Exam 24: Measuring the Cost of Living

In an imaginary economy,consumers buy only hot dogs and hamburgers.The fixed basket consists of 10 hot dogs and 6 hamburgers.A hot dog cost $3 in 2006 and $5.40 in 2007.A hamburger cost $5 in 2006 and $6 in 2007.Which of the following statements is correct?

Suppose OPEC succeeds in raising world oil prices by 300 percent.This price increase causes inventors to look at alternative sources of fuel for internal-combustion engines.A hydrogen-powered engine is developed which is cheaper to operate than gasoline engines.Which problem in the construction of the CPI does this situation represent?

From 2004 to 2005,the CPI for medical care increased from 260.8 to 272.8.What was the inflation rate for medical care?

Scenario 24-1 Grant Smith was a doctor in 1944 and earned $12,000 that year. His daughter, Lisa Smith, is a doctor today and she earned $210,000 in 2005. The price index in 1944 was 17.6 and the price index in 2005 was 184. -Refer to Scenario 24-1.In real terms,Lisa Smith's income amounts to about what percentage of Grant Smith's income?

Table 24-4 The table below pertains to an economy with only two goods -- books and calculators. The fixed basket consists of 5 books and 10 calculators. -Refer to Table 24-4.Using 2008 as the base year,the consumer price index is

Which of these changes in the price index produces the greatest rate of inflation: 106 to 112,112 to 118,or 118 to 124?

Categories of U.S.consumer spending,ranked from largest to smallest,are

Suppose the price of a gallon of ice cream rises from $4 to $5 and the price of coffee rises from $2 to $2.50 .If the CPI rises from 150 to 200,then people likely will buy

In 1931,President Herbert Hoover was paid a salary of $75,000.Government statistics show a consumer price index of 15.2 for 1931 and 195 for 2005.President Hoover's 1931 salary was equivalent to a 2005 salary of about

If this year the CPI is 125 and last year it was 120,then

Economists use the term inflation to describe a situation in which

Suppose the CPI was 95 in 1955,and suppose currently the CPI is 475.According to the CPI,$100 today purchases the same amount of goods and services as

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

Because the CPI is based on a fixed basket of goods,the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living.This is so because

Suppose that in 2006,the producer price index increases by 2 percent.As a result,economists most likely will predict that

By itself,a reduction in the price of large tractors imported into the United States from Russia

The U.S.income tax system is completely indexed to the CPI.

The measurement problems in the consumer price index as an indicator of the cost of living are important because

The inflation rate is calculated

Ms.Smith borrowed $1,000 from her bank for one year at an interest rate of 10 percent.During that year the price level went up by 15 percent.Which of the following statements is correct?