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Exam 24: Measuring the Cost of Living

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Question 61

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An increase in the price of dairy products produced domestically will be reflected in

A) both the GDP deflator and the consumer price index.
B) neither the GDP deflator nor the consumer price index.
C) the GDP deflator but not in the consumer price index.
D) the consumer price index but not in the GDP deflator.

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Question 62

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The substitution bias in the consumer price index refers to the

A) substitution by consumers of new goods for old goods.
B) substitution by consumers of a smaller number of high-quality goods for a larger number of low-quality goods.
C) fact that consumers substitute toward goods that have become relatively less expensive.
D) substitution of new prices for old prices in the CPI basket of goods and services from one year to the next.

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Question 63

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Table 24-1 -Refer to Table 24-1.Suppose the typical consumer basket consists of 10 bushels of peaches and 15 bushels of pecans.Using 2005 as the base year,the CPI for 2006 is

Suppose the price of a quart of milk rises from $1 to $1.25 and the price of a T-shirt rises from $8 to $10.If the CPI rises from 150 to 175,then people likely will buy

Which of the following is an acknowledged problem of the consumer price index (CPI) as a measure of the cost of living?

In 1979 and 1980,

The consumer price index (CPI) and the GDP deflator are two alternative measures of the overall price level.Which of the following statements about the two measures is correct?

Which is the most accurate statement about the GDP deflator and the consumer price index?

Between October 2001 and October 2002,the CPI in Canada rose from 116.5 to 119.8.In Mexico it rose from 97.2 to 102.3.What were the inflation rates for Canada and Mexico over this one-year period?

Suppose,over the past year,the real interest rate was 3 percent and the inflation rate was 1 percent.

Suppose the CPI was 104 in 1967,and suppose currently the CPI is 390.According to the CPI,$10 in 1967 purchased the same number of goods and services as

Suppose lawn mowers are part of the market basket used to compute the CPI.Suppose also that the quality of lawn mowers improves 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,

In 1969,Don bought a Dodge Dart for $2,500.He drove this car until 2003 when he bought a Honda Civic for $18,000.If the price index in 1969 was 36.7 and the price index in 2006 was 180,what is the price of the Dodge Dart in 2006 dollars?

If the price of American-made power tools increases,then

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?

You know that a candy bar cost five cents in 1962.You also know the CPI for 1962 and the CPI for today.Which of the following would you use to compute the price of the candy bar in today's prices?

When the quality of a good deteriorates,the purchasing power of the dollar

Indexation refers to

Of the following categories of spending ,which is relatively least important in terms of the magnitude of expenditures?

The price index in the first year is 150;in the second year it is 160;and in the third year it is 165.Which of the following statements is correct?