Question 1

You know that a candy bar costs sixty 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, we need to adjust for inflation by using the ratio of today's CPI to the CPI in 1962. This will allow us to compare the purchasing power of money between the two time periods. Therefore, we need to divide 60 cents by the ratio of the CPI today to the CPI in 1962, which is given by choice D.

Question 2

Ethel purchased a bag of groceries in 1970 for $8.She purchased the same bag of groceries in 2006 for $25.If the price index was 38.8 in 1970 and the price index was 180 in 2006,then what is the price of the 1970 bag of groceries in 2006 dollars?

Accepted Answer

The answer of Ethel purchased a bag of groceries in...

Question 3

Which of the following is the most accurate statement?

Accepted Answer

According to the statement, in the 1970s, both the GDP deflator and the CPI showed high rates of inflation. In the late 1980s, 1990s, and 2000s, both measures showed low rates of inflation. Choice B accurately reflects this information.

Question 4

The primary purpose of measuring the overall level of prices in the economy is to

Accepted Answer

Measuring the overall level of prices in the economy through inflation allows for the comparison of dollar figures from different points in time, which is important for assessing changes in real value and purchasing power. The other options are not the primary purpose of measuring inflation. Measuring inflation can indirectly aid in the measurement of GDP, but GDP can also be measured without considering inflation. Knowing what kinds of prices to expect in the future would require forecasting, which is not the main purpose of measuring inflation. Comparing dollar figures from the same point in time would not require measuring inflation.

Question 5

In 1979 and 1980,

Accepted Answer

According to the given information, the U.S. inflation rate as measured by the CPI was higher than that measured by the GDP deflator in 1979 and 1980. The reason for this difference was explained by rapidly rising oil prices during that time. Therefore, option D is the correct choice.

Question 6

If the CPI was 95 in 1955 and is 475 today,then $100 today purchases the same amount of goods and services as

Accepted Answer

To find out the equivalent value of $100 today in 1955, we need to divide $100 by the current CPI (475) and then multiply it by the CPI in 1955 (95).

($100/475) x 95 = $20

So, $100 today would purchase the same amount of goods and services as $20 did in 1955. Therefore, the correct choice is B, which states that $100 today is equivalent to $20 in 1955.

Question 7

You know that a candy 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

In order to compute the price of the candy bar in today's prices, we need to adjust the price based on inflation using the ratio of the CPI for today and the CPI for 1962. Choice C is the only option that correctly does this calculation by multiplying the price of the candy bar by the ratio of today's CPI to the CPI for 1962.

Question 8

If the CPI was 108 in 1942 and is 420 today,then $10 in 1942 purchased the same amount of goods and services as

Accepted Answer

To find the equivalent amount today, use the formula: (Current CPI / Old CPI) * Old Amount. So, (420 / 108) * $10 = $38.89.

Question 9

The CPI was 172 in 2007,and the CPI was 46.5 in 1982.If your parents put aside $1,000 for you in 1982,then how much would you have needed in 2007 in order to buy what you could have bought with the $1,000 in 1982?

Accepted Answer

The answer of The CPI was 172 in 2007,and the...

Question 10

The CPI was 196 in 2005,and the CPI was 96.5 in 1982.If your parents put aside $1,000 for you in 1982,then how much would you have needed in 2005 in order to buy what you could have bought with the $1,000 in 1982?

Accepted Answer

To adjust for inflation, we need to use the CPI ratio between the two years: 196/96.5 = 2.03. This indicates that prices increased by a factor of 2.03 from 1982 to 2005. Therefore, $1,000 in 1982 would have the same purchasing power as $2,031.09 in 2005 (1,000 x 2.03). Therefore, the best choice is C.

Question 11

When we express Babe Ruth's 1931 salary in today's dollars and compare his salary to those of current New York Yankee players,we find that the current median salary of today's Yankees is

Accepted Answer

According to Forbes, the current median salary for a New York Yankee player in 2021 is $2.95 million. When adjusted for inflation, Babe Ruth's 1931 salary of $80,000 would be worth approximately $1.3 million in today's dollars. Therefore, the current median salary of Yankees players is more than four times Ruth's salary.

Question 12

The basket of goods in the consumer price index changes

Accepted Answer

The basket of goods in the consumer price index changes occasionally, whereas the group of goods used to compute the GDP deflator changes automatically. The Consumer Price Index (CPI) is updated periodically to reflect changes in consumption patterns and preferences of households. On the other hand, the group of goods used to compute the GDP deflator is automatically updated because it includes all goods and services produced within the country's borders.

Question 13

Scenario 24-1
The price tag on a tennis ball in 1975 read $0.10,and the price tag on a tennis ball in 2005 read $1.00.The CPI in 1975 was 52.3,and the CPI in 2005 was 191.3.
-Refer to Scenario 24-1.The price of a 1975 tennis ball in 2005 dollars is

Accepted Answer

To adjust the 1975 price to 2005 dollars, we need to use the formula: (2005 CPI / 1975 CPI) x 1975 price. Plugging in the numbers, we get (191.3 / 52.3) x 0.10 = $0.37.

Question 14

In 1949,Sycamore,Illinois built a hospital for about $500,000.In 1987,the county restored the courthouse for about $2.4 million.A price index for nonresidential construction was 14 in 1949,92 in 1987,and 114.5 in 2000.According to these numbers,the hospital cost about

Accepted Answer

To adjust for inflation, we need to use the price index for each year to convert the cost to 2000 dollars.

First, we need to use the price index to convert the cost of the hospital from 1949 to 2000 dollars:
Cost in 2000 dollars = Cost in 1949 dollars x (Price index in 2000 / Price index in 1949)
Cost in 2000 dollars = $500,000 x (114.5 / 14) 
Cost in 2000 dollars = $4,075,000

Therefore, the hospital cost about $4.1 million in 2000 dollars.

Next, we need to compare this to the cost of the courthouse restoration in 2000 dollars, which was $2.4 million. Therefore, the hospital cost more than the courthouse restoration in 2000 dollars.

The best choice is D.

Question 15

If the CPI was 85 in 1975 and is 225 today,then $100 today purchases the same amount of goods and services as

Accepted Answer

To find the equivalent purchasing power, use the formula: (CPI today / CPI in 1975) * 1975 amount = today's amount. Solving for the 1975 amount: (85 / 225) * 100 = $37.78.

Question 16

In 1931,President Herbert Hoover was paid a salary of $75,000.Government statistics show a consumer price index of 15.2 for 1931 and 207 for 2007.President Hoover's 1931 salary was equivalent to a 2007 salary of about

Accepted Answer

To find the equivalent salary in 2007, use the formula: (1931 salary) * (2007 CPI / 1931 CPI). So, $75,000 * (207 / 15.2) = $1,021,381.58, which rounds to $1,021,382.

Question 17

In 1949,Sycamore,Illinois built a hospital for about $500,000.In 1987,the county restored the courthouse for about $1.7 million.A price index for nonresidential construction was 24 in 1949,108 in 1987,and 126.5 in 2000.According to these numbers,the hospital cost about

Accepted Answer

The answer of In 1949,Sycamore,Illinois built a hospital for about...

Question 18

If the CPI was 104 in 1967 and is 390 today,then $10 in 1967 purchased the same amount of goods and services as

Accepted Answer

To find out how much $10 in 1967 is worth today, we need to calculate the inflation rate between 1967 and today. The formula we use is: 
(current CPI - starting CPI) / starting CPI x 100%

Plugging in the numbers, we get: 
(390 - 104) / 104 x 100% = 274 / 104 x 100% = 263.46%

This means that prices have increased by 263.46% since 1967. To find out how much $10 in 1967 is worth today, we need to multiply it by the inflation rate: 
$10 x 263.46% = $37.50

Therefore, $10 in 1967 purchased the same amount of goods and services as $37.50 today.

Question 19

In 1969,Fritz bought a Ford Mustang for $2,500.If the price index was 36.7 in 1969 and the price index was 180 in 2006,then what is the price of the Ford Mustang in 2006 dollars?

Accepted Answer

The answer of In 1969,Fritz bought a Ford Mustang for...

Question 20

Babe Ruth's 1931 salary was $80,000.Government statistics show a consumer price index of 15.2 for 1931 and 207 for 2007.Ruth's 1931 salary was equivalent to a 2007 salary of about

Accepted Answer

To find the equivalent salary, use the formula: (1931 salary) * (2007 CPI / 1931 CPI). So, $80,000 * (207 / 15.2) = $1,089,474.

Quiz 24: Measuring the Cost of Living