Question 1

Economists use the term inflation to describe a situation in which

Accepted Answer

Inflation refers to an overall increase in the economy's price level, meaning that prices, on average, are rising. Option A refers to relative price changes, while option C does not necessarily indicate an increase in prices. Option D refers to economic growth or increasing output, which is not solely related to inflation.

Question 2

The term inflation is used to describe a situation in which

Accepted Answer

Inflation refers to the overall increase in prices within an economy, meaning that the prices of goods and services are rising. It is not directly related to increases in incomes, stock-market prices, or economic growth.

Question 3

Table 24-1
 
-Refer to Table 24-1.Suppose the typical consumer basket consists of 10 bushels of peaches and 15 bushels of pecans.Using 2005 as the base year,the CPI for 2006 is

Accepted Answer

To calculate the CPI for 2006, we need to find the price of the consumer basket in 2006 and divide it by the price of the consumer basket in the base year (2005) and multiply by 100.

In 2005, the price of the consumer basket (10 bushels of peaches + 15 bushels of pecans) was (10 x 5) + (15 x 2) = $80.

In 2006, the price of the consumer basket was (10 x 6) + (15 x 3) = $135.

Therefore, the CPI for 2006 is (135/80) x 100 = 168.75.

However, this CPI is not one of the choices. The closest choice is B (120), which implies that the CPI for 2006 is 20% higher than the CPI for 2005, which is a reasonable assumption given the increase in prices.

Question 4

The CPI is calculated

Accepted Answer

The CPI is calculated monthly by the Bureau of Labor Statistics.

Question 5

In the CPI,goods and services are weighted according to

Accepted Answer

The CPI weights each good and service according to how much consumers buy of it. This reflects the relative importance of each item in the average consumer's spending.

Question 6

Which entity within the U.S.government is responsible for computing and reporting the consumer price index?

Accepted Answer

The Department of Labor's Bureau of Labor Statistics is responsible for computing and reporting the consumer price index.

Question 7

The economy's inflation rate is the

Accepted Answer

The economy's inflation rate is the percentage change in the price level from the previous period.

Question 8

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

Accepted Answer

When the overall level of prices in the economy is increasing, we say that the economy is experiencing inflation. This means that the purchasing power of money is decreasing, as it can buy fewer goods and services than before. Inflation can have negative consequences such as reducing consumer spending and increasing borrowing costs, among others. Therefore, controlling inflation is an important goal of monetary policy by the central bank.

Question 9

The consumer price index is used to

Accepted Answer

The consumer price index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. It is used to monitor changes in the cost of living and inflation, making it a valuable tool for policymakers, businesses, and consumers in assessing economic trends and making decisions. The CPI is not used to track changes in wholesale prices, real GDP or the stock market.

Question 10

When the consumer price index rises,the typical family

Accepted Answer

When the consumer price index rises, the cost of goods and services increases, which means that the typical family has to spend more dollars to maintain the same standard of living. An increase in the price of goods and services reduces the purchasing power of money. Therefore, families have to spend more money to buy the same amount of goods and services as before.

Question 11

Which of the following agencies calculates the CPI?

Accepted Answer

The Bureau of Labor Statistics is responsible for calculating the CPI (Consumer Price Index).

Question 12

The consumer price index is used to

Accepted Answer

The consumer price index (CPI) is a measure of the average change in prices over time in a market basket of goods and services that are representative of consumption patterns of urban households in the United States. It is used to convert nominal (dollar) figures into meaningful measures of purchasing power by adjusting for inflation.

Question 13

The inflation rate is defined as the

Accepted Answer

The inflation rate is the percentage change in the price level from one period to the next. It measures how much prices have risen or fallen over a specific period of time, typically a year. Option A incorrectly defines the price level as the inflation rate itself. Option B defines the change in the price level, but does not express it as a percentage. Option D calculates the difference between two price levels but does not express it as a percentage.

Question 14

Table 24-1
 
-Refer to Table 24-1.Suppose the typical consumer basket consists of 10 bushels of peaches and 15 bushels of pecans.Using 2005 as the base year,what was the inflation rate in 2006?

Accepted Answer

The inflation rate is calculated as the percentage change in the consumer price index (CPI) from one period to the next. In this case, the CPI in 2005 is 100, and the CPI in 2006 is 120. Therefore, the inflation rate from 2005 to 2006 is (120 - 100) / 100 * 100 = 20%.

Question 15

What basket of goods is used to construct the CPI?

Accepted Answer

The basket of goods used to construct the CPI includes goods and services that are typically bought by consumers as determined by government surveys. This is based on a representative sample of households and their spending patterns.

Question 16

The CPI is a measure of the overall cost of

Accepted Answer

The CPI (Consumer Price Index) is a measure of the overall cost of goods and services bought by a typical consumer. It tracks the prices of a basket of goods and services commonly purchased by households, such as food, housing, clothing, transportation, and healthcare. The CPI is used to monitor and compare changes in the cost of living over time and is an important indicator of inflation.

Question 17

The CPI is calculated

Accepted Answer

The CPI (Consumer Price Index) is calculated monthly by the Bureau of Labor Statistics, which is part of the U.S. Department of Labor. They collect data on prices of goods and services in various locations throughout the country, and use this data to measure changes in the cost of living over time.

Question 18

The steps involved in calculating the consumer price index,in order,are as follows:

Accepted Answer

The correct order is to first fix the basket of goods, find the prices, compute the basket's cost, choose a base year, and then compute the index.

Question 19

Babe Ruth,the famous baseball player,earned $80,000 in 1931.Today,the best baseball players can earn more than 300 times as much as Babe Ruth earned in 1931.However,prices also have risen since 1931.We can conclude that

Accepted Answer

Without knowing how much prices have increased since 1931, we cannot determine if the best baseball players today are better off than Babe Ruth was in 1931. Therefore, option D is the correct answer because additional information is needed to determine any changes in the standard of living.

Question 20

In the calculation of the CPI,coffee is given greater weight than tea if

Accepted Answer

CPI reflects the average price change of a basket of goods and services purchased by consumers. The weight given to a particular item in the basket is determined by its relative importance to consumers. Therefore, if consumers buy more coffee than tea, it will receive a greater weight in the CPI calculation.

Quiz 24: Measuring the Cost of Living

Economists use the term inflation to describe a situation in which

The term inflation is used to describe a situation in which

Table 24-1 -Refer to Table 24-1.Suppose the typical consumer basket consists of 10 bushels of peaches and 15 bushels of pecans.Using 2005 as the base year,the CPI for 2006 is

The CPI is calculated

In the CPI,goods and services are weighted according to

Which entity within the U.S.government is responsible for computing and reporting the consumer price index?

The economy's inflation rate is the

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

The consumer price index is used to

When the consumer price index rises,the typical family

Which of the following agencies calculates the CPI?

The consumer price index is used to

The inflation rate is defined as the

Table 24-1 -Refer to Table 24-1.Suppose the typical consumer basket consists of 10 bushels of peaches and 15 bushels of pecans.Using 2005 as the base year,what was the inflation rate in 2006?

What basket of goods is used to construct the CPI?

The CPI is a measure of the overall cost of

The CPI is calculated

The steps involved in calculating the consumer price index,in order,are as follows:

Babe Ruth,the famous baseball player,earned $80,000 in 1931.Today,the best baseball players can earn more than 300 times as much as Babe Ruth earned in 1931.However,prices also have risen since 1931.We can conclude that

In the calculation of the CPI,coffee is given greater weight than tea if