Week 6, Chapter 11

The term inflations is used to describe a situation in which

The overall level of prices in the economy is increasing.

If you know that a candy bar cost five cents in 1962. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in today's prices?

five cents X(today's CPI/1962 CPI)

If the CPI was 95 in 1955 and is 475 today, then $100 today purchases the same amount of goods and services as

$20.00 purchased in 1955

Which of the following is the correct formula for calculating the consumer price index?

Price of basket of goods and services in current year/price of basket in base year X100

Which of the following statement is correct?

The CPI can be used to compare dollar figures from different points in time.

The primary purpose of measuring the overall level of prices in the economy is to

allow for the comparison of dollar figures from different points in time.

Changes in the quality of a good...

can lead to either an increase or a decrease in the value of a dollar.

For an imaginary economy, the value of the consumer price index was 140 in 2013, and the inflation rate wasy 5.0 percent between 2013 and 2014. The consumer price index in 2014 was

147.0

If the nominal interest rate is 4 percent and the real interest rate is -2.5 percent, then the inflation rate is

6.5 percent

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

Which of the following statements best represents economist beliefs about the bias inthe 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.

If the price index was 90 in year 1, 100 in year 2, and 95 in year 3, then the economy experienced.

11.1 percent inflation between year 1 and 2, and 5 percent deflation between years 2 and 3.

If the quality of a good deteriorates while its prce remains the same, then the value of a dollar

Falls and the cost of living increases.