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Exam 24: Measuring the Cost of Living

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Question 81

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Babe Ruth's 1931 salary was $80,000.Government statistics show a consumer price index of 15.2 for 1931 and 207 for 2007.Ruth's 1931 salary was equivalent to a 2007 salary of about

A) $5,874.
B) $1,089,474.
C) $1,216,000.
D) $16,560,000.

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

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Question 82

Multiple Choice

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When the overall level of prices in the economy is increasing,economists say that the economy is experiencing

A) economic growth.
B) stagflation.
C) inflation.
D) deflation.

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

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Question 83

Multiple Choice

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If the nominal interest rate is 8 percent and the rate of inflation is 3 percent,then the real interest rate is

Suppose the price index was 100 in 2004,118 in 2005,and the inflation rate was lower between 2005 and 2006 than it was between 2004 and 2005.This means that

Which of the following changes in the price index produces the greatest rate of inflation: 80 to 100,100 to 120,or 150 to 170?

The Bureau of Labor Statistics does not try to account for quality changes in the goods and services in the basket used to compute the CPI.

Data from the Bureau of Labor Statistics show that consumer spending on medical care is about equal to consumer spending on recreation and consumer spending on education and communication.

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?

The group of goods and services used to compute the GDP deflator changes automatically over time,but the group of goods and services used to compute the CPI does not.

If the CPI was 110 this year and 100 last year,then

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

Jay and Joyce meet George,the banker,to work out the details of a mortgage.They all expect that inflation will be 2 percent over the term of the loan,and they agree on a nominal interest rate of 6 percent.As it turns out,the inflation rate is 5 percent over the term of the loan. a. What was the expected real interest rate? b. What was the actual real interest rate? c. Who benefited and who lost because of the unexpected inflation?

The inflation rate for 2007 is computed by dividing (the CPI in 2007 minus the CPI in 2006)by the CPI in 2006,then multiplying by 100.

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

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.

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?

The CPI for 2008 is computed by dividing the price of the basket of goods and services in 2008 by the price of the basket of goods and services in the base year,then multiplying by 100.

The producer price index measures the cost of a basket of goods and services

The price of DVD players increases dramatically,causing a 1 percent increase in the CPI.The price increase will most likely cause the GDP deflator to increase by

When computing the cost of the basket of goods and services purchased by a typical consumer,which of the following changes from year to year?