Chapter 24 Quiz Measuring the Cost of Living

Module 3 Chapter 24 Quiz: Measuring the Cost of Living 1. Inflation can be measured by all the following except the D. finished goods price index. 2. The CPI will be most influenced by a 10 percent increase in the price of which of the following consumption categories? A. housing 3. In 1989, the CPI was 124.0. In 1990, it was 130.7. What was the rate of inflation over this period? B. 5.4 percent 4. Which of the following would likely cause the CPI to rise more than the GDP deflator? A. an increase in the price of Hondas produced in Japan and sold in the United States 5. The "basket" on which the CPI is based is composed of C. products purchased by the typical consumer. 6. If there is an increase in the price of apples that causes consumers to purchase fewer pounds of apples and more pounds of oranges, the CPI will suffer from A. substitution bias. 7. Use the following table to answer the question. The table shows the prices and the quantities consumed in Carnivore Country. Suppose the base year is 2017. Also, suppose that 2017 is the year the typical consumption basket was determined, so the quantities consumed in 2017 are the only quantities needed to calculate the CPI in each year. What is the value of the basket in the base year? A. $300 8. Use the following table to answer the question. The table shows the prices and the quantities consumed in Carnivore Country. Suppose the base year is 2017. Also, suppose that 2017 is the year the typical consumption basket was determined, so the quantities consumed in 2017 are the only quantities needed to calculate the CPI in each year. What are the values of the CPI in 2017, 2018, and 2019, respectively? C. 100, 113.3, 125 9. Use the following table to answer the question. The table shows the prices and the quantities consumed in Carnivore Country. Suppose the base year is 2017. Also, suppose that 2017 is the year the typical consumption basket was determined, so the quantities consumed in 2017 are the only quantities needed to calculate the CPI in each year. What is the inflation rate for 2018? A. 11 percent 10. Use the following table to answer the question. The table shows the prices and the quantities consumed in Carnivore Country. Suppose the base year is 2017. Also, suppose that 2017 is the year the typical consumption basket was determined, so the quantities consumed in 2017 are the only quantities needed to calculate the CPI in each year. What is the inflation rate for 2019? B. 10.3 percent 11. Use the following table to answer the question. The table shows the prices and the quantities consumed in Carnivore Country. Suppose the base year is 2017. Also, suppose that 2017 is the year the typical consumption basket was determined, so the quantities consumed in 2017 are the only quantities needed to calculate the CPI in each year. The table shows that the 2018 inflation rate is biased upward because of C. substitution bias. 12. Use the following table to answer the question. The table shows the prices and the quantities consumed in Carnivore Country. Suppose the base year is 2017. Also, suppose that 2017 is the year the typical consumption basket was determined, so the quantities consumed in 2017 are the only quantities needed to calculate the CPI in each year. Suppose the base year is changed in the table from 2017 to 2019. Also, suppose that the typical consumption basket was now determined in 2019 (now use the 2019 consumption basket). What is the new value of the CPI in 2018? A. 90.6 13. Suppose your income rises from $19,000 to $31,000 while the CPI rises from 122 to 169. Your standard of living has likely A. risen. 14. If the nominal interest rate is 7 percent and the inflation rate is 3 percent, then the real interest rate is D. 4 percent. 15. Which of the following statements is correct? B. The real interest rate is the nominal interest rate minus the inflation rate. 16. If inflation is 8 percent and the real interest rate is 3 percent, then the nominal interest rate should be A. 11 percent. 17. Under which of the following conditions would you prefer to be the lender? C. The nominal rate of interest is 5 percent, and the inflation rate is 1 percent. 18. Under which of the following conditions would you prefer to be the borrower? B. The nominal rate of interest is 20 percent, and the inflation rate is 25 percent. 19. If borrowers and lenders agree on a nominal interest rate and inflation turns out to be less than they had expected, B. lenders will gain at the expense of borrowers. 20. If workers and firms agree on an increase in wages based on their expectations of inflation and inflation turns out to be more than they expected, A. firms will gain at the expense of workers.