Econ 102: Chapter 9
2016 2017 Quantity Price 10 $30 8 $50 Quantity Price 20 $1 15 $2 In 2016, consumers in Dexter consumed only books and pens. The prices and quantities for 2016 and 2017 are listed in the table above. The reference base period for Dexter's CPI is 2016. What is the cost of the CPI basket in 2017?
$540
If this year's price level exceeds last year's
the inflation rate between these years has been positive
In China, suppose that the price level was 100 in 2014, 110 in 2015, and 120 in 2016. Over these three years
the inflation rate was positive
Suppose that the price level was 100 in 2014, 110 in 2015, and 130 in 2016. Over these three years
the inflation rate was positive and accelerating
Assume the inflation rate falls from 4 percent to 2 percent. This means that
the price level is increasing more slowly
The technique currently used to calculate the CPI implicitly assumes that over time consumers buy
the same relative quantities of goods as in a base year.
Which of the following measurements of inflation tracks the rate at which infrequently changed prices are changing?
the sticky-price CPI
The cost of inflation to society includes
unpredictable changes in the value of money
Hyperinflation is defined as
very high inflation rates
Which of the following measurements of inflation strips out volatile food and fuel prices?
the core PCE
At the end of last year, the CPI equaled 120. At the end of this year, the CPI equals 132. What is the inflation rate over this year?
10 percent
Year Price level 2012 91 2013 100 2014 110 2015 121 In the above table, the inflation rate between 2013 and 2014 is approximately
10 percent
The CPI basket contains 400 oranges and 800 pens. In the base year, the price of an orange is $1.00 and the price of a pen is $0.75. This year, urban consumers each buy 300 oranges at $2.00 each and 850 pens at $1.00 each. The CPI this year is
160.
Which of the following means that the CPI overstates the actual inflation rate?
All of the above cause the CPI to overstate inflation
Suppose the CPI last year is 121 and the CPI this year is 137. The CORRECT method to calculate the inflation rate is
[(137 - 121)/121] × 100 = 13.2.
Inflation is a problem when
all of the above answers are correct
The cost of inflation to society includes I. the opportunity costs of resources used by people to protect themselves against inflation. II. the diversion of productive resources to forecasting inflation.
both I and II
The Consumer Price Index (CPI)
compares the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period.
The commodity substitution bias is that
consumers decrease the quantity they buy of goods whose relative prices rise and increase the quantity of goods whose relative price falls.
If the inflation rate is negative, the price level in an economy is
falling
An increase in the price level is defined as
inflation
Unpredictable changes in the value of money, which brings about gains and losses, are a consequence of unpredictable changes in
inflation
If the price level for the last three months has been 112, 125, and 126, we would say
inflation was more rapid between the first and second month than between the second and third month
If a new and better good replaced an older and less expensive good, then the price level measured by the CPI
is higher than the actual price level
As currently calculated, the CPI tends to overstate the true inflation rate because
it fails to correctly measure quality changes for some products.
Because of the biases in calculating the CPI, actual inflation is
less than the measured inflation rate
The biases in the CPI include the
new goods, quality change, and substitution biases
The bias in the CPI typically
overstates inflation
In July 2014, the CPI inflation rate was 0.3 percent while the core CPI inflation rate was 0.1 percent. The difference between these two measurements of inflation indicates
prices for food and fuel were increasing more rapidly than prices for other goods.
The currently used method for calculating the CPI
probably overstates inflation.
In the United States, the inflation rate has
risen and fallen since the 1970s.
Substitution bias in the CPI refers to the fact that the CPI
takes no account of the substitution of goods by consumers when relative prices change.
