ap econ chapter 23 quiz

If higher prices cause buyers to shop at discount stores, the CPI has

an outlet substitution bias

the items included in the cpi are

goods and services consumed by the typical urban household

Economists agree that the CPI

is a possibly biased measure of the cost of living

the more money an average household spends on one specific type of good or service per month, the

larger the relative importance of that item in the cpi market basket

If the CPI decreases from one year to the next, then the inflation rate is

negative

the difference between nominal and real is

nominal is measured in current dollars and real is measured in dollars of a given year

explain the difference between a nominal value and a real value

nominal value considers prices of the current year, but real value considers the prices adjusted from the base year

when discussing the cpi, the term "commodity substitution bias" refers to changes in

prices that lead households to change the items they buy

to find the cost of the cpi market basket in the base period prices we have to multiply the

quantities in the cpi market basket by the base period prices

to compare the real price of gas in 1975 to the real price in 2013, we need to know

the two prices in both years and the cpi in both years

what item accounts for the second largest share in the cpi basket

transportation

in the current year, the cpi is 160 and during the previous year the cpi was 181. the inflation rate between these years is

-11.6%

February 2010, the price of gasoline in the Florida was $2.629 per gallon and the CPI was 202.4 with a base period of 1982 to 1984. What was the real price of gasoline per gallon in base period dollars?

$1.29 per gallon

suppose the base reference period is 1982-1984. if your nominal wage rate is $8/hour when the cpi is 180, what is your wage rate in 1982-1984 dollars

$4.44

if the cpi this year is 175.2 and next year the cpi is 176.1, what was the inflation rate over the year

0.5%

the value of the cpi for the reference base period is always

100

the inflation rate between last year and this year was 14%. the cpi was 118 this year. what was the cpi last year

103.5

if the base year cpi market basket costs $250 and next year the cpi market basket costs $275, what is the next year's cpi

110

A country's CPI was 84.5 last year and 100.0 this year. The inflation rate was

18.3%

the reference base period that the bls uses to measure the cpi is

1982-1984

To measure the CPI, the BLS economic assistants check the prices of

about 80,000 goods and services every year

is the cpi a biased measure of the inflation rate? explain your answer

cpi is a biased measure of inflation because it is an overestimate due to outlet substitution, good substitution, new goods, and quality improvements

when the price of, say, a package of rice changes, what must the bls do next

determine if the size, quality, weight, or packing of the rice has changed and adjust the price accordingly

core inflation

excludes prices of food and energy

the consumer price index measures the average of the prices paid by urban consumers for a ___ of consumer goods and services

fixed market basket

for the cpi to provide an accurate measure of the prices paid by urban consumers, it is necessary to

have a market basket that is consistent and corresponds to what normal households actually purchase

according to the cpi basket, the largest category of items in the households' budgets is

housing

which of the following is a bias in the cpi i. new goods bias ii. index change bias iii. commodity substitution bias

i an iii

constructing the cpi involves which of the following stages i. conducting the monthly price survey ii. converting the cpi to an international index iii. selecting the cpi market basket

i and iii

When the nominal price of a good increases over time, must its real price also increase? why or why not?

if nominal price rises, real price would not increase if the country had just experienced a recession

which of the following statements about the cpi is correct i. the only significant bias in the cpi is the commodity substitution bias ii. the cpi probably overstates the inflation by approximately 1.1% per year iii. as far as the bias in the cpi is concerned, the new goods bias and the outlet substitution bias are irrelevant

ii

define the nominal wage rate and the real wage rate. can the nominal wage rate increase faster than the real wage rate?

nominal wage rate is the wage rate in current dollars, but real wage rate considers the reference base year. nominal can increase faster than real due to inflation

the inflation rate is the

percentage change in the CPI from one year to the next year.

the consumer price index (cpi) measures the changes of the...

prices paid by urban consumers for a fixed market basket of consumer goods and services

Suppose the CPI for this year is 133.7. This number means that

prices rose 33.7% over the base year

When the CPI rises ________, the inflation rate is ________.

rapidly; high

the period for which the consumer price index is defined to equal 100 is called the

reference base period

When the cost of the CPI market basket increases from one year to the next, we know that

the prices of the goods and services contained in the cpi market basket have increased on the average

The presence of new goods that are of higher quality than the old goods leads the BLS to

try to separate price differences from improvements in quality

If a private wage contract is agreed upon with a cost of living adjustment such that wage hikes are equal to increases in the CPI,

workers benefit because the cpi increases more rapidly than does the true cost of living

if you have the cost of the cpi market basket at current prices and the cost of the cpi market basket at base period prices, how do you calculate the cpi

(cost of current cpi market basket/cost of base cpi market basket) x100

If the cost of the CPI market basket at current period prices is $1000 and the cost of the CPI market basket at base period prices is $250, the CPI is

400

formula for inflation rate

CPI this year - CPI last year / CPI last year x 100

If the CPI is used as a cost of living index, incomes that are adjusted to reflect the changes in the CPI will

increase by more than the actual change in the cost of living

deflation is a situation in which

inflation rate is negative