ECON hmwrk 3

From 2009 to 2010, the CPI for education increased from 279.3 to 281.8. What was the inflation rate for education between 2009 and 2010? a. 0.9% b. 9.0% c. 2.5% d. 90%

a. 0.9%

Which of the following changes in the price index produces the greatest rate of inflation: 12 to 15, 20 to 24, or 30 to 35? a. 12 to 15 b. 20 to 24 c. 30 to 35 d. All of these changes produce the same rate of inflation.

a. 12 to 15

In the calculation of the CPI, books are given greater weight than magazines if a. consumers buy more books than magazines. b. the price of books is higher than the price of magazines. c. it costs more to produce books than it costs to produce magazines. d. books are more readily available than magazines to the typical consumer.

a. consumers buy more books than magazines.

In calculating the CPI, a fixed basket of goods and services is used. The quantities of the goods and services in the fixed basket are determined by a. surveying consumers. b. surveying sellers of the goods and services. c. working backward from the rate of inflation to arrive at imputed values for those quantities. d. arbitrary choices made by federal government employees.

a. surveying consumers.

Suppose lawn mowers are part of the market basket used to compute the CPI. Suppose also that the quality of lawn mowers deteriorates while the price of lawn mowers stays the same. If the Bureau of Labor Statistics is able to precisely adjust the CPI for the improvement in quality, then, other things equal, a. the CPI will rise. b. the CPI will fall. c. the CPI will stay the same. d. lawn mowers will no longer be included in the market basket.

a. the CPI will rise.

If the consumer price index was 96 in 2012, 100 in 2013, and 102 in 2014, then the base year must be a. 2012. b. 2013. c. 2014. d. The base year cannot be determined from the given information.

b. 2013.

Assume an economy experienced a positive rate of inflation between 2003 and 2004 and again between 2004 and 2005. However, the inflation rate was lower between 2004 and 2005 than it was between 2003 and 2004. Which of the following scenarios is consistent with this assumption? a. The CPI was 100 in 2003, 110 in 2004, and 105 in 2005. b. The CPI was 100 in 2003, 120 in 2004, and 135 in 2005. c. The CPI was 100 in 2003, 105 in 2004, and 130 in 2005. d. The CPI was 100 in 2003, 90 in 2004, and 88 in 2005.

b. The CPI was 100 in 2003, 120 in 2004, and 135 in 2005.

When the consumer price index falls, the typical family a. has to spend more dollars to maintain the same standard of living. b. can spend fewer dollars to maintain the same standard of living. c. finds that its standard of living is not affected. d. can save less because they do not need to offset the effects of rising prices.

b. can spend fewer dollars to maintain the same standard of living.

The introduction of a new good a. increases the cost of maintaining the same level of economic well-being. b. decreases the cost of maintaining the same level of economic well-being. c. has no impact on the cost of maintaining the same level of economic well-being. d. may increase or decrease the cost of maintaining the same level of economic well-being, depending on how expensive the new good is.

b. decreases the cost of maintaining the same level of economic well-being.

The CPI is calculated a. monthly by the Department of Commerce. b. monthly by the Bureau of Labor Statistics. c. quarterly by the Department of Commerce. d. quarterly by the Bureau of Labor Statistics.

b. monthly by the Bureau of Labor Statistics.

The inflation rate you are likely to hear on the nightly news is calculated from a. the GDP deflator. b. the CPI. c. the Dow Jones Industrial Average. d. the unemployment rate.

b. the CPI.

An important difference between the GDP deflator and the consumer price index is that a. the GDP deflator reflects the prices of goods and services bought by producers, whereas the consumer price index reflects the prices of goods and services bought by consumers. b. the GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of goods and services bought by consumers. c. the GDP deflator reflects the prices of all final goods and services produced by a nation's citizens, whereas the consumer price index reflects the prices of all final goods and services bought by consumers. d. the GDP deflator reflects the prices of all final goods and services bought by producers and consumers, whereas the consumer price index reflects the prices of all final goods and services bought by consumers.

b. the GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of goods and services bought by consumers.

When computing the cost of the basket of goods and services purchased by a typical consumer, which of the following changes from year to year? a. the quantities of the goods and services purchased b. the prices of the goods and services c. the goods and services making up the basket d. All of the above are correct.

b. the prices of the goods and services

Babe Ruth's 1931 salary was $80,000. Government statistics show a consumer price index of 15.2 for 1931 and 237 for 2015. Ruth's 1931 salary was equivalent to a 2015 salary of about a. $5,296. b. $1,128,421 c. $1,247,368 d. $17,152,000

c. $1,247,368

A worker received $5 for a daily wage in 1930. What is the value of that wage today if the CPI was 17 in 1930 and is 230 today? a. 37 cents b. $4.63 c. $67.65 d. $37.86

c. $67.65

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 a. 109.8 and the inflation rate was 9.8%. b. 109.8 and the inflation rate was 16.9%. c. 116.9 and the inflation rate was 9.8%. d. 116.9 and the inflation rate was 16.9%.

c. 116.9 and the inflation rate was 9.8%.

In an imaginary economy, consumers buy only razors and cologne. The fixed basket consists of 6 razors and 4 bottles of cologne. A razor cost $20 in 2009 and $25 in 2010. A bottle of cologne cost $30 in 2009 and $40 in 2010. Using 2009 as the base year, which of the following statements is correct? a. For the typical consumer, the number of dollars spent on razors is equal to the number of dollars spent on cologne in each of the two years. b. The consumer price index is 310 in 2010. c. The rate of inflation is 29.17% in 2010. d. None of the above is correct.

c. The rate of inflation is 29.17% in 2010.

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because a. the CPI is easier to measure. b. the CPI is calculated more often than the GDP deflator is. c. the CPI better reflects the goods and services bought by consumers. d. the GDP deflator cannot be used to gauge inflation.

c. the CPI better reflects the goods and services bought by consumers.

A decrease in the price of domestically produced nuclear reactors will be reflected in a. both the GDP deflator and the consumer price index. b. neither the GDP deflator nor the consumer price index. c. the GDP deflator but not in the consumer price index. d. the consumer price index but not in the GDP deflator.

c. the GDP deflator but not in the consumer price index.

The CPI for all goods and services excluding food and energy is called a. a hedonic price index. b. the CPI basis. c. the core CPI. d. the producer price index.

c. the core CPI.

In 1931 the price of a movie ticket was $0.25. The consumer price index was 15.2 in 1931, and 210 in 2008. Using 2008 prices, the real price of a movie in 1931 was a. $13.82. b. $52.50. c. $1.81. d. $3.45.

d. $3.45.

Suppose that over the past year, the real interest rate was 3 percent and the inflation rate was 1 percent. It follows that a. the dollar value of savings increased at 2 percent, and the purchasing power of savings increased at 3 percent. b. the dollar value of savings increased at 2 percent, and the purchasing power of savings increased at 4 percent. c. the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 2 percent. d. the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 3 percent.

d. the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 3 percent.