Question 1

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 (often done through measures like the Consumer Price Index or the Producer Price Index) allows for the comparison of dollar figures from different points in time, as changes in the overall level of prices can affect the value of money. It is not primarily used for measuring GDP or helping consumers predict future prices.

Question 2

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

We need to adjust the cost of the hospital and the courthouse restoration to 2000 dollars, using the price index for nonresidential construction.

First, let's find the cost of the hospital in 2000 dollars:

Cost in 2000 dollars = Cost in original year x Price index in 2000 / Price index in original year

Cost in 2000 dollars = $500,000 x 114.5 / 14 = $4,071,428.57

So the hospital cost about $4.1 million in 2000 dollars.

Now let's find the cost of the courthouse restoration in 2000 dollars:

Cost in 2000 dollars = $2.4 million x 114.5 / 92 = $2,971,304.35

Therefore, the hospital cost more than the courthouse restoration in 2000 dollars, and the best choice is (D).

Question 3

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 the answer, we need to use the CPI formula: (cost of basket in current year/cost of basket in base year) x 100. Let's use $100 as our basket cost in the current year. If the CPI is 475 today, then the basket cost in 1955 would have been (475/100) x $100 = $475. Now we can set up our CPI formula: ($100/$475) x 100 = 21.05. This means that $100 in the current year could purchase the same amount of goods and services as $21.05 in 1955. To find the answer choice that is closest to $21.05, we can round up to $22 and then multiply by 5 to get $110. The closest answer choice is B, $20.00 purchased in 1955.

Question 4

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 5

If the CPI was 108.00 in 1942 and is 336.96 today,then $10 in 1942 purchased the same amount of goods and services as

Accepted Answer

The answer of If the CPI was 108.00 in 1942...

Question 6

Suppose you know the value of the consumer price index (CPI)in year 2 as well as the inflation rate in year 2.Which of the following equations is valid for the CPI in year 1?

Accepted Answer

The formula for calculating the CPI in year 1 given the CPI in year 2 and the inflation rate in year 2 is:
CPI in year 1 = (CPI in year 2 / (1 + inflation rate in year 2)) x 100
This is the equivalent of Choice C in the answer choices provided, which divides both the numerator and denominator by 100 to simplify the calculation. Choice A is incorrect because it multiplies the CPI in year 2 by 100 before dividing, which would lead to an incorrect answer. Choice B adds 100 to both the numerator and denominator, which is also incorrect. Choice D has a similar problem as Choice B, as it incorrectly divides the CPI in year 2 by 100 before dividing by the sum of the inflation rate in year 2 and 100.

Question 7

Suppose the quality of televisions changes over time,but the quality change goes unmeasured for the purpose of computing the consumer price index.In which of the following instances would the bias resulting from the unmeasured quality change be most severe?

Accepted Answer

If the quality of televisions improves but the change goes unmeasured, it will appear as if the price of televisions has increased even if it has stayed the same or decreased. This leads to a higher inflation rate and a bias in the consumer price index. Therefore, the bias resulting from unmeasured quality change would be most severe in the case of option C where the quality improves and prices increase relative to other goods.

Question 8

If the CPI was 90 in 1975 and is 225 today,then $100 today purchases the same amount of goods and services as

Accepted Answer

The answer of If the CPI was 90 in 1975...

Question 9

Which of the following pairs of values of the consumer price index (CPI)is consistent with an inflation rate of 14 percent for 2011?

Accepted Answer

The answer of Which of the following pairs of values...

Question 10

Suppose the quality of beef changes over time,but the quality change goes unmeasured for the purpose of computing the consumer price index.In which of the following instances would the bias resulting from the unmeasured quality change be least severe?

Accepted Answer

The answer of Suppose the quality of beef changes over...

Question 11

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

We need to adjust the price of the candy bar to today's prices using inflation. To do this, we need to multiply the price in 1962 by the ratio of today's CPI to the CPI in 1962. This will give us the equivalent price in today's dollars. Therefore, the correct formula is: price in today's dollars = price in 1962 dollars x (today's CPI / 1962 CPI). Choice C correctly follows this formula, while the others vary in their formulas and may lead to incorrect results.

Question 12

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 the article, Babe Ruth's 1931 salary was $80,000. Adjusted for inflation to 2018 dollars, this would be around $1.2 million. The article also states that the current median salary for the New York Yankees is around $4 million. Therefore, the current median salary is more than four times Ruth's salary.

Question 13

In 1969,Malcolm bought a Pontiac Firebird for $2,500.If the price index was 36.7 in 1969 and the price index was 180 in 2009,then what is the price of the Firebird in 2009 dollars?

Accepted Answer

First, we need to adjust the price of the Firebird for inflation from 1969 to 2009 using the price index. We can use the following formula:
Price in 2009 dollars = Price in 1969 dollars x (Price index in 2009 / Price index in 1969)

Price in 2009 dollars = $2,500 x (180/36.7) = $12,261.58

Therefore, the price of the Firebird in 2009 dollars is $12,261.58. The best choice is D.

Question 14

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 214.5 for 2009.President Hoover's 1931 salary was equivalent to a 2009 salary of about

Accepted Answer

The answer of In 1931,President Herbert Hoover was paid a...

Question 15

the CPI was 96 in 1982,and the CPI was 208 in 2010.How much money would you have needed in 2010 in order to buy what you could have bought with $500 in 1982?

Accepted Answer

We need to adjust $500 in 1982 to its equivalent value in 2010. 
Using the CPI values for both years, we can set up the following proportion:

1982 CPI / 2010 CPI = 1982 dollars / 2010 dollars

Solving for 2010 dollars:

2010 dollars = 1982 dollars x (2010 CPI / 1982 CPI)

2010 dollars = $500 x (208/96)

2010 dollars = $1,083.33

Therefore, you would have needed $1,083.33 in 2010 to buy what $500 could buy in 1982. 
The correct answer is B.

Question 16

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 calculate the price of the candy bar in 1962 prices, we need to adjust for inflation by using the CPI for both years. The formula for adjusting for inflation is to divide the current price by the current CPI and multiply by the old CPI. Therefore, we need to use the ratio of the 1962 CPI to today's CPI to find the correct price in 1962 dollars. Dividing the 1962 CPI by today's CPI will give us the inflation multiplier we need to adjust the current price. So the correct formula is: 60 cents x (1962 CPI / today's CPI). Thus, choice D is the best answer.

Question 17

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 18

Babe Ruth's 1931 salary was $80,000.Government statistics show a consumer price index of 15.2 for 1931 and 214.5 for 2009.Ruth's 1931 salary was equivalent to a 2009 salary of about

Accepted Answer

To adjust for inflation, we can use the formula:

Adjusted salary = (Original salary) x (Current CPI) / (Base year CPI)

Plugging in the numbers, we get:

Adjusted salary = $80,000 x 214.5 / 15.2 
Adjusted salary = $1,128,947

Therefore, the answer is C.

Question 19

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 adjust it for inflation using the CPI ratio:

(390/104) x $10 = $37.50

Therefore, $10 in 1967 is equivalent to $37.50 today.

Question 20

Suppose you know the value of the consumer price index (CPI)in year 1 as well as the inflation rate in year 2.Which of the following equations is valid for the CPI in year 2?

Accepted Answer

The CPI in year 2 can be calculated by multiplying the CPI in year 1 by the inflation rate in year 2 and then adding the result to the original CPI in year 1. This new value is then divided by 100 to obtain the CPI in year 2. Therefore, the equation that gives the CPI in year 2 is:

$$ \frac{( \text { CPI in year } 1 \times \text { Inflation rate in year } 2 ) + ( 100 \times \text { CPI in year } 1 ) } { 100 }$$

Option D is the only equation that corresponds to this method. Options A, B and C are incorrect.

Quiz 16: Measuring the Cost of Living