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Exam 11: Measuring the Cost of Living

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Question 251

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A Korean steel company produces steel in the United States, with some of its steel being exported to other nations and some of it being sold within the United States. If the prices of this steel increase, then

A) the GDP deflator and the CPI will both increase.
B) the GDP deflator will increase and the CPI will be unchanged.
C) the GDP deflator will be unchanged and the CPI will increase.
D) the GDP deflator and the CPI will both be unchanged.

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Question 252

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As long as prices are rising over time, then

A) the nominal interest rate exceeds the real interest rate.
B) the real interest rate exceeds the nominal interest rate.
C) the real interest rate is positive.
D) the nominal interest rate is a better indicator than the real interest rate of how fast the purchasing power of your bank account is changing over time.

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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 largest?

John just graduated law school and has two competing job offers. The first is in Phoenix and pays a salary of $150,000. He has a similar job offer in Cleveland that pays $90,000. Which pair of CPIs would make the two salaries have the same purchasing power?

Janelle earned a salary of $40,000 in 1996 and $65,000 in 2006. The consumer price index was 160 in 1996 and 266 in 2006. Janelle's 2006 salary in 1996 dollars is

If the current year CPI is 90, then the price level has decreased 10 percent since the base year.

For an imaginary economy, the value of the consumer price index was 140 in 2013 and 146.5 in 2014. The economy's inflation rate for 2014 was

The CPI was 96 in 1982, and the CPI was 230 in 2012. How much money would you have needed in 2012 in order to buy what you could have bought with $500 in 1982?

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?

Table 24-13. Olivia's expenditures on clothing for three consecutive years, along with some values for the CPI, are presented in the table below. -Refer to Table 24-13. To the nearest dollar, how much is Olivia's 2010 clothing expenditure in 2011 dollars?

Compute how much each of the following items is worth in terms of today's dollars using 177 as the price index for today. a. In 1926, the CPI was 17.7 and the price of a movie ticket was $0.25. b. In 1932, the CPI was 13.1 and a cook earned $15.00 a week. c. In 1943, the CPI was 17.4 and a gallon of gas cost $0.19.

When looking at a graph of nominal and real interest rates you notice that nominal rates always lie above real rates. From this you conclude

The Bureau of Labor Statistics does not try to account for quality changes in the goods and services in the basket used to compute the CPI.

Of Social Security benefits and federal income tax brackets, which is indexed?

If the nominal interest rates rises, then the inflation rate must have increased.

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 7 percent during the year the money was deposited, then Bob's purchasing power has increased by 2 percent.

Economists use the term inflation to describe a situation in which the economy's overall price level is rising.

Suppose the quality of beef changes over time, but the quality change goes unmeasured for the purpose of computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality change be least severe?

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 2012 was

Table 24-10 The table below shows the prices of baseballs and baseball bats for three years. Assume the typical consumer's basket consists of 6 baseballs and 2 baseball bats. -Refer to Table 24-10. If 2010 is the base year, then the consumer price index was