Exam 6: Measuring the Cost of Living

Five years ago, when you took up your current job, your wage was $20 an hour. Now it is $22. Suppose you do not know the CPIs, but only the inflation rates for the past 5 years: 2.5, 1.9, 2.2, 2.7, and 3.1 percent. a) In real terms, do you now earn more or less than 5 years ago? b) How much was the inflation rate over the 5-year period? c) If the CPI was 112.5 in the first year, how much is it today?

The CPI for 2020 is computed as 100 times the ratio of the price of the market basket in 2020 divided by the price of the market basket in the base year.

Suppose the quality of lap-top computers, which are part of the CPI basket, has improved, while their price has remained the same. If Statistics Canada wants to adjust the CPI so that the effect of better quality on the cost of living is accounted for, what should Statistics Canada do?

In the late 1970s, nominal interest rates were high and inflation rates were very high. As a result, what were real interest rates?

Which of the following is NOT a widely acknowledged problem with the CPI as a measure of the cost of living?

The price of imported cotton shirts produced by a Canadian company operating in India increases. By itself, what effect will this change have on the Canadian GDP deflator and CPI?

Which of the following is the consumer price index used for?

Scenario 6-1 Grant Smith was a doctor. In 1944, he made $12,000. His daughter, Lisa Smith, is also a doctor. Last year she made $275,000. The price index in 1944 was 17.6 and the price index last year was 200. -Refer to Scenario 6-1. What was the approximate ratio of Grant's real income to Lisa's real income?

When the quality of a good deteriorates, what happens to the purchasing power of the dollar?

What is the goal of the consumer price index?

Scenario 6-1 Grant Smith was a doctor. In 1944, he made $12,000. His daughter, Lisa Smith, is also a doctor. Last year she made $275,000. The price index in 1944 was 17.6 and the price index last year was 200. -Refer to Scenario 6-1. What is Grant's 1944 income in last year's dollars?

-Refer to Table 6-2. Suppose that the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn. What is the consumer price index for 2019 if the base year is 2018?

Consumers begin purchasing houses incorporating steel studs instead of wooden studs after the price of lumber increases. Which problem in the construction of the CPI does this situation best represent?

-The market basket used to calculate the CPI in Aquilonia is: four loaves of bread Six litres of milk, Two shirts, and Two pairs of pants. Last year, The price of bread was $1.00 per loaf, The price of milk was $1.50 per litre, The price of a shirt was $6.00, and The price of a pair of pants was $10.00. This year, The price of bread is $1.50 per loaf, The price of milk is $2.00 per litre, The price of a shirt is $7.50, and The price of a pair of pants is $13.00. What is the inflation rate, as measured by the CPI, for Aquilonia between last year and this year?

Suppose that the CPI is currently 300 and was 50 in 1969. Then, according to the CPI, $600 today purchases the same amount of goods and services as what amount in 1969?

The price index is 180 in one year and 210 in the next. What is the inflation rate?

The price index is 260 in one year and 300 in the next. What is the inflation rate?

What best defines the inflation rate?

In the 1970s, nominal interest rates were high and real interest rates were low. In the 1990s, nominal interest rates were low and real interest rates were high.

In 1949, the city of Sherbrooke, Quebec, built a hospital for about $500,000. In 1987, the city restored its courthouse for about $2.4 million. A price index for nonresidential construction was 14 in 1949, 92 in 1987, and 114.5 in 2019. According to these numbers, what approximately did the hospital cost?