Ch. 24: Measuring the cost of Living

T/F Inflation can only be measured by the consumer price index and not by the GDP deflator

F

T/F the CPI is a perfect measure of inflation in our economy

F has several limitations

The CPI is able to measure changes in the quality of goods over time

imprecisely because it is relatively complicated to measure quality changes

substitution bias is a problem when measuring the consumer price index because

prices of goods & services do not change in the same proportion from year to year

the GDP deflator is the most commonly reported indicator for inflation because

the GDP deflator is calculated more commonly reported than the CPI

Which of the following statements is correct regarding the CPI and the GDP deflator? a. the CPI can be used to compare inflation levels over time while the GDP deflator cannot. b. the CPI is better than the GDP deflator at reflecting the prices of goods and services bought by consumers. c. the GDP deflator can be used to compare inflation levels over time while the CPI cannot. d. the GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers.

B

The __________ is the most commonly reported measure of inflation by the media

CPI

the best measure for changes in the price level of a consumer basket of goods & services over time is the

CPI since it measures changes in the prices of a basket of goods & services consumed by a typical consumer over time

T/F The Bureau of Labor Statistics calculates the CPI MONTHLY

T

Inflation

a general increase in the price level of goods and services in an economy

Consumer Price Index (CPI)

a measure of the overall cost of a basket of goods and services bought by a typical consumer