Exam 24: Measuring the Cost of Living

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.

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

The price index was 150 in the first year, 160 in the second year, and 165 in the third year. Which of the following statements is correct?

The CPI is always 1 in the base year.

Which of the following statements is correct about the relationship between inflation and interest rates?

What measure reflects the overall cost of goods and services produced domestically?

Suppose that over the past year, the nominal interest rate was 5 percent, the CPI was 150.3 at the end of the year, and the CPI was 144.2 at the beginning of the year. It follows that

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. The cost of the basket

In the calculation of the CPI, tea is given greater weight than beer if

Write the formula for finding the rate of inflation in 2011 if you have only the CPI for the years 2010, 2011, and 2012.

Ruben earned a salary of $60,000 in 2001 and $80,000 in 2006. The consumer price index was 177 in 2001 and 221.25 in 2006. Ruben's 2001 salary in 2006 dollars is

With respect to the consumer price index, which of the following does not serve as an example of how the substitution bias arises? Between 2010 and 2011, the price of a pound of peanuts

Ethel purchased a bag of groceries in 1970 for $8. She purchased the same bag of groceries in 2006 for $25. If the price index was 38.8 in 1970 and the price index was 180 in 2006, then what is the price of the 1970 bag of groceries in 2006 dollars?

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 2006, then the CPI

If the nominal interest rate is 9 percent and the real interest rate is 3 percent, then the inflation rate is

The primary purpose of measuring the overall level of prices in the economy is to

The real interest rate tells you how fast the purchasing power of your bank account rises over time.

Substitution bias causes the CPI to understate the increase in the cost of living from one year to the next.

When the consumer price index rises, the typical family

Substitution bias occurs because the CPI ignores the possibility of consumer substitution toward goods that have become relatively less expensive.