FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 24: Measuring the Cost of Living

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 101

Multiple Choice

Review LaterAdd Note

Review Later

Two common measures of the overall level of prices are

A) the inflation rate and the consumer price index.
B) the inflation rate and the GDP deflator.
C) the GDP deflator and the consumer price index.
D) the cost of living index and nominal GDP.

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

Correct Answer

verified

Show Answer

Question 102

True/False

Review LaterAdd Note

Review Later

The real interest rate tells you how fast the purchasing power of your bank account rises over time.

A) True
B) False

Correct Answer

verified

Show Answer

Question 103

True/False

Review LaterAdd Note

The inflation rate for 2007 is computed by dividing (the CPI in 2007 minus the CPI in 2006) by the CPI in 2006, then multiplying by 100.

Table 24-5 ​ The following table shows the value of the consumer price index and the nominal interest rate for three consecutive years. ​ ​ $\begin{array} { | c | c | c | } \hline \text { Year } & \text { CPI } & \begin{array} { c } \text { Nominal Interest Rate } \\\text { (Percent) }\end{array} \\\hline 1 & 233.0 & 2.4 \\\hline 2 & 236.7 & 2.5 \\\hline 3 & 237.0 & 2.1 \\\hline\end{array}$ -Refer to Table 24-5. What was the real interest rate in Year 3?

Table 24-1 The following table pertains to Quicheland, an economy in which the typical consumer's basket consists of 15 bushels of apples and 7 bushels of almond . ​ ​ $\begin{array} { | l | c | c | } \hline \text { Year } & \begin{array} { c } \text { Price of Apples } \\\text { (Dollarsp er bushel) }\end{array} & \begin{array} { c } \text { Price of Almond } \\\text { (Dollars per bushel) }\end{array} \\\hline \text { Year 1 } & 12 & 4 \\\hline \text { Year } 2 & 7 & 11 \\\hline\end{array}$ ​ -Refer to Table 24-1. If Year 1 is the base year, then the inflation rate in Year 2 was

Table 24-4 Lee's expenditures on food for three consecutive years, along with other values, are presented in the following table. ​ ​ -Refer to Table 24-4. If the nominal interest rate was 12 percent in Year 2, then

Michael Jordan's rookie salary in 1984 was $550,000. The CPI in 1984 was 103.9, while the CPI in 2010 was 218.1. What is Michael Jordan's rookie salary in 2010 dollars?

Consider a small economy in which consumers buy only two goods: pretzels and cookies. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that

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?

Suppose that the price of one ear of corn was $0.05 in 1920, that the CPI in 1920 was 10, and that in 1990 the CPI was 180. What is the price of a 1920 ear of corn in 1990 dollars?

By far the largest category of goods and services in the CPI basket is

The goal of the consumer price index is to gauge how much incomes must rise to maintain a constant standard of living.

The GDP deflator reflects the prices of all goods and services produced around the world, whereas the consumer price index reflects the prices of all goods and services bought by consumers.

When the consumer price index is computed, the base year is always the first year among the years being considered.

Which is likely to have the larger effect on the CPI, a 2 percent increase in the price of food or a 3 percent increase in the price of diamond rings? Explain.

When the consumer price index falls, the typical family has to spend fewer dollars to maintain the same standard of living.

Suppose the nominal interest rate this year is 6.5% and that the economy experiences 2.3% deflation. What is the real interest rate?

When a new good is introduced, consumers have more variety from which to choose, and this in turn increases the cost of maintaining the same level of economic well-being.

List the three major problems in using the CPI as a measure of the cost of living.

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