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Exam 24: Measuring the Cost of Living

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Question 91

Multiple Choice

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Suppose that over the past year, the real interest rate was 6 percent and the inflation rate was -2 percent. It follows that

A) the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 6 percent.
B) the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 8 percent.
C) the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 4 percent.
D) the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 6 percent.

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

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Question 92

Multiple Choice

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If the nominal interest rate is 7 percent and the real interest rate is -2.5 percent, then the inflation rate is

A) -9.5 percent.
B) -4.5 percent.
C) 4.5 percent.
D) 9.5 percent.

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

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Question 93

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Data from the Bureau of Labor Statistics show that consumer spending on transportation is only slightly higher than consumer spending on food and beverages.

Table 24-15 TOPICS: Price levels Inflation KEYWORDS: BLOOM'S: Application CUSTOM ID: 022.24 - SAE - MANK08 Table 24-16 The table below lists annual consumer price index and inflation rates for a country over the period 2010-2013. Assume the year 2010 is used as the base year. -Refer to Table 24-16. Calculate the missing value that belongs in space C.

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

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If inflation was 5 percent during the year the money was deposited, then Bob's purchasing power has not changed.

Suppose the price index was 105 in 2017, 126 in 2018, and the inflation rate was lower between 2018 and 2019 than it was between 2017 and 2018. This means that

What do real interest rates account for that nominal interest rates do not?

If 2012 is the base year, then the inflation rate for 2012 equals

Michelle bought word-processing software in 2009 for $75. Michelle's cousin, Barry, bought an upgrade of the same software in 2010 for $75. To which problem in the construction of the CPI is this situation most relevant?

The real interest rate is the interest rate corrected for inflation.

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. Using 2010 as the base year, what is the inflation rate in 2010?

Which of the following pairs of values of the consumer price index (CPI) is consistent with an inflation rate of 10 percent for 2014?

Table 24-2 The table below pertains to Pieway, an economy in which the typical consumer's basket consists of 15 bushels of peaches and 10 bushels of pecans. -Refer to Table 24-2. The cost of the basket in 2013 was

If the cost of food & beverages increases by 10 percent, then, other things the same, the CPI is likely to increase by about

Which of the following statements is correct?

The market basket used to calculate the CPI in Aquilonia is 4 loaves of bread, 6 gallons of milk, 2 shirts, and 2 pairs of pants. In 2005, bread cost $1.00 per loaf, milk cost $1.50 per gallon, shirts cost $6.00 each, and pants cost $10.00 per pair. In 2006, bread cost $1.50 per loaf, milk cost $2.00 per gallon, shirts cost $7.00 each, and pants cost $12.00 per pair. Using 2005 as the base year, what was Aquilonia's inflation rate in 2006?

One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called

In 1986, Ken bought a Ford Mustang for $8,000. If the price index was 122 in 1986 and the price index was 280 in 2011, then what is the price of the Mustang in 2011 dollars?

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 2010?