Exam 11: 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 5 percent during the year the money was deposited, then Bob's purchasing power has not changed.

Suppose prices of personal computers fall significantly and consumers respond by buying more personal computers. The consumer price index

In the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the largest?

Table 11-11. Megan's salary for three consecutive years, along with other values, are presented in the table below. -Refer to Table 11-11. Megan's 2008 salary in 2010 dollars is

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If deflation was 7 percent during the year the money was deposited, then Bob's purchasing power has increased by 12 percent.

In the basket of goods that is used to compute the consumer price index, the three largest categories of consumer spending are

Scenario 11-3 Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2008. The price index was 17.6 in 1944 and 184 in 2008. -Refer to Scenario 11-3. In real terms, Sue Holloway's income amounts to about what percentage of Josh Holloway's income?

Which of the following pairs of values of the consumer price index (CPI) is consistent with an inflation rate of 14 percent for 2011?

Which of the following is not correct?

Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?

The consumer price index is used to monitor changes in an economy's production of goods and services over time.

Which of the following statements about real and nominal interest rates is correct?

In 1972, one could buy model rocket engines for $1.50 each. If those same engines cost $2.50 each today, then which pair of CPIs would make the engine prices in today's dollars the same for both years?

The CPI was 120 in 2008 and 126 in 2009. Phil borrowed money in 2008 and repaid the loan in 2009. If the nominal interest rate on the loan was 8 percent, then the real interest rate was

Inflation can be measured using either the GDP deflator or the consumer price index.

When the price of Italian wine rises, this change is reflected in the U.S. CPI but not in the U.S. GDP deflator.

If the nominal interest rates rises, then the inflation rate must have increased.

Table 11-6. The table below applies to an economy with only two goods - hamburgers and hot dogs. The fixed basket consists of 4 hamburgers and 8 hot dogs. Year Priee of hamburegers Prife of hat doges 2009 \ 5.00 \ 3.00 2010 5.50 3.30 2011 5.61 3.63 -Refer to Table 11-6. If the base year is 2009, then the economy's inflation rate is

In comparison to the situation in the late 1970s, the United States experienced lower nominal interest rates and higher real interest rates in the late 1990s.

When looking at a graph of nominal and real interest rates you notice that nominal rates always lie above real rates. From this you conclude