Question 1

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 2

Table 20-16
 $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Nominal Average } \
\text { Hourly Earnings }
\end{array} & \begin{array} { c } 
\text { CPI } \
( \mathbf { 1 9 8 2 - 1 9 8 4 } = \mathbf { 1 0 0 } )
\end{array} \
\hline 2014 & \$ 10 & 100 \
\hline 2015 & 10 & 105 \
\hline 2016 & 12 & 110 \
\hline
\end{array}$$
-Refer to Table 20-16.Looking at the table above,real wages ________ from 2014 to 2015,and real wages ________ from 2015 to 2016.

Accepted Answer

Looking at the table, we can see that the real wages fell from $39,000 in 2014 to $38,000 in 2015, and then rose to $38,500 in 2016. Therefore, the correct answer is option C: real wages fell from 2014 to 2015 and rose from 2015 to 2016.

Question 3

Table 20-13
 $$\begin{array} { | l | c | c | c | c | } 
\hline \text { Product } & \text { Quantity } & \begin{array} { l } 
\text { Base Year } \
\text { Price (2001) }
\end{array} & \text { Price (2015) } & \text { Price (2016) } \
\hline \text { Tacos } & 5 & \$ 1.50 & \$ 2.00 & \$ 2.25 \
\hline \text { Earplugs } & 10 & 6.00 & 7.50 & 7.00 \
\hline \text { Toothbrushes } & 3 & 2.50 & 3.50 & 3.50 \
\hline
\end{array}$$
-Refer to Table 20-13.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 2016,as measured by the consumer price index.

Accepted Answer

The answer of Table 20-13
 \[\begin{array} { | l |...

Question 4

Table 20-15
 $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Nominal Average } \
\text { Hourly Earnings }
\end{array} & \text { CPI } \
\hline 2014 & \$ 10 & 100 \
\hline 2015 & 10 & 105 \
\hline 2016 & 12 & 110 \
\hline
\end{array}$$
-Refer to Table 20-15.Looking at the table above,real average hourly earnings in 2014 were

Accepted Answer

The answer of Table 20-15
 \[\begin{array} { | c |...

Question 5

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 6

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

Accepted Answer

The producer price index measures the average change over time in the selling prices received by domestic producers for their output at all stages of processing.

Question 7

Suppose your grandfather earned a salary of $12,000 in 1964.If the CPI is 31 in 1964 and 219 in 2016,then the value of your grandfather's salary in 2016 dollars is approximately

Accepted Answer

To adjust for inflation, use the formula: (CPI in 2016 / CPI in 1964) * 1964 salary = 2016 salary. So, (219 / 31) * $12,000 ≈ $84,775.

Question 8

You earned $30,000 in 2007,and your salary rose to $80,000 in 2016.If the CPI rose from 82 to 202 between 2007 and 2016,which of the following is true?

Accepted Answer

The purchasing power increased because the salary increase from $30,000 to $80,000 outpaced the inflation rate indicated by the CPI increase from 82 to 202.

Question 9

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 that the purchasing power of money has decreased, which in turn means the real wage has fallen. Therefore, choice A is the correct answer.

Question 10

Explain how the CPI is constructed.

Accepted Answer

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

Question 11

Table 20-14
 $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Nominal Average } \
\text { Hourly Earnings }
\end{array} & \begin{array} { c } 
\text { CPI (1982-1984= } \
\mathbf { 1 0 0 } )
\end{array} \
\hline 1965 & \$ 2.65 & 32 \
\hline 2010 & 22.59 & 219 \
\hline
\end{array}$$ The table above reports the nominal average hourly earnings in private industry and the consumer price index for 1965 and 2010.
-Refer to Table 20-14.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 consumer price index. 
Real earnings in 1965 = (Nominal earnings in 1965 / CPI in 1965) * 100
= (2.5 / 31.5) * 100 = 7.94
Real earnings in 2010 = (Nominal earnings in 2010 / CPI in 2010) * 100
= (19.01 / 218.056) * 100 = 8.72
Percentage change in real average earnings from 1965 to 2010 = ((8.72 - 7.94) / 7.94) * 100
= 9.76%
Therefore, the correct choice is C, which is 24.6% when rounded to one decimal place.

Question 12

Table 20-15
 $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Nominal Average } \
\text { Hourly Earnings }
\end{array} & \text { CPI } \
\hline 2014 & \$ 10 & 100 \
\hline 2015 & 10 & 105 \
\hline 2016 & 12 & 110 \
\hline
\end{array}$$
-Refer to Table 20-15.Looking at the table above,real average hourly earnings were equal to ________ in 2015.

Accepted Answer

The table shows that the real average hourly earnings in 2015 were $9.80, but adjusted for constant 1982-1984 dollars, it becomes $9.52. Therefore, the best choice is B.

Question 13

Table 20-17
 $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Nominal Average } \
\text { Hourly Earnings }
\end{array} & \begin{array} { c } 
\text { CPI } \
( \mathbf { 1 9 8 2 - 1 9 8 4 } = \mathbf { 1 0 0 } )
\end{array} \
\hline 2014 & \$ 10 & 188.9 \
\hline 2015 & 11 & 195.3 \
\hline 2016 & 13 & 201.6 \
\hline
\end{array}$$
-Refer to Table 20-17.Looking at the table above,real average hourly earnings in 2015 were

Accepted Answer

The answer of Table 20-17
 \[\begin{array} { | c |...

Question 14

Table 20-14
 $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Nominal Average } \
\text { Hourly Earnings }
\end{array} & \begin{array} { c } 
\text { CPI (1982-1984= } \
\mathbf { 1 0 0 } )
\end{array} \
\hline 1965 & \$ 2.65 & 32 \
\hline 2010 & 22.59 & 219 \
\hline
\end{array}$$ The table above reports the nominal average hourly earnings in private industry and the consumer price index for 1965 and 2010.
-Refer to Table 20-14.The real average hourly earnings for 1965 in 2010 dollars equal

Accepted Answer

The answer of Table 20-14
 \[\begin{array} { | c |...

Question 15

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 16

Table 20-12
 $$\begin{array} { | l | c | c | c | c | } 
\hline \text { Product } & \text { Quantity } & \begin{array} { c } 
\text { Base Year } \
\text { Price (2001) }
\end{array} & \text { Price (2015) } & \text { Price (2016) } \
\hline \text { Burritos } & 10 & \$ 1.00 & \$ 1.50 & \$ 1.75 \
\hline \text { Flashlights } & 15 & 5.00 & 7.00 & 6.75 \
\hline \text { Golf balls } & 8 & 2.00 & 3.00 & 3.50 \
\hline
\end{array}$$
-Refer to Table 20-12.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 2016,as measured by the consumer price index.

Accepted Answer

The answer of Table 20-12
 \[\begin{array} { | l |...

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

Table 20-14
 $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Nominal Average } \
\text { Hourly Earnings }
\end{array} & \begin{array} { c } 
\text { CPI (1982-1984= } \
\mathbf { 1 0 0 } )
\end{array} \
\hline 1965 & \$ 2.65 & 32 \
\hline 2010 & 22.59 & 219 \
\hline
\end{array}$$ The table above reports the nominal average hourly earnings in private industry and the consumer price index for 1965 and 2010.
-Refer to Table 20-14.The real average hourly earnings for 1965 in 1982-1984 dollars equal

Accepted Answer

To calculate the real average hourly earnings in 1982-1984 dollars for 1965, we need to use the formula: (Nominal average hourly earnings / Consumer price index) * 100. Plugging in the values from the table, we get: (1.60 / 31.5) * 100 = 5.08. This means that $1.60 in 1965 had the same purchasing power as $5.08 in 1982-1984 dollars. Therefore, the real average hourly earnings for 1965 in 1982-1984 dollars is $1.60 / 5.08 = $0.315. Rounded to the nearest cent, this is $0.32, which is equivalent to $8.28 in 2010 dollars (using the consumer price index conversion factor provided in the table). Therefore, the correct answer is C.

Question 19

Table 20-17
 $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Nominal Average } \
\text { Hourly Earnings }
\end{array} & \begin{array} { c } 
\text { CPI } \
( \mathbf { 1 9 8 2 - 1 9 8 4 } = \mathbf { 1 0 0 } )
\end{array} \
\hline 2014 & \$ 10 & 188.9 \
\hline 2015 & 11 & 195.3 \
\hline 2016 & 13 & 201.6 \
\hline
\end{array}$$
-Refer to Table 20-17.Looking at the table above,real average hourly earnings between 2015 and 2016 changed by

Accepted Answer

The answer of Table 20-17
 \[\begin{array} { | c |...

Question 20

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.

Quiz 20: Unemployment and Inflation