question
The CPI was 124 in one year and 142 in the next year. What was the inflation rate? Record your number as percentages, rounded to 2 decimal places if necessary (i.e. 4.456% should be recorded as 4.46 and not 0.04).
answer
14.52
((142 - 124) / 124) * 100 = 14.52
Inflation = ((Cur. Yr - Prev Yr) / Prev Yr) * 100
((142 - 124) / 124) * 100 = 14.52
Inflation = ((Cur. Yr - Prev Yr) / Prev Yr) * 100
question
Suppose a basket of goods has been selected to calculate the CPI and 2012 was selected as the base year. In 2012, the basket's cost was $50, and in 2014 the basket's cost was $53. What is the value of the CPI in 2014?
answer
106
(53 / 50) * 100 = 106
CPI = (Curr. Price / Base Price) * 100
(53 / 50) * 100 = 106
CPI = (Curr. Price / Base Price) * 100
question
An increase in the price of Irish whiskey imported into the United States will be reflected in
a. both the U.S. GDP deflator and the U.S. CPI.
b. the U.S. GDP deflator, but not the U.S. CPI.
c. the U.S. CPI, but not the U.S. GDP deflator.
d. neither the U.S. GDP deflator nor the U.S. CPI.
a. both the U.S. GDP deflator and the U.S. CPI.
b. the U.S. GDP deflator, but not the U.S. CPI.
c. the U.S. CPI, but not the U.S. GDP deflator.
d. neither the U.S. GDP deflator nor the U.S. CPI.
answer
c. the U.S. CPI, but not the U.S. GDP deflator.
question
David earned a salary of $43,500 in 1994 and $89,000 in 2010. The consumer price index was 148.2 in 1994 and 215.3 in 2010. David's 1994 salary in 2010 dollars is
a. $43,849.05
b. $63,195.34
c. $93,655.50
d. $61,263.43
a. $43,849.05
b. $63,195.34
c. $93,655.50
d. $61,263.43
answer
b. $63,195.34
question
If the consumer price index was 96 in 2012, 100 in 2013, and 102 in 2014, then the base year must be
a. 2012.
b. 2013.
c. 2014.
d. The base year cannot be determined from the given information.
a. 2012.
b. 2013.
c. 2014.
d. The base year cannot be determined from the given information.
answer
b. 2013.
(102 / 100) * 100 = 102
CPI = (Curr. Price / Base Price) * 100
question
Sophia puts money in the bank and earns a 5 percent nominal interest rate. If the inflation rate is 2 percent, then after one year,
a. Sophia will have 3 percent more money, which will purchase 5 percent more goods.
b. Sophia will have 3 percent more money, which will purchase 7 percent more goods.
c. Sophia will have 5 percent more money, which will purchase 3 percent more goods.
d. Sophia will have 5 percent more money, which will purchase 7 percent more goods.
a. Sophia will have 3 percent more money, which will purchase 5 percent more goods.
b. Sophia will have 3 percent more money, which will purchase 7 percent more goods.
c. Sophia will have 5 percent more money, which will purchase 3 percent more goods.
d. Sophia will have 5 percent more money, which will purchase 7 percent more goods.
answer
c. Sophia will have 5 percent more money, which will purchase 3 percent more goods.
question
By far the largest category of goods and services in the CPI basket is
a. transportation.
b. food & beverages.
c. housing.
d. education & communication.
a. transportation.
b. food & beverages.
c. housing.
d. education & communication.
answer
c. housing.
question
The CPI is more commonly used as a gauge of inflation than the GDP deflator is because
a. the GDP deflator cannot be used to gauge inflation.
b. the CPI is calculated more often than the GDP deflator is.
c. the CPI better reflects the goods and services bought by consumers.
d. the CPI is easier to measure.
a. the GDP deflator cannot be used to gauge inflation.
b. the CPI is calculated more often than the GDP deflator is.
c. the CPI better reflects the goods and services bought by consumers.
d. the CPI is easier to measure.
answer
c. the CPI better reflects the goods and services bought by consumers.
question
Which of the following is correct?
a. The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers.
b. The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers.
c. The GDP deflator is more commonly used as a gauge of inflation than the CPI is.
d. The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers.
a. The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers.
b. The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers.
c. The GDP deflator is more commonly used as a gauge of inflation than the CPI is.
d. The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers.
answer
b. The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers.
question
Economists use the term inflation to describe a situation in which
a. the economy's overall price level is high, but not necessarily rising.
b. some prices are rising faster than others.
c. the economy's overall output of goods and services is rising faster than the economy's overall price level.
d. the economy's overall price level is rising.
a. the economy's overall price level is high, but not necessarily rising.
b. some prices are rising faster than others.
c. the economy's overall output of goods and services is rising faster than the economy's overall price level.
d. the economy's overall price level is rising.
answer
d. the economy's overall price level is rising.
question
Which of the following statements is correct?
a. The GDP deflator better reflects the goods and services bought by consumers than does the CPI.
b. The CPI can be used to compare dollar figures from different points in time.
c. The percentage change in the CPI is a measure of the inflation rate, but the percentage change in the GDP deflator is not a measure of the inflation rate.
d. Compared to the consumer price index (CPI), the GDP deflator is the more common gauge of inflation.
a. The GDP deflator better reflects the goods and services bought by consumers than does the CPI.
b. The CPI can be used to compare dollar figures from different points in time.
c. The percentage change in the CPI is a measure of the inflation rate, but the percentage change in the GDP deflator is not a measure of the inflation rate.
d. Compared to the consumer price index (CPI), the GDP deflator is the more common gauge of inflation.
answer
b. The CPI can be used to compare dollar figures from different points in time.
question
In the calculation of the CPI, books are given greater weight than magazines if
a. the price of books is higher than the price of magazines.
b. it costs more to produce books than it costs to produce magazines.
c. consumers buy more books than magazines.
d. books are more readily available than magazines to the typical consumer.
a. the price of books is higher than the price of magazines.
b. it costs more to produce books than it costs to produce magazines.
c. consumers buy more books than magazines.
d. books are more readily available than magazines to the typical consumer.
answer
c. consumers buy more books than magazines.
question
The economy's inflation rate is the
a. change in the gross domestic product from the previous period.
b. change in the price level from the previous period.
c. percentage change in the price level from the previous period.
d. price level in the current period.
a. change in the gross domestic product from the previous period.
b. change in the price level from the previous period.
c. percentage change in the price level from the previous period.
d. price level in the current period.
answer
c. percentage change in the price level from the previous period.
question
A worker received $5 for a daily wage in 1930, which has the equivalent value of $63.24 today. If the CPI was 17 in 1930 what is the value of the CPI today, rounded to the nearest whole number?
a. 215
b. 17
c. 134
d. 1.3
a. 215
b. 17
c. 134
d. 1.3
answer
a. 215
question
Suppose a bank promises to pay you a nominal interest rate of 4.6 percent. What is the real interest rate you earn at the end of the year if the rate of inflation during the year was 1.7 percent?
answer
2.9
(4.6 - 1.7 = 2.9)
(4.6 - 1.7 = 2.9)
question
In 1986, Ken bought a car for $7930. If the price index was 122 in 1986 and the price index was 184 in 2011, then what is the price of the car in 2011 dollars?
answer
11,960
(7930/122) * 184 = 11960
(7930/122) * 184 = 11960
question
Consternation Corporation has an agreement with its workers to index completely the wage of its employees using the CPI. Consternation Corporation currently pays its production line workers $8.00 an hour and is scheduled to index their wages today. If the CPI is currently 160 and was 128 a year ago, the firm should increase the hourly wages of its workers by
a. $0.25.
b. $2.00.
c. $1.60.
d. $2.56.
a. $0.25.
b. $2.00.
c. $1.60.
d. $2.56.
answer
b. $2.00.
question
Assume an economy experienced a positive rate of inflation between 2003 and 2004 and again between 2004 and 2005. However, the inflation rate was higher between 2004 and 2005 than it was between 2003 and 2004. Which of the following scenarios is consistent with this assumption?
a. The CPI was 100 in 2003, 90 in 2004, and 88 in 2005.
b. The CPI was 100 in 2003, 120 in 2004, and 135 in 2005.
c. The CPI was 100 in 2003, 110 in 2004, and 105 in 2005.
d. The CPI was 100 in 2003, 105 in 2004, and 130 in 2005.
a. The CPI was 100 in 2003, 90 in 2004, and 88 in 2005.
b. The CPI was 100 in 2003, 120 in 2004, and 135 in 2005.
c. The CPI was 100 in 2003, 110 in 2004, and 105 in 2005.
d. The CPI was 100 in 2003, 105 in 2004, and 130 in 2005.
answer
d. The CPI was 100 in 2003, 105 in 2004, and 130 in 2005.
question
A Korean steel company produces steel in the United States, with some of its steel being exported to other nations and some of it being sold within the United States. If the prices of this steel increase, then
a. the GDP deflator and the CPI will both be unchanged.
b. the GDP deflator will increase and the CPI will be unchanged.
c. the GDP deflator and the CPI will both increase.
d. the GDP deflator will be unchanged and the CPI will increase.
a. the GDP deflator and the CPI will both be unchanged.
b. the GDP deflator will increase and the CPI will be unchanged.
c. the GDP deflator and the CPI will both increase.
d. the GDP deflator will be unchanged and the CPI will increase.
answer
c.
the GDP deflator and the CPI will both increase.
the GDP deflator and the CPI will both increase.
question
The CPI was 121 in one year and 145 in the next year. What was the inflation rate? Record your number as percentages, rounded to 2 decimal places if necessary (i.e. 4.456% should be recorded as 4.46 and not 0.04).
answer
19.83
((145-121)/121)*100 = 19.83
((145-121)/121)*100 = 19.83
question
In 1986, Ken bought a car for $7930. If the price index was 122 in 1986 and the price index was 143 in 2011, then what is the price of the car in 2011 dollars?
answer
9,295
(7930/122)*143 = 9295
(7930/122)*143 = 9295
question
Arlo is offered a job in Des Moines, where the CPI is 60, and a job in New York, where the CPI is 125. Arlo's job offer in Des Moines is for $48,000. How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?
a. $52,000
b. $100,000
c. $23,040
d. $79,200
a. $52,000
b. $100,000
c. $23,040
d. $79,200
answer
b. $100,000
(48000/60) * 125 = 100,000
(48000/60) * 125 = 100,000
question
Elizabeth just received her Ph.D. in economics and has two competing job offers. The first is in Washington, D.C. and pays a salary of $200,000. She has a similar job offer in Austin, TX that pays $90,000. Which pair of CPIs would make the two salaries have the same purchasing power?
a. 140 in Washington, D.C. and 70 in Austin, TX
b. 160 in Washington, D.C. and 72 in Austin, TX
c. 70 in Washington, D.C. and 42 in Austin, TX
d. 210 in Washington, D.C. and 150 in Austin, TX
a. 140 in Washington, D.C. and 70 in Austin, TX
b. 160 in Washington, D.C. and 72 in Austin, TX
c. 70 in Washington, D.C. and 42 in Austin, TX
d. 210 in Washington, D.C. and 150 in Austin, TX
answer
b. 160 in Washington, D.C. and 72 in Austin, TX
(200,000 / 160) * 72 = 90,000
(200,000 / 160) * 72 = 90,000
question
When the consumer price index falls, the typical family
a. finds that its standard of living is not affected.
b. can save less because they do not need to offset the effects of rising prices.
c. can spend fewer dollars to maintain the same standard of living.
d. has to spend more dollars to maintain the same standard of living.
a. finds that its standard of living is not affected.
b. can save less because they do not need to offset the effects of rising prices.
c. can spend fewer dollars to maintain the same standard of living.
d. has to spend more dollars to maintain the same standard of living.
answer
c. can spend fewer dollars to maintain the same standard of living.
question
Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best baseball players can earn more than 400 times as much as Babe Ruth earned in 1931. However, prices have also risen since 1931. We can conclude that
a. one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931.
b. because prices have also risen, the standard of living of baseball stars hasn't changed since 1931.
c. the best baseball players today are about 400 times better off than Babe Ruth was in 1931.
d. one cannot make judgments about changes in the standard of living based on changes in prices and changes in incomes.
a. one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931.
b. because prices have also risen, the standard of living of baseball stars hasn't changed since 1931.
c. the best baseball players today are about 400 times better off than Babe Ruth was in 1931.
d. one cannot make judgments about changes in the standard of living based on changes in prices and changes in incomes.
answer
a. one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931.
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