Question 1

According to the March 2012 consumer price index (CPI),the top three consumer expenditure categories are,respectively:

Accepted Answer

The March 2012 consumer price index (CPI) indicates that the top three consumer expenditure categories are housing, transportation, and food and beverages.

Question 2

If housing prices increase by 25% and the price of all other goods decreases by 22%,then:

Accepted Answer

The CPI would likely fall because the decrease in the price of all other goods by 22% would outweigh the 25% increase in housing prices, given that housing does not constitute the majority of the CPI.

Question 3

If 51% of all goods in the consumer price index (CPI) became more expensive and 49% became cheaper:

Accepted Answer

The occurrence of inflation or deflation cannot be determined solely based on the percentage of goods that became more expensive or cheaper. It depends on the weight of these goods in the CPI basket of goods and the actual percentage changes in their prices. Therefore, C is the best choice.

Question 4

If everyone buys the same goods every year and the price of housing rises by 38%:

Accepted Answer

The answer of If everyone buys the same goods every...

Question 5

In Bovania,cattle compose 48% of the consumer price index (CPI),housing composes 32%,and entertainment accounts for the remaining 20%.If,in a certain year,the price of cattle rises by 30% and the price of housing rises by 25%,then:

Accepted Answer

The increase in cattle prices (30% of 48%) contributes to a 14.4% increase in the CPI and the increase in housing prices (25% of 32%) contributes to an 8% increase in the CPI. Therefore, the total increase in CPI is 22.4%. Even if the entertainment in the next year is free (0% increase), the CPI has still increased by 22.4%. So, option C is the correct answer.

Question 6

Oranges become more expensive in 2008 at Ukrop's in Charlottesville,Virginia.This means:

Accepted Answer

The CPI measures changes in the average price of a basket of goods and services consumed by households. Oranges may or may not be included in the CPI, but even if they are, their price increase at Ukrop's alone may not have a significant impact on the overall CPI. Therefore, the price change of oranges at Ukrop's could have a small effect on the CPI, but it would depend on various factors, such as the weight of oranges in the basket of goods and services that the CPI measures.

Question 7

Your entertainment price index (EPI) was computed based on three goods: movie tickets,popcorn,and limeade.If you change the quantity of these goods from this year to next year and the prices of two of the three goods increase while the other price falls,then:

Accepted Answer

The answer of Your entertainment price index (EPI) was computed...

Question 8

Medical care typically composes ____ of the typical consumer price index (CPI).

Accepted Answer

The answer of Medical care typically composes ____ of the...

Question 9

According to the consumer price index (CPI),in a particular year,the price of gasoline rises in the United States by 22%; simultaneously,the price of all food items falls by 8%.Which statement is correct?

Accepted Answer

The information given only tells us the percentage change in prices of gasoline and all food items in the United States. We do not know the extent to which these changes affected the overall CPI since it depends on other prices and factors as well. Therefore, we cannot conclude what happened to the CPI based solely on the given information.

Question 10

The value of the consumer price index (CPI) is best described as:

Accepted Answer

The value of the consumer price index (CPI) is a measure of the average price of a basket of goods and services relative to a base year. The CPI compares the cost of the same basket of goods and services in the current year to the cost of the same basket in the base year. The value of the CPI is based on the prices of goods and services in the current year and the base year, but the market basket content is held constant. Therefore, the answer is A, the current year prices to base year prices, holding the market basket content constant.

Question 11

In Felixania,cat food constitutes 45% of the typical basket of goods for a typical consumer,dog food constitutes 3%,and all other goods constitute the remaining 52%.Assume the price of cat food rises by 4%,the price of dog food falls by 10%,and the prices for all other goods remain constant.Based on the information given,we can definitely say:

Accepted Answer

Since cat food has a higher weight in the typical basket of goods, the overall impact of the 4% increase in its price will be greater than the 10% decrease in the price of dog food. Therefore, the overall price level would increase, making consumers worse off. However, if consumers receive a 4% pay raise, their real income will increase by the same amount, which means they are better off in terms of their purchasing power. The information provided does not give any indication of changes in the goods included in the CPI or menu costs, so options B and E are not relevant. Option A is incorrect because the impact of the price changes differs across goods and consumers, so it's not necessarily the case that all consumers will be worse off. Option C is incorrect because a 4% pay raise would offset the impact of the price increase on cat food, so consumers would not be worse off compared to inflation.

Question 12

What is the difference between the consumer price index (CPI) and the gross domestic product (GDP) deflator?

Accepted Answer

The GDP deflator is a measure of the overall level of prices in the economy, while the CPI is a measure of the cost of a basket of goods and services purchased by the typical household. While both measures can give us information about the general level of prices, the GDP deflator is a better measure when we are interested in how price changes affect the overall economy because it includes all goods and services produced in the economy, not just those purchased by households.

Question 13

Based on the weight of the consumer price index (CPI),the price of rental housing increases by 15% and that of owned housing by 5%.During the same year,the price of gasoline falls by 22%.We can say that:

Accepted Answer

The weight of rental housing in the CPI is greater than owned housing, so the increase in rental housing price will have a greater impact on the CPI than the increase in owned housing price. The decrease in gasoline price will have a smaller impact on the overall CPI because it has a smaller weight. Therefore, all other factors being constant, it is likely that the CPI would rise during the year in question.

Question 14

Tofu becomes more expensive in 2008 at Safeway/Vons in Laguna Nigel,California.This means:

Accepted Answer

The answer of Tofu becomes more expensive in 2008 at...

Question 15

In Bovania,milk constitutes 56% of the typical basket of goods for a typical consumer.Let's say the price of milk rises by 4% and the prices of all other goods fall by 10%.Based on the information given,we can definitely say:

Accepted Answer

Since the price of milk has risen by 4% and the prices of all other goods have fallen by 10%, the overall effect would be a decrease in the cost of the typical basket of goods. This means that the CPI in Bovania is less than in the previous year.

Question 16

Suppose a basket of goods and services has been selected to calculate the consumer price index (CPI) and 2002 has been chosen as the base year.In 2002,the basket's cost was $76.00; in 2004,the basket's cost was $79.50; and in 2006,the basket's cost was $85.00.The value of the CPI was:

Accepted Answer

The answer of Suppose a basket of goods and services...

Question 17

Chicken becomes more expensive in 2008 at Wegmans in State College,Pennsylvania.This means:

Accepted Answer

The answer of Chicken becomes more expensive in 2008 at...

Question 18

In Felixania,cat food constitutes 45% of the typical basket of goods for a typical consumer,dog food constitutes 3%,and all other goods constitute the remaining 52%.Assume the price of cat food rises by 4%,the price of dog food falls by 10%,and prices remain constant for all other goods.Based on the information given,we can definitely say:

Accepted Answer

The CPI in Felixania is more than in the previous year because the significant weight of cat food in the consumer basket (45%) and its price increase (4%) outweighs the impact of the price decrease in dog food (3% weight, 10% decrease).

Question 19

If the price of industrial plastic injection molding machines rose by 20% and the price of oranges fell by 20%,then:

Accepted Answer

The CPI measures the average change in prices paid by consumers for goods and services. Industrial plastic injection molding machines are not consumer goods, so they do not affect the CPI. Only the price change in oranges would impact the CPI.

Question 20

Suppose a basket of goods and services has been selected to calculate the consumer price index (CPI) and 2002 has been selected as the base year.In 2002,the basket's cost was $600; in 2004,the basket's cost was $650; and in 2006,the basket's cost was $700.The value of the CPI in 2004 was (round to one decimal place):

Accepted Answer

The CPI is calculated as (Cost in Current Year / Cost in Base Year) x 100. For 2004, it is ($650 / $600) x 100 = 108.3.

Quiz 8: The Price Level and Inflation

According to the March 2012 consumer price index (CPI) ,the top three consumer expenditure categories are,respectively: