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Exam 24: Measuring the Cost of Living

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Question 201

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

A) -6.5 percent.
B) -1.5 percent.
C) 1.5 percent.
D) 6.5 percent.

E) B) and C)
F) A) and D)

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Question 202

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

A) rises and the cost of living increases.
B) rises and the cost of living decreases.
C) falls and the cost of living increases.
D) falls and the cost of living decreases.

E) None of the above
F) B) and C)

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Question 203

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The CPI was 96 in 1982, and the CPI was 230 in 2012. How much money would you have needed in 2012 in order to buy what you could have bought with $500 in 1982?

Table 24-5 The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. -Refer to Table 24-5. If the base year is 2006, then the CPI

Table 24-11. Megan's salary for three consecutive years, along with other values, are presented in the table below. -Refer to Table 24-11. Suppose the consumer price index for 2013 is not necessarily 235. If the nominal interest rate for 2013 is 7.3 percent , then the consumer price index for 2013 is, in fact,

The price index was 220 in one year and 238.2 in the next year. What was the inflation rate?

Indexation refers to

The purpose of measuring the overall level of prices in the economy is to permit comparison between dollar figures from different times.

In 1969, Malcolm bought a Pontiac Firebird for $2,500. If the price index was 36.7 in 1969 and the price index was 235 in 2013, then what is the price of the Firebird in 2013 dollars?

Table 24-3 The table below pertains to Iowan, an economy in which the typical consumer's basket consists of 4 pounds of pork and 3 bushels of corn. -Refer to Table 24-3. The cost of the basket in 2013 was

Table 24-6 The table below pertains to Napandsnack, an economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs. -Refer to Table 24-6. If the base year is 2011, then the consumer price index was

Table 24-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. -Refer to Table 24-12. Suppose Will's 2010 food expenditures in 2011 dollars amount to $6,235. Then x, the consumer price index for 2011, has a value of

Suppose the price for one gallon of gasoline rises from $3.50 to $4.00 and the price of one gallon of milk rises from $3.00 to $3.20. If the CPI rises from 120 to 132, then people likely will buy

For a country like the United States, explain why the CPI would increase at a faster rate than the GDP deflator during periods of oil and gasoline price increases.

Which of the following is the most accurate statement?

The producer price index measures the cost of a basket of goods and services bought by firms rather than consumers.

Scenario 24-5 Suppose the residents of Mediaville spend all of their income on books, CDs, and DVDs. In 2009, they buy 400 books for $3,200, 200 CDs for $1,400, and 100 DVDs for $900. In 2010, they buy 360 books for $3,240, 250 CDs for $1,500, and 125 DVDs for $1,250. Assume that the market basket for the CPI is defined in the base year. -Refer to Scenario 24-5. What are the prices of books, CDs, and DVDs in 2009?

When the price of nuclear missiles rises, this change is reflected in the CPI but not in the GDP deflator.

In the United States, real interest rates were

There is no longer much debate among economists concerning the severity of and the solution to the problems in using the CPI to measure the cost of living.