Econ 202 Quiz 3

If the Consumer Price Index (CPI) for 2007 was 160.6 and 163.1 in 2008, what was the inflation rate between the two years?

1.56%

2007 2008 Nominal GDP 400 500 Real GDP 360 480 (Table: GDP II) Using the information in the table provided, calculate the GDP deflator for 2008.

104

Scenario: Price Index Suppose that in the base period a college student buys 20 gallons of gasoline at $2.00 per gallon, 2 CDs for $13 each, and 4 movie tickets for $7 each. In the next month, the price of gasoline is $2.25 per gallon, CDs cost $12.50 each, and the price of a movie ticket is $7.50. (Scenario: Price Index) The price index for the second month is:

106.4

Table: The Consumer Price Index Year Consumer Price Index 1 80 2 (base year) 100 3 105 4 125 5 150 (Table: The Consumer Price Index) The approximate rate of inflation from Year 2 to Year 3 is _____ percent.

5

Scenario: Price Index Suppose that in the base period a college student buys 20 gallons of gasoline at $2.00 per gallon, 2 CDs for $13 each, and 4 movie tickets for $7 each. In the next month, the price of gasoline is $2.25 per gallon, CDs cost $12.50 each, and the price of a movie ticket is $7.50. (Scenario: Price Index) The change in prices for the month is:

6.4%

Which of the following statistics is used to measure changes in the prices that firms pay for goods and services?

Producer Price Index

In April 2010, the real GDP was $9,283.4 billion and the GDP deflator was 110.8. In May 2010, the real GDP was $9,301.3 billion and the nominal GDP was $10,325.5 billion. Which of the following is incorrect?

The inflation rate from April to May is 0.38%.

Ford Motor Company agreed to pay its workers $31 an hour in 1999 and $39 an hour in 2001. The CPI in 1999 was 166 and in 2001 it was 180. Which of the following is correct?

The workers did really get a raise between 1999 and 2001.

Deflation is when there is:

a decreasing aggregate price level

The PPI is often regarded as a warning sign of inflation:

because commodity producers are relatively quick to raise prices.

The purpose of indexing Social Security payments to the CPI is to:

maintain the purchasing power of retirees.

If the CPI rises from 120 to 126, then ____.

on average, the price paid by consumers for a fixed basket of consumer goods and services rises by 5%

The CPI is used for calculating payments from the U.S. government to individuals. To the extent it is biased upward, this index:

raises government expenditures

Inflation is when there is:

rising aggregate price level

Many economists believe that the CPI overstates inflation because:

the CPI market basket doesn't reflect the fact that consumers shift consumption away from more expensive goods.

Aggregate price level:

the overall level of prices in the economy

2007 2008 Nominal GDP 400 500 Real GDP 360 480 (Table: GDP II) Using the information in the table provided, calculate the GDP deflator for 2007.

111

Year Consumer Price Index 1 80 2 (base year) 100 3 105 4 125 5 150 (Table: The Consumer Price Index) The approximate rate of inflation from Year 4 to Year 5 is _____ percent.

20

You read in the newspaper that the CPI in 2008 was 120, you will conclude that a typical market basket in 2008 would have cost

20 percent more than the same market basket purchased in the base year.

In the country of Sildavia, a market basket of goods and services cost $130 in 2003, $140 in 2004, and $160 in 2005. Based on this information and considering 2003 as the base year, inflation from 2003 to 2005 was:

23.07%.

If the CPI is 120 in Year 1 and 150 in Year 2, then the rate of inflation from Year 1 to Year 2 is _____.

25%