Question 1

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

To compute the price of the candy bar in today's prices, we need to adjust for inflation using the CPI. The ratio of today's CPI to 1962 CPI indicates how much prices have increased since 1962. Therefore, we would use the original price of five cents multiplied by today's CPI divided by 1962 CPI (choice C).

Question 2

With respect to the consumer price index, the substitution bias arises because

Accepted Answer

The answer of With respect to the consumer price index,...

Question 3

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 4

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 5

With respect to the consumer price index, which of the following serves as an example of how the substitution bias arises? Between 2010 and 2011, the price of a pound of peanuts

Accepted Answer

The answer of With respect to the consumer price index,...

Question 6

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 and they become more expensive relative to other goods, the unmeasured quality change would result in the greatest bias in the consumer price index. This is because the index would not be capturing the full extent of the improvement in quality, leading to an overestimation of inflation. Conversely, if the quality deteriorated and prices remained constant relative to other prices, the bias would be less severe since the index would still capture the overall trend in price changes.

Question 7

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 8

Suppose the typical consumer buys more bananas than oranges. In fixing the basket of goods and services for the purpose of calculating the consumer price index, the Bureau of Labor Statistics

Accepted Answer

The Bureau of Labor Statistics determines the weights of the prices by surveying consumers to reflect the typical consumer's spending patterns. Therefore, the survey will show that the typical consumer buys more bananas than oranges, and the CPI will place more weight on the price of bananas than the price of oranges. This method aims to accurately measure the inflation experienced by the typical consumer.

Question 9

Which of the following statements is correct?

Accepted Answer

The answer of Which of the following statements is correct?
...

Question 10

The consumer price index is subject to substitution bias because

Accepted Answer

The answer of The consumer price index is subject to...

Question 11

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 12

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...

Question 13

For the purpose of calculating the consumer price index, the basket of goods

Accepted Answer

The purpose of keeping the basket of goods the same from year to year is to isolate the effects of price changes from the effects of any quantity changes that may be occurring at the same time. This allows for a more accurate calculation of inflation.

Question 14

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 allows for the comparison of dollar figures from different points in time using a common unit of measure. This is important for assessing changes in the purchasing power of money over time and for comparing economic indicators such as GDP or inflation rates. It does not primarily serve the purpose of allowing consumers to know what kinds of prices to expect in the future or comparing dollar figures from the same point in time.

Question 15

An increase in the price of imported coffee shows up

Accepted Answer

The increase in the price of imported coffee would affect the consumer price index, as it is a measure of the price of goods and services purchased by consumers. However, it would not affect the GDP deflator, which is a measure of the price level of all final goods and services produced in an economy, including those exported or consumed by businesses and the government.

Question 16

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 historical inflation data, Babe Ruth's 1931 salary of $80,000 is equivalent to approximately $1.3 million in today's dollars. The current median salary for the New York Yankees is around $4 million. Therefore, the current median salary is more than four times greater than Ruth's salary in today's dollars.

Question 17

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.

Question 18

Every unit of good x that is produced in the United States is exported to other countries. An increase in the price of good x shows up

Accepted Answer

The answer of Every unit of good x that is...

Question 19

With respect to the consumer price index, which of the following does not serve as an example of how the substitution bias arises? Between 2010 and 2011, the price of a pound of peanuts

Accepted Answer

The answer of With respect to the consumer price index,...

Question 20

In which of the following cases would there be an effect on the value of the U.S. consumer price index, but not on the value of the U.S. GDP deflator?

Accepted Answer

The U.S. CPI would be affected by the increase in the price of bananas produced in Honduras as it reflects the prices of goods and services purchased by U.S. consumers. However, the U.S. GDP deflator would not be affected by this as it measures the prices of all goods and services produced domestically, regardless of who purchases them.

Quiz 6: Measuring the Cost of Living

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?

With respect to the consumer price index, the substitution bias arises because

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?

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

With respect to the consumer price index, which of the following serves as an example of how the substitution bias arises? Between 2010 and 2011, the price of a pound of peanuts

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?

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?

Suppose the typical consumer buys more bananas than oranges. In fixing the basket of goods and services for the purpose of calculating the consumer price index, the Bureau of Labor Statistics

Which of the following statements is correct?

The consumer price index is subject to substitution bias because

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

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

For the purpose of calculating the consumer price index, the basket of goods

The primary purpose of measuring the overall level of prices in the economy is to

An increase in the price of imported coffee shows up

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

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?

Every unit of good x that is produced in the United States is exported to other countries. An increase in the price of good x shows up

With respect to the consumer price index, which of the following does not serve as an example of how the substitution bias arises? Between 2010 and 2011, the price of a pound of peanuts

In which of the following cases would there be an effect on the value of the U.S. consumer price index, but not on the value of the U.S. GDP deflator?