Question 1

You know that a chocolate bar costs 60 cents today. 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 1962 prices?

Accepted Answer

To compute the price of the candy bar in 1962 prices, you would use the formula that involves dividing the 1962 CPI by today's CPI and then multiplying by the current price. This adjusts the price from today's value back to the 1962 value, accounting for inflation or deflation over time.

Question 2

In 1972 in Sarnia, Ontario, one could buy a bag of chips, a pound of hamburger, a package of buns, and a small bag of charcoal for about $2.50. If the same goods today cost about $6.00, which set of CPIs represents the same purchasing power for the cost in 1972 and the cost today?

Accepted Answer

The answer of In 1972 in Sarnia, Ontario, one could...

Question 3

Scenario 6-1
Grant Smith was a doctor. In 1944, he made $12,000. His daughter, Lisa Smith, is also a doctor. Last year she made $275,000. The price index in 1944 was 17.6 and the price index last year was 200.
-Refer to Scenario 6-1. What was the approximate ratio of Grant's real income to Lisa's real income?

Accepted Answer

To find the real income, adjust for inflation using the price index. Grant's real income = $12,000 / 17.6, and Lisa's real income = $275,000 / 200. The ratio of Grant's real income to Lisa's real income is approximately 1:2.

Question 4

Ethel purchased a bag of groceries in 1970 for $10. She purchased the same bag of groceries in 2019 for $25. If the price index was 38.8 in 1970 and 190 in 2019, what's the price of a 1970 bag of groceries in 2019 prices?

Accepted Answer

The price of the bag of groceries in 1970 adjusted to 2019 prices is calculated as follows: 
Price index ratio = 190/38.8 = 4.8969 
Price in 1970 adjusted to 2019 = $10 x 4.8969 = $48.97 
Therefore, the price of the bag of groceries in 1970 adjusted to 2019 prices is $48.97.

Question 5

Scenario 6-1
Grant Smith was a doctor. In 1944, he made $12,000. His daughter, Lisa Smith, is also a doctor. Last year she made $275,000. The price index in 1944 was 17.6 and the price index last year was 200.
-Refer to Scenario 6-1. What is Lisa's income in 1944 dollars?

Accepted Answer

To convert Lisa's income to 1944 dollars, use the formula: Lisa's income in 1944 dollars = (Lisa's income in last year's dollars) * (1944 price index / last year's price index). Plugging in the numbers: $275,000 * (17.6 / 200) = $24,200.

Question 6

Wayne takes a job in 1985 at a salary of $10,000. By 2019, he has been promoted, with a salary of $70,000. If the price index in 1985 is 50, and the price index in 2019 is 200, what is Wayne's 2019 salary in 1985 dollars?

Accepted Answer

To adjust Wayne's 2019 salary to 1985 dollars, we use the formula: Adjusted Salary = (Salary / Current Price Index) * Base Year Price Index. Plugging in Wayne's 2019 salary and the given price indexes: Adjusted Salary = ($70,000 / 200) * 50 = $17,500.

Question 7

Suppose the average price of gas in 2018 was $1.25 per litre and $1.30 in 2019. The inflation rate was 3 percent in 2019. What was the 2019 price of gas in 2018 dollars?

Accepted Answer

To find the 2019 price of gas in 2018 dollars, we need to adjust the 2019 price for inflation. We can do this using the following formula:

Adjusted price (in 2018 dollars) = Nominal price (in 2019 dollars) / (1 + inflation rate)

Substituting the given values, we get:

Adjusted price (in 2018 dollars) = $1.30 / (1 + 0.03) = $1.262

Therefore, the answer is A) $1.262.

Question 8

Andrew is offered a job in Calgary where the CPI is 130 and a job in Toronto where the CPI is 180. Andrew's job offer in Calgary is for $65,000. Which salary would the Toronto job have to pay so that both jobs have the same purchasing power?

Accepted Answer

To have the same purchasing power, the salary in Toronto should be adjusted for the difference in CPI. The formula is: (Calgary Salary) * (Toronto CPI / Calgary CPI) = (Toronto Salary). So, $65,000 * (180 / 130) = $90,000.

Question 9

Tiffany is offered a job in Winnipeg that pays $90,000. She is offered a similar job in Montreal for $60,000. Which set of CPIs comes closest to giving both salaries the same purchasing power?

Accepted Answer

The answer of Tiffany is offered a job in Winnipeg...

Question 10

In 1949, the city of Sherbrooke, Quebec, built a hospital for about $500,000. In 1987, the city restored its courthouse for about $2.4 million. A price index for nonresidential construction was 14 in 1949, 92 in 1987, and 114.5 in 2019. According to these numbers, what approximately did the hospital cost?

Accepted Answer

The answer of In 1949, the city of Sherbrooke, Quebec,...

Question 11

When does a cost-of-living allowance (COLA) automatically raise the wage rate?

Accepted Answer

A cost-of-living allowance (COLA) automatically raises the wage rate when the consumer price index (CPI) increases. The CPI is a measure of inflation and rising prices, and a COLA is designed to help workers keep up with the rising cost of living. If the CPI increases, the COLA will automatically increase wages to keep pace with inflation.

Question 12

In 1964, Harvey bought a Ford Mustang for $2,368. In 2019, he bought another new Ford Mustang for $32,000. If the price index in 1964 was 35 and the price index in 2019 was 200, what is the price of the 1964 Ford Mustang in 2019 prices?

Accepted Answer

To find the price of the 1964 Ford Mustang in 2019 prices, we need to adjust the 1964 price for inflation using the price indices from 1964 and 2019.

First, we need to calculate the inflation rate over the period of time between 1964 and 2019:

Inflation rate = (Price index in 2019 / Price index in 1964) = 200 / 35 = 5.71

This means that prices increased by a factor of 5.71 between 1964 and 2019.

To find out the 1964 price in 2019 dollars, we multiply the 1964 price by the inflation rate:

Price in 2019 dollars = 2,368 x 5.71 = $13,530.08

Therefore, the best choice is C.

Question 13

You know that a chocolate 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?

Accepted Answer

To adjust the price from the past to today's prices using the Consumer Price Index (CPI), you multiply the old price by the ratio of today's CPI to the CPI of the past year. This gives you the equivalent value in today's dollars, accounting for inflation.

Question 14

Scenario 6-1
Grant Smith was a doctor. In 1944, he made $12,000. His daughter, Lisa Smith, is also a doctor. Last year she made $275,000. The price index in 1944 was 17.6 and the price index last year was 200.
-Refer to Scenario 6-1. What is Grant's 1944 income in last year's dollars?

Accepted Answer

To calculate Grant's 1944 income in last year's dollars, we need to adjust for inflation using the price indexes. First, we use the following formula to adjust the 1944 income for inflation:
Adjusted Income = (Nominal Income × Current Price Index) ÷ Historical Price Index
Using the given information, we get:
Adjusted Income = ($12,000 × 200) ÷ 17.6 = $136,363.64
Therefore, the best choice is D.

Question 15

In 1964 in London, Ontario, one could buy a fish and chips for $2.00; today the same fish and chips cost $5.55. Which set of CPIs represents the same purchasing power for the cost in 1964 and the cost today?

Accepted Answer

The answer of In 1964 in London, Ontario, one could...

Question 16

In 1972 in Kelowna, BC, one could buy model rocket engines for $1.50. If those same engines cost $3.00 today, which set of CPIs represents the same purchasing power for the cost in 1972 and the cost today?

Accepted Answer

The CPI in 1972 is 60 and the CPI today is 120. This means that the cost of living has doubled since 1972. Therefore, the cost of the model rocket engines today is equivalent to the cost of the engines in 1972 multiplied by 2. $1.50 x 2 = $3.00.

Question 17

In 2000, Professor Knowitall made $40,000, in 2010 he earned $90,000, and in 2020 he earned $140,000. If the CPI was 40 in 2000, 60 in 2010, and 100 in 2020, then in real terms, when was Professor Knowitall's salary highest and lowest?

Accepted Answer

The answer of In 2000, Professor Knowitall made $40,000, in...

Question 18

Which statement best defines "indexation"?

Accepted Answer

Indexation refers to the practice of automatically adjusting a dollar amount for the effects of inflation using a predetermined law or contract. This ensures that the real value of the amount remains constant over time despite changes in the price level. Option A refers to the concept of real interest rate, while option C is related to deflating dollar values using a price index. Option D refers to a specific adjustment made by Statistics Canada to align the CPI with the GDP deflator and is not directly related to indexation.

Question 19

Diane is offered a job in Charlottetown that pays $100,000. She is also offered a job in Halifax that pays $124,500. Which set of CPIs comes closest to giving both salaries the same purchasing power?

Accepted Answer

The answer of Diane is offered a job in Charlottetown...

Question 20

The 2019 CPI was 225 and the 1982 CPI was 96.5. How much would you need in 2019 in order to buy what you were able to buy with the $1000 in 1982?

Accepted Answer

To find out how much you would need in 2019 to buy what $1000 could buy in 1982, use the formula: (CPI in 2019 / CPI in 1982) * 1982 amount. This gives (225 / 96.5) * 1000 = $2331.61.

Quiz 6: Measuring the Cost of Living