Deck 18: Understanding the Economic News

Question 1

A(n) __________number measures prices at one time period relative to another time period, usually as a percentage.

Answer 1

price index

Question 2

As part of computing the CPI, about how many items are priced each month in order to come up with an average price paid by all families in the U.S.for each item in the market basket?

A)800
B)8,000
C)80,000
D)800,000

Answer 2

80,000

Question 3

To define a price index number, decisions about three components are necessary.Name two of those components.

Answer 3

any two of the following are ok:
1) the base year or time period
2) the list of goods and services to be included
3) how to weight the particular goods and services.

Question 4

Which of the following is not one of the 8 major categories dividing up the market basket of goods and services used to figure the Consumer Price Index?

A)Education and communication
B)Child care
C)Recreation
D)Apparel

Question 5

The Consumer Price Index (CPI) is produced by the Bureau of __________.

Question 6

What units is the Consumer Price Index usually reported in?

Question 7

Name two factors that may influence an economic time series such as the Consumer Price Index.

Question 8

Suppose Joe Alumni notices that the cost of football tickets increased from $20 per game in 1980 (when he graduated) to $50 dollars per game in 2004.The cost of a hot dog and a coke (his typical game food) has also increased, from $3 in 1980 to $6.50 in 2004.And a program costing $2 in 1980 cost $6 in 2004 (he buys one every game).If each of these items is weighted equally (since he buys one of each item per game), what is Joe Alumni's "football game price index" for a single football game?

Question 9

What do economists believe about the CPI?

A)It underestimates increases in the cost of living.
B)It overestimates increases in the cost of living.
C)It has almost nothing to do, really, with the cost of living.
D)It does a great job of measuring the cost of living.

Question 10

What is the most common measure of change in the cost of living in the United States?

Question 11

What is the Consumer Price Index most useful for?

A)Comparing prices of similar products in the same geographic area across time.
B)Measuring the complete cost of living for most (87%) of Americans.
C)Measuring the money-saving behavior of U.S.consumers.
D)Measuring the effects of changes in quality of products over time on the cost of living.

Question 12

Suppose a gallon of gasoline cost 39 cents in 1970, and in 2004 it cost $1.65.What is the gasoline price index in 2004, using 1970 as the base year? Interpret your answer.

Question 13

If you bought a new pickup truck in 1995 for $15,000 (when the Consumer Price Index was 152.4), what would you have paid in 2000 for a similar quality pickup truck (when the Consumer Price Index was 172.2)?

Question 14

One criticism of the CPI is that the market basket used in the CPI may not reflect current spending priorities.Why does this problem occur?

Question 15

Which of the following is a major use of the Consumer Price Index?

A)To evaluate and determine economic policy.
B)To compare prices in different years.
C)To determine salary and price adjustments.
D)All of the above.

Question 16

Name two major criticisms of the Consumer Price Index (CPI).

Question 17

Which of these does not apply to the Consumer Price Index (CPI)?

A)The CPI measures changes in the cost of a "market basket" of goods and services that a typical consumer would be likely to purchase.
B)The CPI is supposed to measure the changing cost of maintaining the same standard of living that existed during the base period.
C)The CPI is a complete cost-of-living index.
D)All of the above apply to the CPI.

Question 18

Which of the following is not true about the Consumer Price Index (CPI)?

A)It is always a number greater than or equal to 100.
B)It is the most widely used measure of inflation in the U.S.
C)Its base year changes periodically.
D)All of the above statements are true about the CPI.

Question 19

Why is it important that economic indicators (such as the Consumer Price Index) be reported with seasonal adjustments?

Question 20

Which of the following categories in the market basket of goods receives the most weight when computing the Consumer Price Index?

A)Transportation
B)Housing
C)Food and beverages
D)None of the categories is weighted more than the others; they are all weighted equally.

Question 21

Name two of the eleven components of the Index of Leading Economic Indicators.

Question 22

Explain the difference between a leading economic indicator and a lagging economic indicator.

Question 23

Why are changes in the Consumer Price Index (CPI) big news?

A)Financial markets are extremely sensitive to changes in the rate of inflation.
B)Change is what attracts attention and concern in the media, not the continuation of the status quo.
C)The CPI is made up of many leading economic indicators and a change can represent a sign of an upcoming change in the economy.
D)All of the above.