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Exam 11: Measuring the Cost of Living

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Question 261

Multiple Choice

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Which of the following statements best represents economists' beliefs about the bias in the CPI as a measure of the cost of living?

A) Economists agree that the bias in the CPI is a very serious problem.
B) Economists agree that the bias in the CPI is not a serious problem.
C) Economists agree on the severity of the CPI bias, but there is still debate on what to do about it.
D) There is still debate among economists on the severity of the CPI bias and what to do about it.

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

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Question 262

Multiple Choice

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Dewey earned a salary of $75,000 in 2001 and $95,000 in 2006. The consumer price index was 177 in 2001 and 266 in 2006. Dewey's 2006 salary in 2001 dollars is

A) $47,768.36.
B) $63,214.29.
C) $84,550.00.
D) $142,768.36.

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

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Question 263

True/False

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The U.S. economy has never experienced deflation.

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

Jake loaned Elwood $5,000 for one year at a nominal interest rate of 10 percent. After Elwood repaid the loan in full, Jake complained that he could buy 4 percent fewer goods with the money Elwood gave him than he could before he loaned Elwood the $5,000. From this, we can conclude that the rate of inflation during the year was

Two alternative measures of the overall level of prices are

Suppose that the CPI in 2009 is 220 and that the inflation rate is 5% in 2010. What is the CPI in 2010?

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

The consumer price index was 120 in 2013 and 126 in 2014. The nominal interest rate during this period was 8 percent. What was the real interest rate during this period?

The consumer price index is used to

Many economists believe the bias in the CPI is now only about half as large as it once was.

In an imaginary economy, consumers buy only razors and cologne. The fixed basket consists of 6 razors and 4 bottles of cologne. A razor cost $20 in 2009 and $25 in 2010. A bottle of cologne cost $30 in 2009 and $40 in 2010. Using 2009 as the base year, which of the following statements is correct?

The consumer price index and the GDP deflator are two alternative measures of the overall price level. Which of the following statements about the two measures is correct?

The price index was 120 in 2012 and 126 in 2013. What was the inflation rate?

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If deflation was 7 percent during the year the money was deposited, then Bob's purchasing power has increased by 12 percent.

In addition to the consumer price index, the Bureau of Labor Statistics also calculates the

Table 24-7. The table below applies to an economy with only two goods - hamburgers and hot dogs. The fixed basket consists of 4 hamburgers and 8 hot dogs. -Refer to Table 24-7. Between 2009 and 2011, the cost of living increased by

If the CPI was 68 in 1965 and is 285 today, then $100 today purchases the same amount of goods and services as

If the consumer price index is 120 in 2009 and 139.2 in 2010, then the rate of inflation for 2010 is 39.2 percent.

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 2004, then the CPI in 2005 was