Exam 6: Measuring the Cost of Living

Tiffany is offered a job in Winnipeg that pays $90,000. She is offered a similar job in Montreal for $60,000. Which set of CPIs comes closest to giving both salaries the same purchasing power?

-Refer to Table 6-3. What was the inflation rate, as measured by the CPI, between 2016 and 2017?

A Brazilian company produces soccer balls in Canada and exports all of them. If the price of the soccer balls increases, what happens to the GDP deflator and the CPI?

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

Rebecca bought a cell phone for $500. A year later, Rebecca's twin sister Rachel bought an upgraded version of the same phone for $500. Which problem in the construction of the CPI does this situation best represent?

What does the CPI measure?

In Japan in 2000, nominal interest rates were 1.5 percent and the inflation rate was -0.5 percent. What was the real interest rate?

By not taking into account the possibility of consumer substitution, how is the CPI biased?

Suppose the price of a container of strawberries rises from $2 to $2.50 and the price of a bag of apples rises from $4 to $5. If the CPI rises from 150 to 175, what will people likely buy?

Since it accounts for changes in the prices of imports and the GDP deflator does not, the CPI is based on more goods and services than the GDP deflator.

What is the purpose of measuring the overall level of prices in the economy?

-Refer to Table 6-4. Among these categories, what was the highest rate of inflation?

Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best baseball players can earn 200 times as much as Babe Ruth in 1931. Are the best baseball players better off than Babe Ruth?

A Japanese automobile company produces cars in Canada, some of which are exported to other nations. If the price of these cars increases, what happens to the GDP deflator and the CPI?

In 1972 in Sarnia, Ontario, one could buy a bag of chips, a pound of hamburger, a package of buns, and a small bag of charcoal for about $2.50. If the same goods today cost about $6.00, which set of CPIs represents the same purchasing power for the cost in 1972 and the cost today?

The CPI is computed by finding the price of a market basket of goods whose contents vary each year.

The price index in the first year is 120, in the second year is 150, and in the third year is 180. What is the inflation rate between the first and second year and between the second and third year?

The price index is 320 in one year and 380 in the next. What was the inflation rate?

Henry Ford paid his workers $5 a day in 1914 when the CPI was 10. Today, with the price index at 177, the $5 a day is worth $88.50.

Why are measurement problems in the consumer price index as an indicator of the cost of living important?