Exam 11: Measuring the Cost of Living

The nominal interest rate for a consumer loan lasting from 2007 to 2008 is 8.5 percent and the real interest rate is 4.5 percent. If the consumer price index was 200 in 2007, what would the consumer price index value be in 2008?

The Bureau of Labor Statistics determines which prices are most important to the typical consumer by surveying consumers.

Persistent increases in the overall level of prices have been the norm.

The introduction of the video cassette recorder in the 1970s exemplified a problem in measuring the cost of living; that problem is the problem of

When the consumer price index is computed, the base year is always the first year among the years being considered.

Table 11-4 The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. Year Price of Meat Price of a Tryy 2004 \ 3 per pound \ 2 2005 \ 1 per pound \ 7 2006 \ 4 per pound \ 5 -Refer to Table 11-4. The cost of the basket in 2006 was

The consumer price index was 225 in 2008 and 232.2 in 2009. The nominal interest rate during this period was 6.5 percent. What was the real interest rate during this period?

Social Security payments are indexed for inflation using the CPI. A recent newspaper editorial claimed that Social Security recipients are harmed by years of low inflation because they do not receive as large an increase in their payments as they do in years of high inflation. Which of the following statements is correct?

The largest sector in the consumer price index market basket is food and beverage purchases.

Which of the following agencies calculates the CPI?

In the U.S., when the price of oil rises, the CPI rises by much more than does the GDP deflator.

The price index that measures the cost of a basket of goods and services bought by firms is called the

Substitution bias occurs because the CPI ignores the possibility of consumer substitution toward goods that have become relatively less expensive.

If the CPI was 104 in 1967 and is 390 today, then $10 in 1967 purchased the same amount of goods and services as

The Bureau of Labor Statistics surveys consumers to determine a fixed basket of goods.

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 problems in the construction of the CPI does this situation represent?

Which of the following is correct?

The CPI differs from the GDP deflator in that

The GDP deflator reflects the

Rosa deposits $100 in a bank account that pays an annual interest rate of 20 percent. A year later, after Rosa has accumulated $20 in interest, she withdraws her $120. Rosa's purchasing power