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Exam 16: Measuring the Cost of Living

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Question 121

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

A) housing, food & beverages, education & communication, and transportation.
B) education & communication, housing, food & beverages, and transportation.
C) food & beverages, housing, transportation, and medical care.
D) housing, transportation, food & beverages, and medical care.

E) A) and C)
F) A) and B)

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Question 122

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When the quality of a good deteriorates while its price remains the same, the purchasing power of the dollar

A) increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for.
B) increases, so the CPI understates the change in the cost of living if the quality change is not accounted for.
C) decreases, so the CPI overstates the change in the cost of living if the quality change is not accounted for.
D) decreases, so the CPI understates the change in the cost of living if the quality change is not accounted for.

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

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Question 123

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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?

When a new good is introduced, consumers have more variety from which to choose, and this in turn increases the cost of maintaining the same level of economic well-being.

In 1974, one could buy a theater for $1.25. Today the same theater ticket costs $6.50. Which pair of CPIs would imply that the cost in today's dollars was the same for both tickets?

Scenario 24-5 Suppose the residents of Mediaville spend all of their income on books, CDs, and DVDs. In 2009, they buy 400 books for $3,200, 200 CDs for $1,400, and 100 DVDs for $900. In 2010, they buy 360 books for $3,240, 250 CDs for $1,500, and 125 DVDs for $1,250. Assume that the market basket for the CPI is defined in the base year. -Refer to Scenario 24-5. Using 2010 as the base year, what is the CPI in each year?

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

If the cost of housing increases by 10 percent, then, other things the same, the CPI is likely to increase by about

For purposes of calculating the CPI, the food & beverages category of consumer spending includes the cost of

Suppose lawn mowers are part of the market basket used to compute the CPI. Suppose also that the quality of lawn mowers deteriorates while the price of lawn mowers stays the same. If the Bureau of Labor Statistics is able to precisely adjust the CPI for the improvement in quality, then, other things equal,

Suppose the typical consumer buys more bananas than oranges. In fixing the basket of goods and services for the purpose of calculating the consumer price index, the Bureau of Labor Statistics

In 1970, Professor Plum earned $12,000; in 1980, he earned $24,000; and in 1990, he earned $36,000. If the CPI was 40 in 1970, 60 in 1980, and 100 in 1990, then in real terms, Professor Plum's salary was highest in

Scenario 24-6 A small economy produced and consumed goods X and Y in 2010 and 2011 in the amounts shown in the table below. Assume that the market basket for the CPI is defined in the base year. -Refer to Scenario 24-6. Using 2010 as the base year, what is the inflation rate in 2011?

In the late 1970s, U.S. nominal interest rates were high and real interest rates were low, but in the late 1990s, U.S. nominal interest rates were low and real interest rates were high.

When ranking movies by nominal box office receipts, what important fact is overlooked?

Table 24-14 The table below lists the per pound prices of meat and potatoes for the months of January, February, and March. Assume that the typical consumer buys 25 pounds of meat and 15 pounds of potatoes each month, and that January is the base period. -Refer to Table 24-14. Calculate the consumer price index for February and March.

If the nominal interest rate is 7 percent and the real interest rate is -2.5 percent, then the inflation rate is

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

If the quality of a good deteriorates while its price remains the same, then the value of a dollar

If the consumer price index changes from 125 in September to 150 in October, what is the rate of inflation?