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Exam 24: Measuring the Cost of Living

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Question 111

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Scenario 24-3 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 24-3. Using 2011 as the base year, what is the inflation rate in 2011?

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Question 112

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Henry Ford paid his workers $5 a day in 1914, when the CPI was 10. Today, with the price index at 177, the $5 a day is worth $88.50.

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Question 113

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The CPI is a measure of the overall cost of the goods and services bought by

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

It is possible to observe a positive nominal interest rate together with a negative real interest rate.

Why does the GDP deflator give a different rate of inflation than the CPI?

Table 24-1 The following table pertains to Quicheland, an economy in which the typical consumer's basket consists of 15 bushels of apples and 7 bushels of almond . ​ ​ $\begin{array} { | l | c | c | } \hline \text { Year } & \begin{array} { c } \text { Price of Apples } \\\text { (Dollarsp er bushel) }\end{array} & \begin{array} { c } \text { Price of Almond } \\\text { (Dollars per bushel) }\end{array} \\\hline \text { Year 1 } & 12 & 4 \\\hline \text { Year } 2 & 7 & 11 \\\hline\end{array}$ ​ -Refer to Table 24-1. The cost of the basket in Year 1 was

For any given year, the CPI is the price of the basket of goods and services in the

Substitution bias causes the CPI to understate the increase in the cost of living from one year to the next.

Suppose the consumer price index was 184 in Year 1 and 198.17 in Year 1. The nominal interest rate during this period was steady at 5.8 percent. What was the real interest rate during this period?

Suppose that the CPI in 1990 was 150, that the inflation rate in 1991 was 6%, and that the inflation rate in 1992 was 4%. What was the CPI in 1991 and 1992?

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.

Social Security payments are indexed for inflation using

Write the formula for finding the rate of inflation in 2011 if you have only the CPI for the years 2010, 2011, and 2012.