Question 1

In 1969, Don bought a Dodge Dart for $2500. In 2015, he bought a Honda Civic for $22,000. If the price index in 1969 was 39.2 and the price index in 2015 was 190, what is the price of the Dodge Dart in 2015 prices?

Accepted Answer

The answer of In 1969, Don bought a Dodge Dart...

Question 2

In 1990, Professor Fellswoop made $12,000, in 2000 he earned $24,000, and in 2015 he earned $36,000. If the CPI was 40 in 1990, 60 in 2000, and 100 in 2015, then in real terms, when was Professor Fellswoop's salary highest and lowest?

Accepted Answer

The answer of In 1990, Professor Fellswoop made $12,000, in...

Question 3

In 1972 in Sarnia, Ontario, one could buy a bag of chips, a pound of hamburger, a package of buns, and a small bag of charcoal for about $2.50. If the same goods today cost about $6.00, which set of CPIs represents the same purchasing power for the cost in 1972 and the cost today?

Accepted Answer

To determine the set of CPIs that represents the same purchasing power for the cost in 1972 and the cost today, we need to calculate the inflation rate between the two years. The formula for inflation rate is:
Inflation rate = (CPI in current year - CPI in base year) / CPI in base year x 100%
Using the values given in the question, we can calculate the inflation rate as follows:
Inflation rate = (CPI in 2019 - CPI in 1972) / CPI in 1972 x 100%
6.00 = (CPI in 2019 - CPI in 1972) / CPI in 1972 x 100%
CPI in 2019 - CPI in 1972 = 3.5 x CPI in 1972
CPI in 2019 = 3.5 x CPI in 1972 + CPI in 1972
CPI in 2019 = 4.5 x CPI in 1972
Therefore, to find the set of CPIs that represent the same purchasing power, we need to find a ratio of CPIs that gives us a result of 4.5. The only option that satisfies this condition is B:
CPI in 1972 = 65 and CPI in 2019 = 156
65 x 4.5 = 292.5
292.5/65 = 4.5
Therefore, B is the correct answer.

Question 4

Andrew is offered a job in Calgary where the CPI is 130 and a job in Toronto where the CPI is 180. Andrew's job offer in Calgary is for $65,000. Which salary would the Toronto job have to pay so that both jobs have the same purchasing power?

Accepted Answer

The answer of Andrew is offered a job in Calgary...

Question 5

Suppose the average price of gas in 2014 was $0.95 per litre and $0.97 in 2015. The inflation rate was 3 percent in 2015. What was the 2015 price of gas in 2014 dollars?

Accepted Answer

The 2015 price of gas in 2014 dollars can be calculated using the formula:
2015 price in 2014 dollars = (2015 price) / (1 + inflation rate)
Plugging in the given values, we get:
2015 price in 2014 dollars = 0.97 / (1 + 0.03) = 0.942
Therefore, the answer is choice B.

Question 6

Ethel purchased a bag of groceries in 1970 for $8. She purchased the same bag of groceries in 2015 for $25. If the price index was 38.8 in 1970 and 180 in 2015, what's the price of a 1970 bag of groceries in 2015 prices?

Accepted Answer

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

Question 7

Ingrid takes a job in 1981 at a salary of $10,000. By 2014, she has been promoted, with a salary of $50,000. If the price index in 1981 is 50, and the price index in 2014 is 180, what is Ingrid's 2014 salary in 1981 dollars?

Accepted Answer

The answer of Ingrid takes a job in 1981 at...

Question 8

You know that a chocolate 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

To adjust the price from the past to today's prices using the Consumer Price Index (CPI), you multiply the old price by the ratio of today's CPI to the CPI of the past year. This gives you the equivalent value in today's dollars, accounting for inflation.

Question 9

Scenario 6-1
Grant Smith was a doctor. In 1944, he made $12,000. His daughter, Lisa Smith, is also a doctor. Last year she made $275,000. The price index in 1944 was 17.6 and the price index last year was 200.
-Refer to the Scenario 6-1. What is Lisa's income in 1944 dollars?

Accepted Answer

The answer of Scenario 6-1
Grant Smith was a doctor. In...

Question 10

In 1949, the city of Sherbrooke, Quebec, built a hospital for about $500,000. In 1987, the city restored its courthouse for about $2.4 million. A price index for nonresidential construction was 14 in 1949, 92 in 1987, and 114.5 in 2015. According to these numbers, what approximately did the hospital cost?

Accepted Answer

The answer of In 1949, the city of Sherbrooke, Quebec,...

Question 11

When does a cost-of-living allowance (COLA) automatically raise the wage rate?

Accepted Answer

A cost-of-living allowance (COLA) automatically raises the wage rate when the consumer price index increases, as it is a measure of the average change in prices of goods and services bought by households. An increase in the consumer price index indicates an increase in the cost of living, and thus a COLA helps to adjust wages to maintain purchasing power. Options A, C, and D have no direct relation to the implementation of a COLA.

Question 12

Scenario 6-1
Grant Smith was a doctor. In 1944, he made $12,000. His daughter, Lisa Smith, is also a doctor. Last year she made $275,000. The price index in 1944 was 17.6 and the price index last year was 200.
-Refer to the Scenario 6-1. What was the approximate ratio of Grant's real income to Lisa's real income?

Accepted Answer

The answer of Scenario 6-1
Grant Smith was a doctor. In...

Question 13

The 2015 CPI was 225 and the 1982 CPI was 96.5. How much would you need in 2015 in order to buy what you were able to buy with the $1000 in 1982?

Accepted Answer

The answer of The 2015 CPI was 225 and the...

Question 14

You know that a chocolate bar costs 60 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, you would use the formula that involves dividing the 1962 CPI by today's CPI and then multiplying by the current price. This adjusts the price from today's value back to the 1962 value, accounting for inflation or deflation over time.

Question 15

Loretta is offered a job in St. John's that pays $50,000. She is also offered a job in Halifax that pays $62 250. Which set of CPIs comes closest to giving both salaries the same purchasing power?

Accepted Answer

To find out which set of CPIs comes closest to giving both salaries the same purchasing power, we need to adjust the salaries based on the cost of living in each city. We can do this by dividing the salary by the CPI of the respective city.

For St. John's: $50,000 ÷ 100 (CPI) = $50,000 
For Halifax: $62,250 ÷ 124.5 (CPI) = $500

Therefore, the salary in Halifax has a lower purchasing power compared to St. John's.

Using the CPIs in option C, we get: 
For St. John's: $50,000 ÷ 100 (CPI) = $50,000 
For Halifax: $62,250 ÷ 100 (CPI) = $62,250

This means that, after adjusting for the cost of living, the salary in Halifax is higher than the salary in St. John's. Therefore, option C comes closest to giving both salaries the same purchasing power.

Question 16

Tiffany is offered a job in Winnipeg that pays $90,000. She is offered a similar job in Montreal for $60,000. Which set of CPIs comes closest to giving both salaries the same purchasing power?

Accepted Answer

The answer of Tiffany is offered a job in Winnipeg...

Question 17

Scenario 6-1
Grant Smith was a doctor. In 1944, he made $12,000. His daughter, Lisa Smith, is also a doctor. Last year she made $275,000. The price index in 1944 was 17.6 and the price index last year was 200.
-Refer to the Scenario 6-1. What is Grant's 1944 income in last year's dollars?

Accepted Answer

To calculate Grant's 1944 income in last year's dollars, we need to adjust it for inflation using the ratio of the price index for last year (200) to the price index for 1944 (17.6):

1944 income in last year's dollars = 1944 income x (200/17.6)

Plugging in the numbers:

1944 income in last year's dollars = $12,000 x (200/17.6)

1944 income in last year's dollars = $136,363.64

Therefore, the answer is D) $136,363.

Question 18

In 1964 in London, Ontario, one could buy a fish and chips for $2.00; today the same fish and chips cost $5.55. Which set of CPIs represents the same purchasing power for the cost in 1964 and the cost today?

Accepted Answer

The answer of In 1964 in London, Ontario, one could...

Question 19

Which statement best defines "indexation"?

Accepted Answer

Indexation refers to the automatic adjustment of a dollar amount based on the effects of inflation. This can be done through a law or contract that ensures that the value of the dollar remains constant over time, even as prices increase. This helps to protect individuals and businesses from the negative effects of rising prices, such as reduced purchasing power and increased costs.

Question 20

In 1972 in Kelowna, BC, one could buy model rocket engines for $1.50. If those same engines cost $3.00 today, which set of CPIs represents the same purchasing power for the cost in 1972 and the cost today?

Accepted Answer

In order to determine which set of CPIs represents the same purchasing power, we need to use the inflation rate formula: (CPI in year 2 / CPI in year 1) x 100 = inflation rate.

Using the given information, we can calculate the inflation rate as follows: (120 / 60) x 100 = 200%. This means that the cost of model rocket engines has increased by 200% since 1972.

To find out if $3.00 today has the same purchasing power as $1.50 in 1972, we need to adjust $1.50 for inflation. We can do this by multiplying $1.50 by the inflation rate (200%) and dividing by 100: ($1.50 x 200) / 100 = $3.00.

Therefore, the set of CPIs that represents the same purchasing power for the cost in 1972 and the cost today is 60 in 1972 and 120 today, or choice C.

Quiz 6: Measuring the Cost of Living