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Exam 24: Measuring the Cost of Living

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Question 201

True/False

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The inflation rate is the absolute change in the price level from the previous period.

A) True
B) False

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Question 202

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The CPI does not reflect the increase in the value of the dollar that arises from the introduction of new goods.

A) True
B) False

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Question 203

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

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. If 2012 is the base year, then the CPI for 2012 was

Categories of U.S. consumer spending, ranked from largest to smallest, are

Which of the following is correct?

The three problems with using the consumer price index as a measure of the cost of living are

The CPI assumes a fixed basket of goods over time. In fact, consumers are likely to change purchasing behavior over time by purchasing less of the goods whose prices have risen by relatively large amounts and by buying more of the goods whose prices have risen less or maybe even fallen. What problem does this cause for measuring the cost of living?

In the U.S., when the price of oil rises, the CPI rises by much more than does the GDP deflator.

If the nominal interest rate is 8.3% and the inflation rate is 4.4%, what is the real interest rate?

Archie has a savings account at a bank. If he earns 6 percent interest on his account and if there is deflation, then his purchasing power rises by more than 6 percent over the course of a year.

Consumer spending in what category is the largest component of the CPI?

John just graduated law school and has two competing job offers. The first is in Phoenix and pays a salary of $150,000. He has a similar job offer in Cleveland that pays $90,000. Which pair of CPIs would make the two salaries have the same purchasing power?

Suppose that the CPI in 1990 was 150, that the inflation rate in 1991 was 6%, and that the inflation rate in 1992 was 4%. What was the CPI in 1991 and 1992?

In the United States, real interest rates were

Suppose that the prices of dairy products have risen relatively less than prices in general over the last several years. To which problem in the construction of the CPI is this situation most relevant?

The Bureau of Labor Statistics determines which prices are most important to the typical consumer by surveying consumers.

Scenario 24-2 The price tag on a golf ball in 1975 read $0.20, and the price tag on a golf ball in 2005 read $2.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3. -Refer to Scenario 24-2. In 1975 dollars, a 1975 golf ball cost $0.20 and a 2005 golf ball cost

Table 24-13. Olivia's expenditures on clothing for three consecutive years, along with some values for the CPI, are presented in the table below. -Refer to Table 24-13. To the nearest dollar, how much is Olivia's 2010 clothing expenditure in 2011 dollars?

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $77; in 2013, the basket's cost was $82; and in 2014, the basket's cost was $90. The value of the CPI in 2014 was