chapter 6 macroeconomics

suppose a basket of goods and services has been selected to calculate the CPI and 2002 has been selected as the base year. in 2002 the baskets cost was 50 dollars in 2004 the baskets cost was 52 and in 2006 the baskets cost was 54.60 the value of the CPI in 2006 was

109.2

when the quality of a good deteriorates while its price remains the same, the purchasing power of the dollar

Decreases so the CPI understates the Change in the cost of living if the quality change is not accounted for

which of the following is not correct

The consumer price index is used to measure the quantity of goods and services that the economy is producing

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

An increse in the price of the bread produced domestically will be selected in

both the GDP deflator and the consumer price index

The GDP deflator reflects the

current level of prices relative to the level of prices in the base year

the introduction of a new good

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

in the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the largest

education& communication, recreation, medical care.

The CPI differs from the GDP deflator in that

increases in the prices of the foreign produced goods that are sold to U.S consumers show up in the CPI but not in the GDP deflator

when new good are introduced, consumers have more variety from which to choose, as a result, each dollar is worth

more, and the cost of living decreases.

The economy's inflation rate is the

percentage change in the price level from the previous period

if the quality of a good improves while its price remains the same, then the value of a dollar

rises and cost of living decreases

samantha goes to the grocery store to make her monthly purchase of ginger ale. as she enters the soft drink section she notices that the price of ginger ale has increased 15 percent so she decides to buy some peppermint tea instead, to which problem in the construction of the CPI is the situation most relevant

substitution bias

when constructing the consumer price index the Bureau of Labor statistics does not do which of the following

survey sellers to determine what the typical consumer buys

changes in the producer price index are often thought to be useful in predicting changes in

the consumer price index

if the price of domestically produced power tools increases then

the consumer price index and the GDP deflator will both increase

The CPI is a measure of the overall cost of

the goods and services purchased by a typical consumer

assume that consumers consider coffee and tea to be substitutes so that when the price of tea rises consumers purchase less tea and more coffee. when CPI is computed following the increase in the price of tea, it takes into account

the increase in the price of tea

an imaginary economy, consumers buy only shirts and pants. the fixed basket consists of 6 shirts and 4 pairs of pants. a shirt cost 20 dollars in 2006 and 25 in 2007. a pair of pants costs 30 dollars in 2006 and 40 in 2007 using 2006 as the base year which of the following statements is correct

the rate of inflation is 29.17 in 2007

which of the following statements best represents economists' beliefs about the bias in the CPI as a measure of the cost of living

there is still debate among economists on the severity of the CPI bias and what to do about it