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Exam 24: Measuring the Cost of Living

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Question 131

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With respect to the consumer price index, which of the following does not serve as an example of how the substitution bias arises? Between 2010 and 2011, the price of a pound of peanuts

A) rises from $0.80 to $1.00 while the price of a loaf of bread rises from $2.00 to $2.50.
B) rises from $1.00 to $1.30 while the price of a loaf of bread rises from $2.00 to $2.30.
C) remains constant, while the price of a loaf of bread rises from $2.00 to $2.30.
D) falls from $1.00 to $0.80 while the price of a loaf of bread falls from $2.00 to $1.80.

E) All of the above
F) B) and D)

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Question 132

Multiple Choice

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Table 24-2 The table below pertains to Pieway, an economy in which the typical consumer's basket consists of 15 bushels of peaches and 10 bushels of pecans. -Refer to Table 24-2. If 2013 is the base year, then the inflation rate in 2013 was

A) 22.5 percent.
B) 2.35 percent.
C) 10 percent.
D) 4.4 percent.

E) A) and B)
F) All of the above

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Question 133

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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 consumer price index in 2007 was 125, then how much did a magazine cost in 2007?

The value of the consumer price index increased from 140 to 147 during 2006. Nathan opened a bank account at the beginning of 2006, and at the end of 2006 his account balance was $12,840. The purchasing power of Nathan's account increased by 2 percent during the year. We can conclude that Nathan opened his account with a deposit of $11,500 at the beginning of 2006.

If the CPI was 108.00 in 1942 and is 336.96 today, then $10 in 1942 purchased the same amount of goods and services as

Categories of U.S. consumer spending, ranked from largest to smallest, are

Suppose a basket of goods and services has been selected to calculate the CPI. In 2002, the basket's cost was $80; in 2008, the basket's cost was $92; and in 2010, the basket's cost was $108. The base year must be

During a certain year, the nominal interest rate was 8 percent, the real interest rate was 3 percent, and the CPI was 176.7 at the beginning of the year. The CPI at the end of the year was

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

Samantha goes to the grocery store to make her monthly purchase of ginger ale. As she enters the soft drink section, she notices that the price of ginger ale has increased 15 percent, so she decides to buy some peppermint tea instead. To which problem in the construction of the CPI is this situation most relevant?

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

Table 24-16 The table below lists annual consumer price index and inflation rates for a country over the period 2010-2013. Assume the year 2010 is used as the base year. -Refer to Table 24-16. Calculate the missing value that belongs in space C.

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

If the current year CPI is 90, then the price level has decreased 10 percent since the base year.

Economists use the term inflation to describe a situation in which the economy's overall price level is rising.

Suppose a basket of goods and services has been selected to calculate the consumer price index. In 2005, the basket of goods cost $108.00; in 2006, it cost $135.00; and in 2007, it cost $168.75. Which of the following statements is correct?

A COLA automatically raises the wage when

Suppose that over the past year, the real interest rate was 5 percent and the inflation rate was 3 percent. It follows that

Which of the following is not an example of a price index computed by the Bureau of Labor Statistics?

The CPI and the GDP deflator