Exam 24: Measuring the Cost of Living

In an imaginary economy,consumers buy only sandwiches and magazines.The fixed basket consists of 20 sandwiches and 30 magazines.In 2006,a sandwich cost $4 and a magazine cost $2.In 2007,a sandwich cost $5.The base year is 2006.If the inflation rate in 2007 was 16 percent,then how much did a magazine cost in 2007?

The term inflation is used to describe a situation in which

If the cost of medical care increases by 50 percent,then,other things the same,the CPI is likely to increase by about

Which entity within the U.S.government is responsible for computing and reporting the consumer price index?

If the nominal interest rate is 8 percent and rate of inflation is 5.5 percent,then the real interest rate is

Suppose the nominal interest rate is 6 percent and the expected inflation rate is 4 percent.

Which of the following is the most accurate statement about nominal and real interest rates?

When the overall level of prices in the economy is increasing,we say that the economy is experiencing

Thomas earned a salary of $50,000 in 2001 and $70,000 in 2006.The consumer price index was 177 for 2001 and 265.5 for 2006.Thomas's 2001 salary in 2006 dollars is

In a simple economy,people consume only 2 goods,food and clothing.The market basket of goods used to compute the CPI has 50 units of food and 10 units of clothing. a.What are the percentage increases in the price of food and in the price of clothing? b.What is the percentage increase in the CPI? c.Do these price changes affect all consumers to the same extent? Explain.

Substitution bias in computing the CPI tends to make the CPI overstate the true increase in the cost of living.

Which of the following is the most accurate statement about the effects of quality change on the CPI?

The CPI and the GDP deflator

Recent changes in methods used to compute the CPI have made the

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.Lisa Smith's 2005 income in 1944 dollars is about

In the United States in the late 1970s,nominal interest rates were high and inflation rates were very high.As a result,real interest rates were

In a particular economy,the price index was 270 in 2005 and it was 300 in 2006 .Which of the following statements is correct?

In 1970 Professor Fellswoop earned $12,000;in 1980 he earned $24,000;and in 1990 he earned $36,000.If the CPI was 40 in 1970,60 in 1980,and 100 in 1990,then in real terms,Professor Fellswoop's salary was highest in

What basket of goods is used to construct the CPI?

For purposes of calculating the CPI,the "housing" category of consumer spending includes the cost of