Exam 6: Measuring the Cost of Living

A Brazilian company produces soccer balls in Canada and exports all of them. If the price of the soccer balls increases, what happens to the GDP deflator and the CPI?

Since it accounts for changes in the prices of imports and the GDP deflator does not, the CPI is based on more goods and services than the GDP deflator.

Suppose that the nominal interest rate is 5 percent and the expected inflation rate is 3 percent. What happens with the value of savings?

How often is the CPI calculated?

What does the "substitution bias" in the consumer price index refer to?

Which of the following best describes the relationship between the nominal interest rate and the real interest rate?

If the nominal interest rate is 5 percent and the rate of inflation is 10 percent, what is the real interest rate?

If this year the CPI is 125 and last year it was 120, what do we know?

If the cost of shelter increases by 10 percent, then, other things the same, how much is the CPI likely to increase?

Scenario 6-1 Grant Smith was a doctor in 1944 and made about $12 000 a year. His daughter Lisa Smith also is a doctor and she made about $175 000 in 2006. The price index in 1944 was 17.6 and the price index was 192 in 2006. -Refer to Scenario 6-1. What is Grant's income in 2006 dollars?

Use the table below to answer the following questions. Table 6-2 -The market basket used to calculate the CPI in Aquilonia is 4 loaves of bread, 6 litres of milk, 2 shirts, and 2 pairs of pants. In 2005 the price of bread was $1.00 per loaf, the price of milk was $1.50 per litre, the price of a shirt was $6.00, and the price of a pair of pants was $10.00. In 2006 the price of bread was $1.75 per loaf, the price of milk was $2.25 per litre, the price of a shirt was $7.50, and the price of a pair of pants was $13.00. What was the inflation rate, as measured by the CPI, for Aquilonia between 2005 and 2006?

In 1969 Don bought a Dodge Dart for $2500. He drove this car until 2006, when he bought a Honda Civic for $22 000. If the price index in 1969 was 36.7 and the price index in 2006 was 190, what is the price of the Dodge Dart in 2006 prices?

The Canadian income tax system is indexed to the CPI.

The price index in the first year is 125, in the second year is 150, and in the third year is 200. What is the inflation rate between the first and second year and between the second and third year?

What does the GDP deflator reflect?

Which of the following best explains whether interest rates are positive or negative?

Scenario 6-1 Grant Smith was a doctor in 1944 and made about $12 000 a year. His daughter Lisa Smith also is a doctor and she made about $175 000 in 2006. The price index in 1944 was 17.6 and the price index was 192 in 2006. -Refer to Scenario 6-1. What is Lisa's income in 1944 dollars?

Table 6-5 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 6-5. Using 2006 as the base year, what is the consumer price index?

Are Canada Pension Plan benefits and Old Age Security benefits, adjusted for inflation?

When does a cost-of-living allowance (COLA) automatically raise the wage rate?