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Exam 24: Measuring the Cost of Living

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Question 251

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Suppose a basket of goods and services has been selected to calculate the CPI and 2009 has been selected as the base year. In 2007, the basket's cost was $64; in 2009, the basket's cost was $68; and in 2011, the basket's cost was $70. The value of the CPI in 2011 was

A) 97.14.
B) 100.10.
C) 102.94.
D) 109.38.

E) A) and D)
F) C) and D)

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Question 252

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If the CPI was 127 in 1972 and is 324 today, then $10 in 1972 purchased the same amount of goods and services as

A) $3.92 purchases today.
B) $25.51 purchases today.
C) $207.00 purchases today.
D) $324.00 purchases today.

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

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Question 253

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In the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the smallest?

Data from the Bureau of Labor Statistics show that the largest category of consumer spending is housing.

Persistent increases in the overall level of prices have been the norm.

Because the consumer price index reflects the goods and services bought by consumers better than the GDP deflator does, it is the more common gauge of inflation.

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

Suppose that U.S. mining companies purchase German-made ore trucks at a reduced price. By itself, what effect will this purchase have on the GDP deflator and on the consumer price index?

In which of the following cases would there be an effect on the value of the U.S. consumer price index, but not on the value of the U.S. GDP deflator?

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?

By not taking into account the possibility of consumer substitution, the CPI

A decrease in the price of domestically produced industrial robots will be reflected in

If the CPI today is 120 and the CPI five years ago was 80, then something that cost $1 five years ago would cost $1.50 in today's prices.

If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation rate is 3 percent.

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

The CPI is a measure of the overall cost of the goods and services bought by a typical consumer.

Table 24-1 The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year. -Refer to Table 24-1. What belongs in space E?

When consumer spending is broken down into the major categories of goods and services, the largest single category is spending on transportation.

Scenario 24-1 The price tag on a tennis ball in 1975 read $0.10, and the price tag on a tennis ball in 2005 read $1.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3. -Refer to Scenario 24-1. The price of a 1975 tennis ball in 2005 dollars is

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.