Exam 6: Measuring the Cost of Living

Suppose that increases in the prices of Canadian medical care cause the CPI to increase by 2 percent, while all other prices remain the same. How much will the GDP deflator most likely increase by?

Because the CPI is based on a fixed basket of goods, the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living. Why is this?

Why are measurement problems in the consumer price index as an indicator of the cost of living important?

Suppose the price of android tablets increases dramatically, causing a 1 percent increase in the CPI. By how much will the GDP deflator most likely increase?

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?

Table 6-4 This table shows the CPI for various categories of goods and services. -Refer to the Table 6-4. Of those categories, which one had the lowest rate of inflation?

If there is a reduction in the price of large tractors imported into Canada from Russia, what will happen to the GDP deflator and the consumer price index?

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?

Which change in the price index shows the greatest rate of inflation?

Jake loaned Elwood $6000 for one year at a nominal interest rate of 12 percent. After Elwood repaid the loan in full, Jake complained that he could buy 5 percent fewer goods with the money Elwood gave him than he could before he loaned Elwood the $6000. What was the rate of inflation during the year?

How often does the basket of goods in the consumer price index change?

In Canada, if the price of imported oil rises so that the price of gasoline and heating oil rise, what happens to the GDP deflator and the consumer price index?

How often is the CPI calculated?

What are the categories of Canadian consumer spending, ranked from largest to smallest?

Substitution bias in computing the CPI tends to make the CPI overstate the true increase in the cost of living.

If the nominal interest rate is 10 percent and the rate of inflation is 3 percent, what is the real interest rate?

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?

Which of the following makes up the smallest category of consumer spending in Canada?

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?

Samantha goes to the grocery store to make her monthly purchase of ginger ale. As she enters the soft drink section, she notices that the price of ginger ale has been raised by 15 percent, so she decides to buy some peppermint tea instead. Which problem in the construction of the CPI is this situation most relevant to?