Exam 24: Measuring the Cost of Living

Table 24-2 -Refer to Table 24-2.Suppose the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn.What is the inflation rate for 2006 if the base year is 2005?

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.

By far the largest category of goods and services in the CPI basket is

Babe Ruth's 1931 salary was $80,000.Government statistics show a consumer price index of 15.2 for 1931 and 195 for 2005.Ruth's 1931 salary was equivalent to a 2005 salary of about

To which of the problems in the construction of the CPI is the invention of pocket-sized computers most relevant?

If the price index was 90 in year 1,100 in year 2,and 95 in year 3,then the economy experienced

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 2006 as the base year,the consumer price index is

The nominal interest rate tells you

Mavis Corporation has an agreement with its workers to index completely the wage of its employees to the CPI.Mavis currently pays its production line workers $7.50 an hour and is scheduled to index their wages today.If the CPI is currently about 130 and was 120 a year ago,Mavis should increase the hourly wages of its workers by about

Suppose the CPI today is 120 and five years ago it was 80.Then in today's prices something that cost $1 five years ago now costs $1.50.

Which of these events would cause the consumer price index to overstate the increase in the cost of living?

For some racquet sports there have been increases in the size of the racquets;also,the methods and materials used for making racquets have improved.To which problem in the construction of the CPI are these facts most relevant?

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 2006 as the base year,the inflation rate is

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

If this year the CPI is 110 and last year it was 100,then

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

Jay and Joyce meet George,the banker,to work out the details of a mortgage.They all expect that inflation will be 2 percent over the term of the loan,and they agree on a nominal interest rate of 6 percent.As it turns out,the inflation rate is 5 percent over the term of the loan. a.What was the expected real interest rate? b.What was the actual real interest rate? c.Who benefited and who lost because of the unexpected inflation?

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.

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

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