Chapter 11 Homework
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 measure all changes in the quality of goods.
Archie has a savings account at a bank. If he earns 6 percent interest on his account and if there is deflation, then his purchasing power rises by more than 6 percent over the course of a year.
True
The Bureau of Labor Statistics surveys consumers to determine a fixed basket of goods.
True
The real interest rate tells you how fast the purchasing power of your bank account rises over time.
True
The consumer price index is
a useful measure, but not a perfect measure, of the cost of living.
David earned a salary of $43,500 in 1994 and $89,000 in 2010. The consumer price index was 148.2 in 1994 and 215.3 in 2010. David's 1994 salary in 2010 dollars is
$63,195.34
Janelle earned a salary of $62,000 in 2004 and $80,000 in 2014. The consumer price index was 126 in 2004 and 170 in 2014. Janelle's 2004 salary in 2014 dollars is
$83,651
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 $51; and in 2016, the basket's cost was $52. The value of the CPI in 2014 was
102.0
Refer to Table 24-2. If 2012 is the base year, then the CPI for 2013 was
104.4
Refer to Table 24-1. What belongs in space D?
12%
Refer to Table 24-1. What belongs in space A?
154
In 1970, Professor Plum earned $12,000; in 1980, he earned $24,000; and in 1990, he earned $36,000. If the CPI was 40 in 1970, 60 in 1980, and 100 in 1990, then in real terms, Professor Plum's salary was highest in
1980 and lowest in 1970
Refer to Table 24-15. The inflation rate in 2015 was approximately
41%
The consumer price index was 200 in 2012 and 208 in 2013. The nominal interest rate during this period was 9 percent. What was the real interest rate during this period?
5 percent
Which of the following changes in the price index produces the greatest rate of inflation: 80 to 100, 100 to 120, or 150 to 170?
80 to 100
Which of the following agencies calculates the CPI?
Bureau of Labor Statistics
Substitution bias causes the CPI to understate the increase in the cost of living from one year to the next.
False
The content of the basket of goods and services used to compute the CPI changes every month.
False
An important difference between the GDP deflator and the consumer price index is that
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.
An increase in the price of Irish whiskey imported into the United States will be reflected in
the U.S. CPI, but not the U.S. GDP deflator.
If the price of domestically produced power tools increases, then
the consumer price index and the GDP deflator will both increase.
Economists use the term inflation to describe a situation in which
the economy's overall price level is rising.
The CPI is a measure of the overall cost of
the goods and services purchased by a typical consumer.
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.
For some racquet sports, there have been increases in the size of the racquets; also, the methods and materials used for making racquets have improved. To which problem in the construction of the CPI is this situation most relevant?
unmeasured quality change
