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Exam 24: Measuring the Cost of Living

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Question 71

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Scenario 24-2 ​ 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 24-2. Using 2010 as the base year, what is the inflation rate in 2010?

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Question 72

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When constructing the consumer price index, the Bureau of Labor Statistics does not do which of the following?

A) Try to include all the goods and services that the typical consumer buys.
B) Try to weight the goods and services that the typical consumer buys according to how much consumers buy of each item.
C) Survey consumers to determine what the typical consumer buys.
D) Survey sellers to determine what the typical consumer buys.

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

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Question 73

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Scenario 24-1 ​ Sue Lewis was an accountant in 1943 and earned $12,000 that year. Her son is an accountant too and he earned $220,000 this year. Suppose the price index was 18.9 in 1943 and 20.5 in the current year. -Refer to Scenario 24-1. Sue's 1943 income in current year dollars is

Which of the following is correct?

During periods of deflation, the nominal interest rate will be​

In 1954, Mickey Mantle earned $21,000 playing for the New York Yankees. The CPI in 1954 was 26.9, and the CPI in 2010 was 218.06. What is Mickey Mantle's 1954 salary in 2010 dollars?

In the United States, if the price of imported oil rises so that the prices of gasoline and heating oil rise, then the

The nominal interest rate tells you how fast the number of dollars in your bank account rises over time.

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because the

The CPI and the GDP deflator

Table 24-2 The following table pertains to Wiskancia, an economy in which the typical consumer's basket consists of 15 pounds of apples and 7 teddy bears. ​ ​ $\begin{array} { | c | c | c | } \hline \text { Year } & \begin{array} { c } \text { Price of Apples } \\\text { (Dollars per pound) }\end{array} & \begin{array} { c } \text { Price of Teddy bears } \\\text { (Dollars per toy) }\end{array} \\\hline 1 & 14 & 7 \\\hline 2 & 12 & 5 \\\hline 3 & 15 & 9 \\\hline\end{array}$ -Refer to Table 24-2. If the base year is Year 1, then the CPI in Year 3 was

What measure reflects the overall cost of goods and services produced domestically?

A dollar figure from 1908 is converted into 2008 dollars by dividing the 2008 price level by the 1908 price level, then multiplying by the 1908 dollar figure.

Changes in the quality of a good

In a period of inflation real interest rates will be greater than nominal interest rates.

If the price of beef rises and consumers buy more chicken and less beef, what kind of bias does the consumer price index exhibit?

One advantage of using the CPI over the GDP Deflator is that the CPI updates the basket of goods used to compute the index each month whereas the GDP Deflator maintains the same basket of goods for long periods of time.​

Suppose that in 2018, the producer price index increases by 1.5 percent. As a result, economists most likely will predict that

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

Table 24-8 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. $\begin{array} { | l | l | l | } \hline \text { Year } & \begin{array} { l } \text { Consumer } \\\text { Price Index }\end{array} & \text { Inflation Rate } \\\hline 2010 & 100 & \\\hline 2011 & 120 & \mathrm {~B} \\\hline 2012 & \mathrm {~A} & 15 \% \\\hline 2013 & 134 & \mathrm { C } \\\hline\end{array}$ -Refer to Table 24-8. Calculate the missing value that belongs in space B.