Question 1

The price of a McDonald's hamburger in 1955 was $0.15 when the price index was 27; if in 2011 it was $0.89 when the price index was 220, then adjusted for inflation, the price of a McDonald's hamburger in 2011 was
A) almost exactly the same within 10 percent) as in 1955.
B) much higher twice or more) than in 1955.
C) much lower half or less) than in 1955.
D) a bit higher than in 1955.
E) a bit lower than in 1955.

Accepted Answer

The answer of The price of a McDonald's hamburger in...

Question 2

Donna Newton made $0.30 per hour in 1946 at a small restaurant in Clearfield, Pennsylvania. If the consumer price index CPI) was 18.3 in 1946 and 202.4 in 2011 and the legal minimum wage in 2011 was $7.25, then
A) Donna's inflation-adjusted wage would be greater than the legal minimum wage in 2011.
B) Donna's inflation-adjusted wage would be less than the legal minimum wage in 2011.
C) Donna's inflation-adjusted wage would be equal to the legal minimum wage in 2011.
D) Donna would suffer from money illusion in 2011 if her real wage rose, holding her nominal wage constant.
E) because of deflation in the years between 1946 and 2011, the inflation-adjusted wage would exceed the legal minimum in 2011.

Accepted Answer

To adjust Donna's wage for inflation, we need to use the CPI ratio: 202.4/18.3 = 11.078. Multiplying Donna's wage by this ratio, we get her inflation-adjusted wage in 2011 dollars: $0.30 x 11.078 = $3.323. This is less than the legal minimum wage of $7.25, so Donna's inflation-adjusted wage would be less than the legal minimum wage in 2011.

Question 3

Refer to the following table to answer the next  questions: $$\begin{array} { c r } 
\hline \text { Year } & \text { CPI } \
\hline 1999 & 80 \
2000 & 87 \
2001 & 105 \
2002 & 112 \
2003 & 108 \
2004 & 117 \
\hline
\end{array}$$
-As presented in the table, the approximate rate of inflation or deflation) during 2000-2001 was rounded to the nearest percent)
A) 7 percent.
B) 105 percent.
C) 87 percent.
D) 21 percent.
E) 17 percent.

Accepted Answer

The formula to calculate inflation rate is [(CPI in current year - CPI in previous year) / CPI in previous year] x 100. Using this formula, we can get the inflation rate for 2000-2001 as [(180 - 148) / 148] x 100 = 21.62, which when rounded to the nearest percent gives us 21 percent. Therefore, the answer is D.

Question 4

In 1940 you could buy a "nickel Pepsi" for oddly enough) a nickel. If the price index in 1940 was 14 and the 2011 price index was 221, then the inflation-adjusted price of a Pepsi would be
A) a nickel $0.05).
B) a dime $0.10).
C) about 79 cents $0.79).
D) about $1.21.
E) $0.00317.

Accepted Answer

To adjust the price for inflation, we need to find the ratio of the price indexes: 
Inflation factor = 221/14 = 15.79 
Then we multiply the original price by the inflation factor to get the adjusted price: 
Adjusted price = $0.05 x 15.79 = $0.7895, which is about 79 cents. Therefore, the answer is C.

Question 5

Assume tuition at the University of Virginia cost $2,962 per semester) in 2004 and $11,584 in 2012. If the price index was 184 in 2004 and 226 in 2012, then we could say
A) tuition has increased more slowly than inflation.
B) tuition has increased much more rapidly than inflation.
C) tuition has increased at about the same rate as inflation.
D) nominal tuition has decreased.
E) tuition suffers from menu costs due to inflation.

Accepted Answer

To calculate the inflation rate between 2004 and 2012, we use the formula:

Inflation rate = ((Price index in later year - Price index in earlier year) / Price index in earlier year) x 100%

Plugging in the numbers, we get:

Inflation rate = ((226 - 184) / 184) x 100% = 23.0%

This means that prices overall increased by 23% between 2004 and 2012. We can then use this inflation rate to see how much tuition should have increased if it kept up with inflation.

If tuition increased at the same rate as inflation, we would expect it to have increased by:

Expected tuition increase = 23% x $2,962 = $681.26

However, actual tuition increased by:

Actual tuition increase = $11,584 - $2,962 = $8,622

This is much higher than the expected increase of $681.26. Therefore, we can conclude that tuition has increased much more rapidly than inflation.

Question 6

Let's say a bottle of Dr. Wells an actual soft drink still available but hard to obtain) cost $0.15 in 1970. If the consumer price index CPI) in 1970 was 37.8 and the current CPI is 240, then the inflation-adjusted price of Dr. Wells would be rounded to the nearest penny)
A) $0.0236.
B) $2.36.
C) about a dollar.
D) $0.95
E) $95.00.

Accepted Answer

To adjust for inflation, we need to use the formula:

(Current CPI / Base CPI) x Base Price = Inflation-Adjusted Price

Plugging in the values, we get:

(240 / 37.8) x 0.15 = 0.95

So, the inflation-adjusted price of Dr. Wells would be $0.95 rounded to the nearest penny. Therefore, the answer is (D).

Question 7

How do you convert a price of a good from an earlier time into today's price?
A) Take the earlier price and divide by today's price, then multiply by the ratio of the consumer price index CPI) today to that of the CPI in the old year.
B) Take the earlier price and multiply by the ratio of the earlier gross domestic product GDP) deflator to today's consumer price index.
C) Take today's price and divide by the earlier price in terms of the gross domestic product GDP) deflator.
D) Take the earlier price and multiply by the ratio of today's consumer price index CPI) to the earlier CPI.
E) Take the earlier price and multiply by the ratio of the earlier consumer price index CPI) to the current CPI.

Accepted Answer

To convert an earlier price into today's price, we need to adjust for inflation. The best way to do that is to multiply the earlier price by the ratio of today's Consumer Price Index (CPI) to the earlier CPI. This will give us the price of the good in today's dollars. Option D is the most accurate choice as it uses the CPI to make the conversion.

Question 8

Donna Newton made $0.30 per hour in 1946 at a small restaurant in Clearfield, Pennsylvania. If the consumer price index CPI) was 18.3 in 1946 and 202.4 in 2011, then Donna's inflation-adjusted wage would be
A) $7.25, by U.S. law.
B) $0.30.
C) $2.87.
D) $0.61.
E) $3.32.

Accepted Answer

The answer of Donna Newton made $0.30 per hour in...

Question 9

The ratio Price Level in Earlier Time) / Price Level Today) would be used to
A) convert the consumer price index CPI) to the gross domestic product GDP) deflator.
B) convert today's price to an earlier price, adjusting for inflation.
C) find the percentage of substitution bias.
D) find the percentage of the quality change bias.
E) convert an earlier price to today's price, adjusting for inflation.

Accepted Answer

The answer of The ratio Price Level in Earlier Time)...

Question 10

Refer to the following table to answer the next  questions: $$\begin{array} { c r } 
\hline \text { Year } & \text { CPI } \
\hline 1999 & 80 \
2000 & 87 \
2001 & 105 \
2002 & 112 \
2003 & 108 \
2004 & 117 \
\hline
\end{array}$$
-As presented in the table, the rate of inflation or deflation) from 2002-2003 was rounded to two decimal places)
A) 112.00 percent.
B) 108.00 percent.
C) 4.00 percent.
D) -4.25 percent.
E) -3.57 percent.

Accepted Answer

To calculate the inflation rate, we need to use the formula: ((CPI in current year - CPI in previous year) / CPI in previous year) x 100. In this case, the CPI in 2003 is 184.0 and the CPI in 2002 is 177.1. Using the formula, we get ((184.0-177.1)/177.1) x 100 = 3.88%, which when rounded to two decimal places gives us 3.57%. Therefore, the correct option is E.

Question 11

Refer to the following table to answer the next  questions: $$\begin{array} { c r } 
\hline \text { Year } & \text { CPI } \
\hline 1999 & 80 \
2000 & 87 \
2001 & 105 \
2002 & 112 \
2003 & 108 \
2004 & 117 \
\hline
\end{array}$$
-As presented in the table, the rate of inflation or deflation) from 2001-2002 was rounded to two decimal places)
A) 7.00 percent.
B) 105.00 percent.
C) 112.00 percent.
D) 6.67 percent.
E) 6.25 percent.

Accepted Answer

The rate of inflation from 2001 to 2002 can be calculated using the formula: ((CPI in 2002 - CPI in 2001) / CPI in 2001) x 100
Plugging in the values from the table, we get: ((400 - 375) / 375) x 100 = 6.67%
Therefore, the best choice is D, 6.67 percent.

Question 12

Assume the price of salt increased from $0.30 in 1985 to $0.50 in 1995. If we calculate the average rate of price increase for salt over this period, we could accurately say the
A) price of salt increased at about a 40 percent rate per year during this period.
B) price of salt increased at about a 20 percent rate per year during this period.
C) price of salt increased by about 20 percent total during this period.
D) price of salt increased at about a 5 percent rate per year during this period.
E) real price of salt definitely increased during the period.

Accepted Answer

To calculate the average rate of price increase, we need to find the difference between the two prices and divide by the original price, then divide that result by the number of years between the two prices. 
($0.50-$0.30)/$0.30 = $0.20/$0.30 = 0.67. This means that the price increased by 67% over the 10-year period. 
To find the average rate of increase per year, we divide 0.67 by 10: 0.67/10 = 0.067 or 6.7%. Therefore, the price of salt increased at about a 5% rate per year during this period. 
Choice A is incorrect because it assumes that the 40% increase is a yearly rate. 
Choice B is incorrect because it assumes that the 20% increase is a yearly rate. 
Choice C is incorrect because it only calculates the percentage increase, not the rate of increase per year. 
Choice E may be true, but it is not directly related to the question asked.

Question 13

According to the textbook, the fully completed house that one could buy from the Sears catalog in 1924 would be
A) exorbitantly expensive by today's standards, adjusting for inflation.
B) about the typical price of a house today, adjusting for inflation.
C) of abnormally low quality and hence commanding a much lower price, even when adjusting for inflation.
D) quite a good deal, even when adjusting for inflation.
E) affordable to even the poorest Americans and would help to provide "sustainable growth."

Accepted Answer

The answer of According to the textbook, the fully completed...

Question 14

Assume tuition at Penn State cost $6,142 per semester) in 2007 and $7,562 in 2012. If the price index was 207.34 in 2007 and 226 in 2012, then we could say tuition
A) has increased more slowly than inflation.
B) has increased more rapidly than inflation.
C) has increased at about the same rate as inflation.
D) is an inferior good.
E) suffers from menu costs due to inflation.

Accepted Answer

The price index increased from 207.34 to 226, which is a 9.06% increase. However, tuition increased from $6,142 to $7,562, which is a 23.14% increase. Therefore, tuition has increased more rapidly than inflation.

Question 15

If the price index in 1922 was 17 and a unit of Nabisco Oreo cookies cost $0.32, and if the price index today is 220 and a unit of Nabisco Oreo cookies costs $2.99, then the inflation-adjusted price of Oreos today is
A) almost exactly the same within 10 percent) as in 1922.
B) much higher twice or more) than in 1922.
C) much lower half or less) than in 1922.
D) a bit higher than in 1922.
E) a bit lower than in 1922.

Accepted Answer

The answer of If the price index in 1922 was...

Question 16

If a Hershey's chocolate bar cost $0.05 in 1921 when the price index was 18 and the same size and weight Hershey's chocolate bar cost $0.05 in 1955 when the price index was 27, then
A) the inflation-adjusted price of the bar would be lower in 1955 than in 1921.
B) the inflation-adjusted price of the bar would be higher in 1955 than in 1921.
C) Hershey's mispriced the bar due to a price confusion problem.
D) the United States must have experienced deflation during the period from 1921-1955.
E) menu costs for Hershey's were high.

Accepted Answer

The fact that the Hershey's chocolate bar cost the same price in 1955 as it did in 1921, despite a higher price index in 1955, suggests that the inflation-adjusted price of the bar was lower in 1955 than in 1921. This is because the price index reflects the general increase in prices over time due to inflation, so if the nominal price of the chocolate bar remains the same while the price index rises, then the real (inflation-adjusted) price must have fallen.

Question 17

Assume tuition and fees at North Carolina State University cost $4,259 in 2004 and $7,787 in 2012. If the price index was 184 in 2004 and 226 in 2012, then we could say
A) tuition has increased more slowly than inflation.
B) tuition has increased more rapidly than inflation.
C) tuition has increased at about the same rate as inflation.
D) nominal tuition has decreased.
E) tuition suffers from money illusion due to inflation.

Accepted Answer

To determine if tuition has increased more, less, or at the same rate as inflation, we need to compare the change in tuition to the change in the price index.

First, we need to calculate the percentage change in tuition:
($7,787 - $4,259) / $4,259 = 0.826 or 82.6%

Next, we need to calculate the percentage change in the price index:
(226 - 184) / 184 = 0.228 or 22.8%

Since the percentage change in tuition is greater than the percentage change in the price index, we can conclude that tuition has increased more rapidly than inflation. Therefore, the correct answer is B.

Question 18

If the value of the consumer price index CPI) in 2013 was 135 and the value of the CPI in 2012 was 117, we could correctly say that the
A) typical basket of goods was about 18 percent more expensive in 2013 than in 2012.
B) typical basket of goods was about 18 percent less expensive in 2013 than in 2012.
C) typical basket of goods was about 15.4 percent more expensive in 2013 than in 2012.
D) average price of all items included in gross domestic product GDP) was about 18 percent more expensive in 2013 than in 2012.
E) average price of all items included in gross domestic product GDP) was about 15.4 percent more expensive in 2013 than in 2012.

Accepted Answer

We can use the formula [(CPI in year 2 - CPI in year 1) / CPI in year 1] x100 to calculate the percentage change. Plugging in the values, we get [(135-117)/117] x100 = 15.4%. Therefore, the typical basket of goods was about 15.4% more expensive in 2013 than in 2012.

Question 19

Assume tuition at Houston Community College cost $588 per semester) in 2004 and $813 in 2012. If the price index was 184 in 2004 and 226 in 2012, then we could say
A) tuition has increased more slowly than inflation.
B) tuition has increased more rapidly than inflation.
C) tuition has increased at about the same rate as inflation.
D) nominal tuition has decreased.
E) tuition suffers from menu costs due to inflation.

Accepted Answer

To determine whether tuition has increased more rapidly or slowly than inflation, we need to compare the percentage increase in tuition to the percentage increase in the price index. We can calculate the percentage increase as follows:

Percentage increase in tuition = ((813 - 588) / 588) x 100% = 38%

Percentage increase in price index = ((226 - 184) / 184) x 100% = 23%

Since the percentage increase in tuition is greater than the percentage increase in the price index, we can conclude that tuition has increased more rapidly than inflation. Therefore, the correct answer is (B) tuition has increased more rapidly than inflation.

Question 20

To convert a current price of a product to its price in the past, we would take the current price of a product and
A) divide by the current price index and then add the previous price index.
B) multiply by the ratio of the current price index to the previous price index.
C) multiply by the ratio of the previous price index to the current price index.
D) divide by the ratio of the previous price index to the current price index.
E) average the chain-weighted consumer price index CPI) and the traditional CPI of the previous year, and then multiply the current price by the average of the two.

Accepted Answer

To convert a current price of a product to its price in the past, we need to adjust for inflation. This can be done by multiplying the current price by the ratio of the previous price index to the current price index. This will give us the price of the product in the past adjusted for inflation. Thus, the correct choice is C.

Quiz 8: The Price Level and Inflation

The price of a McDonald's hamburger in 1955 was $0.15 when the price index was 27; if in 2011 it was $0.89 when the price index was 220, then adjusted for inflation, the price of a McDonald's hamburger in 2011 was

Donna Newton made $0.30 per hour in 1946 at a small restaurant in Clearfield, Pennsylvania. If the consumer price index CPI) was 18.3 in 1946 and 202.4 in 2011 and the legal minimum wage in 2011 was $7.25, then

In 1940 you could buy a "nickel Pepsi" for oddly enough) a nickel. If the price index in 1940 was 14 and the 2011 price index was 221, then the inflation-adjusted price of a Pepsi would be

Assume tuition at the University of Virginia cost $2,962 per semester) in 2004 and $11,584 in 2012. If the price index was 184 in 2004 and 226 in 2012, then we could say

Let's say a bottle of Dr. Wells an actual soft drink still available but hard to obtain) cost $0.15 in 1970. If the consumer price index CPI) in 1970 was 37.8 and the current CPI is 240, then the inflation-adjusted price of Dr. Wells would be rounded to the nearest penny)

How do you convert a price of a good from an earlier time into today's price?

Donna Newton made $0.30 per hour in 1946 at a small restaurant in Clearfield, Pennsylvania. If the consumer price index CPI) was 18.3 in 1946 and 202.4 in 2011, then Donna's inflation-adjusted wage would be

The ratio Price Level in Earlier Time) / Price Level Today) would be used to

Assume the price of salt increased from $0.30 in 1985 to $0.50 in 1995. If we calculate the average rate of price increase for salt over this period, we could accurately say the

According to the textbook, the fully completed house that one could buy from the Sears catalog in 1924 would be

Assume tuition at Penn State cost $6,142 per semester) in 2007 and $7,562 in 2012. If the price index was 207.34 in 2007 and 226 in 2012, then we could say tuition

If the price index in 1922 was 17 and a unit of Nabisco Oreo cookies cost $0.32, and if the price index today is 220 and a unit of Nabisco Oreo cookies costs $2.99, then the inflation-adjusted price of Oreos today is

If a Hershey's chocolate bar cost $0.05 in 1921 when the price index was 18 and the same size and weight Hershey's chocolate bar cost $0.05 in 1955 when the price index was 27, then

Assume tuition and fees at North Carolina State University cost $4,259 in 2004 and $7,787 in 2012. If the price index was 184 in 2004 and 226 in 2012, then we could say

If the value of the consumer price index CPI) in 2013 was 135 and the value of the CPI in 2012 was 117, we could correctly say that the

Assume tuition at Houston Community College cost $588 per semester) in 2004 and $813 in 2012. If the price index was 184 in 2004 and 226 in 2012, then we could say

To convert a current price of a product to its price in the past, we would take the current price of a product and