 2008 and 232.2 in 2009. The nominal interest rate during this period was 6.5 percent. What was the real interest rate during this period?
3.3 percent
The price index was 136 in one year and 142 in the next year. What was the inflation rate between the two years?
4.41 percent
If the nominal interest rate is 8 percent and the rate of inflation is 3 percent, then the real interest rate is
5 percent
Refer to Table 24-7. Between 2010 and 2011, the cost of living increased by
6.36 percent
If the nominal interest rate is 4 percent and the real interest rate is -2.5 percent, then the inflation rate is
6.5 percent
Which of these events would cause the consumer price index to overstate the increase in the cost of living?
All of the above are correct
In the calculation of the CPI, tea is given greater weight than beer if
consumers buy more tea than beer
When box office receipts are corrected for inflation, the most popular movie of all time is
Gone With the Wind
In which of the following cases would there be an effect on the value of the US consumer price index, but not on the value of the US GDP deflator?
Most of the bananas that are produced by a certain company in Honduras end up in US grocery stores, and the price of these bananas increases
Which of the following is correct?
Nominal and real interest rates do not always move together
Refer to Table 24-5. If the base year is 2004, then the CPI
increased from 2004 to 2005 and increased from 2005 to 2006
Suppose the price of a six-pack of cola rises from $3 to $3.75 and the price of a pack of mints rises from $1.25 to $1.75. If the CPI rises from 140 to 182, then people likely will buy
more cola and fewer mints
When new goods are introduced, consumers have more variety from which to choose. As a result, each dollar is worth
more, and the cost of living decreases
Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best baseball players can earn more than 400 times as much as Babe Ruth earned in 1931. However, prices have also risen since 1931. We can conclude that
one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931
Scenario 24-4 Quinn has job offers in Wrexington and across the country in Charlieville. The Wrexington job would pay a salary of $50,000 per year, and the Charlieville job would pay a salary of $40,000 per year. The CPI in Wrexington is 150, and the CPI in Charlieville is 90. Refer to Scenario 24-4. If Quinn only cares about maximizing her purchasing power, then she should
take the Charlieville job
A decrease in the price of domestically produced industrial robots will be reflected in
the GDP deflator but not in the consumer price index
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
Suppose the price index was 105 in 2017, 126 in 2018, and the inflation rate was lower between 2018 and 2019 than it was between 2017 and 2018. This means that
the price index in 2019 was lower than 151.2
Suppose prices of personal computers fall significantly and consumers respond by buying more personal computers. The consumer price index
understates this price decrease due to the substitution bias
