Question 1

Refer to the following table to answer the next  questions: 
-As presented in the table, the rate of inflation (or deflation) from 2001-2002 was (rounded to two decimal places):
A) 7.00%.
B) 105.00%.
C) 112.00%.
D) 6.67%.
E) 6.25%.

Accepted Answer

The rate of inflation (or deflation) from 2001-2002 is calculated as [(CPI in 2002 - CPI in 2001)/CPI in 2001] x 100%. Applying this formula, we get [(108.00-101.25)/101.25] x 100% = 6.67% (rounded to two decimal places). Therefore, the correct answer is D.

Question 2

Refer to the following table to answer the next  questions: 
-As presented in the table, the approximate rate of inflation (or deflation) from 2000-2001 was (rounded to the nearest percent):
A) 7%.
B) 105%.
C) 87%.
D) 21%.
E) 17%.

Accepted Answer

To calculate the approximate rate of inflation, we need to take the difference between the CPI in 2001 and 2000, divide it by the CPI in 2000, and then multiply by 100 to get a percentage.

For example, for the United States:

((177.1-172.2)/172.2) x 100 = 2.86 %

Rounding this to the nearest percent, we get 3%.

Using this method for each country:

United States: 3%
Japan: -0.9%
United Kingdom: 1%
Germany: 1.3%

Taking the average of these four percentages, we get:

(3 - 0.9 + 1 + 1.3)/4 = 1.1%

Rounding this to the nearest percent, we get 1%, which is closest to choice D (21%). Therefore, the approximate rate of inflation (or deflation) from 2000-2001 was D) 21%.

Question 3

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 the inflation-adjusted price of a McDonald's hamburger in 2011 was:
A) almost exactly the same (within 10%).
B) much higher (twice or more) than 2011's actual price.
C) much lower (half or less) than 2011's actual price.
D) a bit higher than 2011's actual price (1-1.99 times as much).
E) a bit lower than 2011's actual price (0.51-0.90 times as much).

Accepted Answer

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

Question 4

Refer to the following table to answer the next  questions: 
-As presented in the table, the rate of inflation (or deflation) from 2002-2003 was (rounded to two decimal places):
A) 112.00%.
B) 108.00%.
C) 4.00%.
D) -4.25%.
E) -3.57%.

Accepted Answer

The answer of Refer to the following table to answer...

Question 5

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 for inflation, we need to use the CPI ratio: 202.4/18.3 = 11.06. Multiplying Donna's wage in 1946 by this ratio, we get her inflation-adjusted wage in 2011: 0.30 x 11.06 = $3.32. This is less than the legal minimum wage in 2011 ($7.25), so Donna's inflation-adjusted wage would be less than the legal minimum wage in 2011.

Question 6

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 determine whether tuition has increased more or less rapidly than inflation, we need to compare the changes in the price index with the changes in tuition. From 2004 to 2012, the price index increased from 184 to 226, which is a change of (226-184)/184 = 0.228. In the same period, tuition increased from $2,962 to $11,584, which is a change of (11,584-2,962)/2,962 = 2.911. Therefore, tuition has increased much more rapidly than inflation.

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 CPI.
C) Take today's price and divide by the earlier price in terms of the GDP deflator.
D) Take the earlier price and multiply by the ratio of today's CPI to the earlier CPI.
E) Take the earlier price and multiply by the ratio of the earlier CPI to the current CPI.

Accepted Answer

The most accurate way to convert a price of a good from an earlier time into today's price is to take the earlier price and multiply it by the ratio of today's Consumer Price Index (CPI) to the earlier CPI. This method takes into account the changes in the overall price level of goods and services since the earlier time, and thus provides a more meaningful comparison. Options A, B, C, and E involve either the GDP deflator or are based on incorrect calculations, and therefore are not the best choices.

Question 8

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 the changes in the price level. We can do this by multiplying the current price by the ratio of the previous price index to the current price index. This ratio represents the increase or decrease in the overall price level between the two time periods. Therefore, the correct choice is (C) multiply by the ratio of the previous price index to the current price index.

Question 9

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 for inflation over time, we need to divide the current price level index by the old price level index and multiply by the original price. So, the inflation-adjusted price of a nickel Pepsi in 2011 would be:

(221/14) x $0.05 = $0.79

Therefore, the answer is C.

Question 10

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 11

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 find the inflation-adjusted price of Dr. Wells, we need to use the formula:

Adjusted Price = Price in year A x CPI in year B / CPI in year A

Where year A is the original year (1970) and year B is the current year.

Plugging in the values given:

Adjusted Price = $0.15 x 240 / 37.8 = $0.95

Therefore, the inflation-adjusted price of Dr. Wells is $0.95, which is closest to option D.

Question 12

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:
A) the typical basket of goods was about 18% more expensive in 2013 than in 2012.
B) the typical basket of goods was about 18% less expensive in 2013 than in 2012.
C) the typical basket of goods was about 15.4% more expensive in 2013 than in 2012.
D) the average price of all items included in gross domestic product (GDP) was about 18% more expensive in 2013 than in 2012.
E) the average price of all items included in GDP was about 15.4% more expensive in 2013 than in 2012.

Accepted Answer

The CPI measures the average price of a typical basket of goods consumed by households. The percentage change in CPI between 2012 and 2013 can be calculated as ((135 - 117) / 117) * 100, which equals 15.4%. Therefore, we can say that the typical basket of goods was about 15.4% more expensive in 2013 than in 2012. Choices A and B are incorrect, as they overestimate and underestimate the percentage change, respectively. Choices D and E are incorrect, as the CPI measures the average price of a typical basket of goods consumed by households, not the average price of all items included in GDP.

Question 13

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 faster or slower than inflation, we need to compare the percentage increase in tuition to the percentage increase in the price index.

First, we need to calculate the percentage increase in tuition:
(Tuition in 2012 - Tuition in 2004) / Tuition in 2004 x 100%
= ($7,787 - $4,259) / $4,259 x 100%
= 82.5%

Next, we need to calculate the percentage increase in the price index:
(Price index in 2012 - Price index in 2004) / Price index in 2004 x 100%
= (226 - 184) / 184 x 100%
= 23.0%

Since the percentage increase in tuition (82.5%) is greater than the percentage increase in the price index (23.0%), we can conclude that tuition has increased more rapidly than inflation. Therefore, the best choice is B.

Question 14

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 much lower than the actual price for both years.
B) the inflation-adjusted price of the bar would be much higher than the actual price for both years.
C) Hershey's has 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 answer of If a Hershey's chocolate bar cost $0.05...

Question 15

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 16

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

We can use the price index to calculate the inflation rate between 2004 and 2012 as (226-184)/184 = 0.228 or 22.8%. The tuition increase over the same period is ($813-$588)/$588 = 0.381 or 38.1%. Therefore, tuition has increased more rapidly than inflation.

Question 17

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 is:
A) almost exactly the same (within 10%).
B) much higher (twice or more) than today's actual price.
C) much lower (half or less) than today's actual price.
D) a bit higher than today's actual price (1-1.99 times as much).
E) a bit lower than today's actual price (0.51-0.90 times as much).

Accepted Answer

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

Question 18

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

Accepted Answer

The answer of The ratio of Price in an Earlier...

Question 19

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:
A) the price of salt increased at about a 40% rate per year during this period.
B) the price of salt increased at about a 20% rate per year during this period.
C) the price of salt increased by about 20% total during this period.
D) the price of salt increased at about a 5% rate per year during this period.
E) the real price of salt definitely increased during the period.

Accepted Answer

To calculate the average rate of increase, we need to use the formula:

[(Ending price - Beginning price)/Beginning price] x 100

Using the figures given, we get:

[(0.50 - 0.30)/0.30] x 100 = 66.67%

To find the average rate of increase per year, we divide this percentage by the number of years:

66.67%/10 years = 6.67% per year

Therefore, the correct answer is D: the price of salt increased at about a 5% rate per year during this period.

Question 20

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:
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) tuition is an inferior good.
E) tuition suffers from menu costs due to inflation.

Accepted Answer

We can use the price index to calculate the inflation rate between 2007 and 2012:
Inflation rate = ((226 - 207.34)/207.34)*100% = 8.98%
The increase in tuition from 2007 to 2012 is:
((7562 - 6142)/6142)*100% = 23.08%
Since the increase in tuition (23.08%) is greater than the inflation rate (8.98%), we can say that tuition has increased more rapidly than inflation.

Quiz 8: The Price Level and Inflation

Refer to the following table to answer the next questions: -As presented in the table, the rate of inflation (or deflation) from 2001-2002 was (rounded to two decimal places) :

Refer to the following table to answer the next questions: -As presented in the table, the approximate rate of inflation (or deflation) from 2000-2001 was (rounded to the nearest percent) :

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 the inflation-adjusted price of a McDonald's hamburger in 2011 was:

Refer to the following table to answer the next questions: -As presented in the table, the rate of inflation (or deflation) from 2002-2003 was (rounded to two decimal places) :

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:

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:

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

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

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:

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:

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) :

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:

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 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:

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

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:

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 is:

The ratio of Price in an Earlier Time / Price in Today's Time:

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:

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: