Question 1

Table 13-13
 $$\begin{array} { | l | c | c | c | c | } 
\hline & & \text { Base Year } & & \
\cline { 3 - 5 } \text { Product } & \text { Quantity } & \text { Price (2001) } & \text { Price (2012) } & \text { Price (2013) } \
\hline \text { Tacos } & 5 & \$ 1.50 & \$ 2.00 & \$ 2.25 \
\hline \text { Earplugs } & 10 & 6.00 & 7.50 & 7.00 \
\hline \text { Toothbrushes } & 3 & 2.50 & 3.50 & 3.50 \
\hline
\end{array}$$
-Refer to Table 13-13.Consider a simple economy that produces only three products: tacos,earplugs,and toothbrushes.Use the information in the table to calculate the inflation rate for 2013,as measured by the consumer price index.

Accepted Answer

The answer of Table 13-13
 \[\begin{array} { | l |...

Question 2

Table 13-14
 $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Nominal Average } \
\text { Hourly Earnings }
\end{array} & \begin{array} { c } 
\text { CPI } ( \mathbf { 1 9 8 2 - 1 9 8 4 } = \
\mathbf { 1 0 0 } )
\end{array} \
\hline 1965 & \$ 2.65 & 32 \
\hline 2010 & 22.59 & 219 \
\hline
\end{array}$$ 
The table above reports the nominal average hourly earnings in private industry and the consumer price index for 1965 and 2010.
-Refer to Table 13-14.The percentage change in real average earnings from 1965 to 2010 equals

Accepted Answer

To calculate the percentage change in real average earnings, we need to adjust the nominal average hourly earnings for inflation using the CPI. Therefore, the real average hourly earnings in 1965 are $2.65/32 = $0.083, and the real average hourly earnings in 2010 are $22.59/219 = $0.103. The percentage change can be calculated as (New Value - Old Value)/Old Value * 100. Thus, the percentage change in real average earnings from 1965 to 2010 is ($0.103 - $0.083)/$0.083 * 100 = 24.1%. The closest answer choice is C, which is 24.5%.

Question 3

Table 13-12
 $\begin{array}{|c|c|c|c|c|}
\hline &&\text { Base Year }\
\text { Product } & \text { Quantity } & \text { Price (2001) } & \text { Price (2012) } & \text { Price (2013) } \
\hline \text { Burritos } & 10 & \$ 1.00 & \$ 1.50 & \$ 1.75 \
\hline \text { Flashlights } & 15 & 5.00 & 7.00 & 6.75 \
\hline \text { Golf balls } & 8 & 2.00 & 3.00 & 3.50\
\hline
\end{array}$
-Refer to Table 13-12.Consider a simple economy that produces only three products: burritos,flashlights,and golf balls.Use the information in the table to calculate the inflation rate for 2013,as measured by the consumer price index.

Accepted Answer

The answer of Table 13-12
 \(\begin{array}{|c|c|c|c|c|}
\hline &&\text { Base Year...

Question 4

If your nominal wage rises more slowly than the price level,we can say your real wage has ________ and the purchasing power of a dollar has ________.

Accepted Answer

If nominal wage rises more slowly than the price level, it means the real wage (purchasing power of the nominal wage) has fallen. Additionally, the purchasing power of a dollar has also fallen, as it can buy fewer goods and services due to the increasing price level.

Question 5

Table 13-14
 $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Nominal Average } \
\text { Hourly Earnings }
\end{array} & \begin{array} { c } 
\text { CPI } ( \mathbf { 1 9 8 2 - 1 9 8 4 } = \
\mathbf { 1 0 0 } )
\end{array} \
\hline 1965 & \$ 2.65 & 32 \
\hline 2010 & 22.59 & 219 \
\hline
\end{array}$$ 
The table above reports the nominal average hourly earnings in private industry and the consumer price index for 1965 and 2010.
-Refer to Table 13-14.The real average hourly earnings for 1965 in 2010 dollars equal

Accepted Answer

The answer of Table 13-14
 \[\begin{array} { | c |...

Question 6

Suppose your grandfather earned a salary of $12,000 in 1964.If the CPI is 31 in 1964 and 219 in 2013,then the value of your grandfather's salary in 2013 dollars is approximately

Accepted Answer

The answer of Suppose your grandfather earned a salary of...

Question 7

Explain how the CPI is constructed.

Accepted Answer

The answer of Explain how the CPI is constructed....

Question 8

The producer price index tracks the prices firms receive for goods and services at all stages of production.

Accepted Answer

This is true. The producer price index (PPI) measures the average change over time in the prices domestic producers receive for their goods and services at each stage of production. This includes prices for raw materials, intermediate goods, and finished goods.

Question 9

Table 13-17
 $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Nominal Average } \
\text { Hourly Earnings }
\end{array} & \begin{array} { c } 
\text { CPI } \
( \mathbf { 1 9 8 2 - 1 9 8 4 } = \mathbf { 1 0 0 } )
\end{array} \
\hline 2009 & \$ 10 & 188.9 \
\hline 2010 & 11 & 195.3 \
\hline 2011 & 13 & 201.6 \
\hline
\end{array}$$
-Refer to Table 13-17.Looking at the table above,real average hourly earnings in 2010 were

Accepted Answer

The answer of Table 13-17
 \[\begin{array} { | c |...

Question 10

You earned $30,000 in 2000,and your salary rose to $80,000 in 2013.If the CPI rose from 82 to 202 between 2000 and 2013,which of the following is true?

Accepted Answer

The answer of You earned $30,000 in 2000,and your salary...

Question 11

The real wage equals the nominal wage ________ the CPI,all times 100.

Accepted Answer

The real wage is calculated by dividing the nominal wage by the Consumer Price Index (CPI) and then multiplying by 100. This adjusts the nominal wage for inflation, providing a measure of the purchasing power of the wage.

Question 12

List three different price indices and explain how they differ in terms of the market basket on which they are based.

Accepted Answer

The answer of List three different price indices and explain...

Question 13

Why does the substitution bias cause the consumer price index to overstate inflation and the cost of living? Why does the increase in quality bias cause the consumer price index to overstate inflation and the cost of living?

Accepted Answer

The answer of Why does the substitution bias cause the...

Question 14

Table 13-15
 $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Nominal Average } \
\text { Hourly Earnings }
\end{array} & \text { CPI } \
\hline 2011 & \$ 10 & 100 \
\hline 2012 & 10 & 105 \
\hline 2013 & 12 & 110 \
\hline
\end{array}$$
-Refer to Table 13-15.Looking at the table above,real average hourly earnings in 2011 were

Accepted Answer

Real average hourly earnings are calculated by dividing nominal earnings by the CPI (in hundredths). For 2011, it is $10 / (100/100) = $10.

Question 15

If your nominal wage rises faster than the price level,we can say your real wage has ________ and the purchasing power of your income has ________.

Accepted Answer

If your nominal wage rises faster than the price level, it means that the purchasing power of your income has increased. Therefore, your real wage has risen as well.

Question 16

Table 13-14
 $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Nominal Average } \
\text { Hourly Earnings }
\end{array} & \begin{array} { c } 
\text { CPI } ( \mathbf { 1 9 8 2 - 1 9 8 4 } = \
\mathbf { 1 0 0 } )
\end{array} \
\hline 1965 & \$ 2.65 & 32 \
\hline 2010 & 22.59 & 219 \
\hline
\end{array}$$ 
The table above reports the nominal average hourly earnings in private industry and the consumer price index for 1965 and 2010.
-Refer to Table 13-14.The real average hourly earnings for 1965 in 1982-1984 dollars equal

Accepted Answer

To calculate real average hourly earnings, we need to adjust the nominal average hourly earnings for inflation using the consumer price index.

For 1965, the real average hourly earnings in 1982-1984 dollars can be calculated as:

Real average hourly earnings = Nominal average hourly earnings * (CPI in base year / CPI in year of interest)

Real average hourly earnings = $2.65 * (100/32) = $8.28

Therefore, the correct answer is C) $8.28.

Question 17

The CPI in 1990 was 131,and the CPI in 2010 was 218.If you earned a salary of $40,000 in 1990,what would be a salary with equivalent purchasing power in 2010?

Accepted Answer

To find the equivalent salary in 2010 dollars, we need to adjust the 1990 salary for inflation using the CPI. The inflation rate can be calculated as (CPI in 2010 - CPI in 1990) / CPI in 1990 = (218-131)/131 = 0.6641. This means that prices increased by 66.41% between 1990 and 2010. To adjust the salary, we multiply it by the inflation rate and then add it to the original salary: $40,000 * 1.6641 = $66,564. Therefore, the answer is B.

Question 18

If the CPI falls from 142 to 140 between two consecutive years,this implies that prices fell by 2% between those two years.

Accepted Answer

The calculation of percentage change in CPI requires the use of a formula. Without knowing the base year and the specific weights assigned to different goods and services in the CPI basket, it cannot be conclusively stated that a decline from 142 to 140 corresponds to a 2% fall in prices. It could be more or less than that depending on the specific calculation.

Question 19

Table 13-16
 $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Nominal Average } \
\text { Hourly Earnings }
\end{array} & \begin{array} { c } 
\text { CPI } \
( \mathbf { 1 9 8 2 - 1 9 8 4 } = \mathbf { 1 0 0 } )
\end{array} \
\hline 2011 & \$ 10 & 100 \
\hline 2012 & 10 & 105 \
\hline 2013 & 12 & 110 \
\hline
\end{array}$$
-Refer to Table 13-16.Looking at the table above,real wages ________ from 2011 to 2012,and real wages ________ from 2012 to 2013.

Accepted Answer

The answer of Table 13-16
 \[\begin{array} { | c |...

Question 20

Table 13-15
 $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Nominal Average } \
\text { Hourly Earnings }
\end{array} & \text { CPI } \
\hline 2011 & \$ 10 & 100 \
\hline 2012 & 10 & 105 \
\hline 2013 & 12 & 110 \
\hline
\end{array}$$
-Refer to Table 13-15.Looking at the table above,real average hourly earnings were equal to ________ in 2012.

Accepted Answer

Real average hourly earnings can be calculated by dividing the nominal average hourly earnings by the CPI and then multiplying by 100. Thus, real average hourly earnings in 2012 were:

(10/105) x 100 = 9.52

Therefore, the best choice is B.

Quiz 13: Unemployment and Inflation

If your nominal wage rises more slowly than the price level,we can say your real wage has and the purchasing power of a dollar has .