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Exam 24: Measuring the Cost of Living

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Question 51

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Price index was 130 in Year 2, and the inflation rate was 14.0 percent between Year 1 and Year 2. The price index in Year 1 was

A) 116.0.
B) 114.0.
C) 13.0.
D) 65.0.

E) A) and C)
F) B) and C)

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Question 52

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Scenario 24-1 ​ Sue Lewis was an accountant in 1943 and earned $12,000 that year. Her son is an accountant too and he earned $220,000 this year. Suppose the price index was 18.9 in 1943 and 20.5 in the current year. -Refer to Scenario 24-1. In real terms, Sue's income amounts to about what percentage of her son's income?

A) 18.3 percent
B) 1690.2 percent
C) 5.9 percent
D) 1.1 percent

E) A) and B)
F) B) and D)

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Question 53

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In the U.S., when the price of oil rises, the CPI rises by much more than does the GDP deflator.

Scenario 24-3 A small economy produced and consumed goods X and Y in 2010 and 2011 in the amounts shown in the table below. Assume that the market basket for the CPI is defined in the base year. -Refer to Scenario 24-3. Using 2010 as the base year, what is the inflation rate in 2011?

The inflation rate you are likely to hear on the nightly news is calculated from the

Abhijit deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Abhijit withdraws his $105. If deflation was 5 percent during the year the money was deposited, then Abhijit's purchasing power has not changed.

Table 24-4 Lee's expenditures on food for three consecutive years, along with other values, are presented in the following table. ​ ​ -Refer to Table 24-4. To the nearest dollar, Lee's Year 1 food expenditures in Year 2 dollars amount to

Kristine has a savings account at a bank. If the nominal interest rate she earns exceeds the rate of inflation, then her purchasing power increases over time.

Suppose Stan Musial earned $115,000 in 1947. If the CPI was 82 in 1947, and was 246 in 1990, what is Stan Musial's 1947 salary in 1990 dollars?

The consumer price index tries to gauge how much incomes must rise to maintain

Table 24-1 The following table pertains to Quicheland, an economy in which the typical consumer's basket consists of 15 bushels of apples and 7 bushels of almond . ​ ​ $\begin{array} { | l | c | c | } \hline \text { Year } & \begin{array} { c } \text { Price of Apples } \\\text { (Dollarsp er bushel) }\end{array} & \begin{array} { c } \text { Price of Almond } \\\text { (Dollars per bushel) }\end{array} \\\hline \text { Year 1 } & 12 & 4 \\\hline \text { Year } 2 & 7 & 11 \\\hline\end{array}$ ​ -Refer to Table 24-1. If Year 1 is the base year, then the CPI for Year 1 was

Abjihit deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Abjihit withdraws his $105. If inflation was 5 percent during the year the money was deposited, then Abjihit's purchasing power has not changed.

If the value of the consumer price index is 110 in 2005 and 121 in 2006, then the inflation rate is 11 percent for 2006.

If the current year CPI is 90, then the price level has decreased 10 percent since the base year.

Table 24-3 The following table lists the per gallon prices of gas and milk for the months of September, October, and November. Assume that the typical consumer buys 30 gallons of gas and 15 gallons of milk each month, and that September is the base period. ​ ​ $\begin{array} { | c | c | c | } \hline \text { Month } & \begin{array} { c } \text { Price of Gas } \\\text { (Dollars per gallon) }\end{array} & \begin{array} { c } \text { Price of Milk } \\\text { (Dollars per gallon) }\end{array} \\\hline \text { September } & 3.50 & 3.50 \\\hline \text { October } & 3.85 & 3.52 \\\hline \text { November } & 4.25 & 3.58 \\\hline\end{array}$ -Refer to Table 24-3. What is the inflation rate for October?

Suppose that the price of one gallon of milk was $0.25 in 1950, that the CPI in 1950 was 25, and that in 2000 the CPI was 200.What is the price of a 1950 gallon of milk in 2000 dollars?

Data from the Bureau of Labor Statistics show that consumer spending on transportation is only slightly higher than consumer spending on food and beverages.

The price index was 105 in Year 1 and 108 in Year 2. What was the inflation rate?

If the CPI was 120 in 1994, was 126 in 1995, and was 134.82 in 1996, what was the inflation rate in 1995 and in 1996?

If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation rate is 3 percent.