ECN 222 Quiz 2

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?

0.9%

Which of the following pairs of values of the consumer price index (CPI) is consistent with an inflation rate of 10 percent for 2014?

CPI in 2013 = 210; CPI in 2014 = 231

Which of the following is correct?

The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers.

For any given year, the CPI is the price of the basket of goods and services in the

given year divided by the price of the basket in the base year, then multiplied by 100.

When the consumer price index rises, the typical family

has to spend more dollars to maintain the same standard of living

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because

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

A decrease in the price of domestically produced industrial robots will be reflected in

the GDP deflator but not in the consumer price index

The term inflation is used to describe a situation in which

the overall level of prices in the economy is increasing.

Because the CPI is based on a fixed basket of goods, the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living. This is so because

when a new good is introduced, it gives consumers greater choice, thus reducing the amount they must spend to maintain their standard of living.

The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year. Year CPI Inflation Rate 2005 100 2006 115 B 2007 125 C 2008 140 D 2009 A 10% 2010 160 E Refer to Table 24-1. What belongs in space D?

12%

In an imaginary economy, consumers buy only sandwiches and magazines. The fixed basket consists of 20 sandwiches and 30 magazines. In 2006, a sandwich cost $4 and a magazine cost $2. In 2007, a sandwich cost $5. The base year is 2006. If the consumer price index in 2007 was 125, then how much did a magazine cost in 2007?

$2.50

The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year. Year CPI Inflation Rate 2005 100 2006 115 B 2007 125 C 2008 140 D 2009 A 10% 2010 160 E Refer to Table 24-1. What belongs in space A?

154

The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year. Year CPI Inflation Rate 2005 100 2006 115 B 2007 125 C 2008 140 D 2009 A 10% 2010 160 E Refer to Table 24-1. What belongs in space E?

3.9%

The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year. Year CPI Inflation Rate 2005 100 2006 115 B 2007 125 C 2008 140 D 2009 A 10% 2010 160 E Refer to Table 24-1. What belongs in space C?

8.7%

With respect to the consumer price index, which of the following serves as an example of how the substitution bias arises? Between 2010 and 2011, the price of a pound of peanuts

None of the above serves as an example of how the substitution bias arises.

The consumer price index is used to

monitor changes in the cost of living over time

Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best baseball players can earn more than 400 times as much as Babe Ruth earned in 1931. However, prices have also risen since 1931. We can conclude that

one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931.

The inflation rate is defined as the

percentage change in the price level from the previous period.

Suppose the typical consumer buys more bananas than oranges. In fixing the basket of goods and services for the purpose of calculating the consumer price index, the Bureau of Labor Statistics

places more weight on the price of bananas than on the price of oranges; the weights of the two prices are determined by surveying consumers.

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 domestically, whereas the consumer price index reflects the prices of goods and services bought by consumers.