Exam 7: The Cpi and the Cost of Living

Suppose in 2009 the United States Congress passes a minimum wage law that increases the minimum wage (the lowest legal wage) to $7.25 per hour and has a provision that increases the minimum wage at the beginning of each year based on the CPI for the previous year. a. If the CPI increases 3 percent for each of the next four years (so that the inflation rate is 3 percent for each of the next four years), find the minimum wage for 2010, 2011, and 2012. b. If the CPI overstates inflation by 1 percentage point, calculate a revised minimum wage for each year 2010 to 2012 removing the CPI bias. c. How much does the CPI bias affect the minimum wage in 2010, 2011, and 2012?

"The real interest rate is found by dividing the nominal interest rate by the CPI." Is this statement true or false?

Looking at the annual inflation rates in the United States from 1999 to 2009, we see that they

What is the commodity substitution bias? What effect does it have on the CPI?

The CPI is a measure of the

Item Quantity (2009) Price (2009) Quantity (2010) Price (2010) Magazines 400 \ 5.00 450 \ 4.50 Movie tickets 50 \ 6.00 200 \ 8.00 Pizzas 100 \ 10.00 120 \ 10.50 The data in the table above shows the consumption by families in an economy.The year 2009 is the reference base period. -Based on the table above, the CPI for 2009 is

Year CPI 1994 90.0 1996 95.5 1998-2000 100.0 2002 104.0 -To find the cost of the CPI market basket in the base period prices we have to multiply the

An example of the quality change bias, and not a new goods bias, in the calculation of the CPI is a price increase in

When calculating the CPI, the Bureau of Labor Statistics

A ham and cheese sandwich at the local deli costs $4.99 in 2005.If the CPI in 2005 was 90.0 and the CPI today is 121.0, the equivalent price for the ham and cheese sandwich today is

According to the historical record of inflation since the 1300s, the inflation rate

What is the difference between nominal variables and real variables? Discuss the calculations undertaken to determine the real wage rate and the real interest rate.Explain why the real wage rate and real interest rate are real variables.

Because a third of government outlays are linked directly to the CPI, as time passes the CPI bias means that the government's outlays are

In order to determine if the quantity of goods and services that an hour's work can buy has increased or decreased between 2000 and 2010, one should compare the

When we compare the records of the CPI and the PCE price index over time, the

Year CPI 1994 90.0 1996 95.5 1998-2000 100.0 2002 104.0 -When the cost of the CPI market basket increases from one year to the next, we know that

The CPI is calculated by the Bureau of Labor Statistics on a frequency of every

The value of the CPI for the reference base period is always

In June 1960, the price of gasoline in the Midwest was $0.169 per gallon and the CPI was 29.6 with a base period of 1982 to 1984.What was the real price of gasoline per gallon in base period dollars?

Joe buys chicken and beef.If the price of beef rises and the price of chicken does not change, Joe will buy ________ for the CPI.