Question 1

Henry Ford paid his workers $5 a day in 1914 when the CPI was 10. Today, with the price index at 177, the $5 a day is worth $88.50.

Accepted Answer

A) True 
 B)False

Question 2

What does the nominal interest rate tell you?

Accepted Answer

A)  how fast the number of dollars in your bank account rises over time 
B)  how fast the purchasing power of your bank account rises over time 
C)  the number of dollars in your bank account 
D)  the purchasing power of your bank account 
A)  how fast the number of dollars in your bank account rises over time 
B)  how fast the purchasing power of your bank account rises over time 
C)  the number of dollars in your bank account 
D)  the purchasing power of your bank account

Question 3

Suppose an economy consumes only two goods: food and clothing. The following table shows quantities consumed and prices for three years: Year 0 (the base year), Year 1, and Year 2.
a) If the CPI basket is the Year 0 one, compute the expenditure on the basket in years 0, 1, and 2.
b) Compute the CPIs in years 1 and 2, with Year 0 being the base year.
c) For Year 0, compute the shares in expenditure of each of the two goods. Check that the sum of the two shares equals 1. If you multiply those shares by 100, we call them weights. Using the weights, calculate the CPI for Year 0. It should be equal to 100.
d) Using the weights, re-calculate the CPIs for the next two years and compare your result with that in partb.
  
a) If the CPI basket is the Year 0 one, compute the expenditure on the basket in years 0,1 , and 2 .
b) Compute the CPIs in years 1 and 2, with Year 0 being the base year.
c) For Year 0, compute the shares in expenditure of each of the two goods. Check that the sum of the two shares equals 1. If you multiply those shares by 100 , we call them weights. Using the weights, calculate the CPI for Year 0 . It should be equal to 100 .
d) Using the weights, re-calculate the CPIs for the next two years and compare your result with that in part b.

Accepted Answer

a) @#LAT-DLM&.
b) @#LAT-DLM&; CPI2 @#LAT-DLM&
c) @#LAT-DLM&.

Question 4

Babe Ruth's 1931 salary was $80,000. The price index for 1931 is 16 and the price index for the current year is 210. What would Ruth's 1931 salary be equivalent to in the current year?

Accepted Answer

A)  $536,000 
B)  $635,000 
C)  $828,000 
D)  $1,050,000 
A)  $536,000 
B)  $635,000 
C)  $828,000 
D)  $1,050,000

Question 5

For the CPI, what is the base year?

Accepted Answer

A)  It is the benchmark against which other years are compared, and it changes each year. 
B)  It is the benchmark against which other years are compared, and it changes occasionally. 
C)  It is the year the CPI first appeared. 
D)  It is the year prior to the year for which the CPI is calculated. 
A)  It is the benchmark against which other years are compared, and it changes each year. 
B)  It is the benchmark against which other years are compared, and it changes occasionally. 
C)  It is the year the CPI first appeared. 
D)  It is the year prior to the year for which the CPI is calculated.

Question 6

For the average Canadian consumer, what percentage of total consumption does shelter and food expenditures make up, respectively?

Accepted Answer

A)  26.8, 16.4 
B)  16.1, 27.5 
C)  19.3, 16.1 
D)  16.1, 19.3 
A)  26.8, 16.4 
B)  16.1, 27.5 
C)  19.3, 16.1 
D)  16.1, 19.3

Question 7

-Refer to the Table 6-1. Suppose that the typical consumer basket consists of 5 bushels of peaches and 10 bushels of pecans and that the base year is 2014. What is the consumer price index for 2015?

Accepted Answer

A)  80 
B)  100 
C)  125 
D)  200 
A)  80 
B)  100 
C)  125 
D)  200

Question 8

How does a rise in the consumer price index affect a typical family?

Accepted Answer

A)  The typical family has to spend more dollars to maintain the same standard of living. 
B)  The typical family can spend fewer dollars to maintain the same standard of living. 
C)  The typical family finds that its standard of living is not affected. 
D)  The typical family can offset the effects of rising prices by saving more. 
A)  The typical family has to spend more dollars to maintain the same standard of living. 
B)  The typical family can spend fewer dollars to maintain the same standard of living. 
C)  The typical family finds that its standard of living is not affected. 
D)  The typical family can offset the effects of rising prices by saving more.

Question 9

In sequence, what are the steps involved in calculating the consumer price index and the inflation rate?

Accepted Answer

A)  Choose a base year, determine the basket, compute the index, compute the basket's cost, and compute the inflation rate. 
B)  Choose a base year, find the prices, determine the basket, compute the basket's cost, and compute the inflation rate. 
C)  Determine the basket, find the prices, compute the basket's cost, choose a base year and compute the index, and compute the inflation rate. 
D)  Determine the basket, find the prices, compute the index, choose a base year, and compute the inflation rate. 
A)  Choose a base year, determine the basket, compute the index, compute the basket's cost, and compute the inflation rate. 
B)  Choose a base year, find the prices, determine the basket, compute the basket's cost, and compute the inflation rate. 
C)  Determine the basket, find the prices, compute the basket's cost, choose a base year and compute the index, and compute the inflation rate. 
D)  Determine the basket, find the prices, compute the index, choose a base year, and compute the inflation rate.

Question 10

What happened in the early 2000s?

Accepted Answer

A)  Real interest rates were high, and nominal interest rates were low. 
B)  Real interest rates were low, and nominal interest rates were high. 
C)  Both real interest rates and nominal interest rates were high. 
D)  Both real interest rates and nominal interest rates were low. 
A)  Real interest rates were high, and nominal interest rates were low. 
B)  Real interest rates were low, and nominal interest rates were high. 
C)  Both real interest rates and nominal interest rates were high. 
D)  Both real interest rates and nominal interest rates were low.

Question 11

If the cost of health and personal care increases by 20 percent, then, other things the same, how much is the CPI likely to increase?

Accepted Answer

A)  by about 1 percent 
B)  by about 2 percent 
C)  by about 3 percent 
D)  by about 4 percent 
A)  by about 1 percent 
B)  by about 2 percent 
C)  by about 3 percent 
D)  by about 4 percent

Question 12

In the country of Hyrkania, the CPI in 2014 was 140 and the CPI in 2015 was 154. Jake, a resident of Hyrkania, borrowed money in 2014 and repaid the loan in 2015. If the nominal interest rate on the loan was 14 percent, what was the real interest rate?

Accepted Answer

A)  4 percent 
B)  10 percent 
C)  14 percent 
D)  18 percent 
A)  4 percent 
B)  10 percent 
C)  14 percent 
D)  18 percent

Question 13

In 1964 in London, Ontario, one could buy a fish and chips for $2.00; today the same fish and chips cost $5.55. Which set of CPIs represents the same purchasing power for the cost in 1964 and the cost today?

Accepted Answer

A)  60 in 1964 and 141.6 today 
B)  75 in 1964 and 126.4 today 
C)  80 in 1964 and 112.0 today 
D)  90 in 1964 and 250.0 today 
A)  60 in 1964 and 141.6 today 
B)  75 in 1964 and 126.4 today 
C)  80 in 1964 and 112.0 today 
D)  90 in 1964 and 250.0 today

Question 14

In Japan in 2000, nominal interest rates were 1.5 percent and the inflation rate was -0.5 percent. What was the real interest rate?

Accepted Answer

A)  -2 percent 
B)  -1 percent 
C)  1 percent 
D)  2 percent 
A)  -2 percent 
B)  -1 percent 
C)  1 percent 
D)  2 percent

Question 15

Table 6-5
This table pertains to an economy with only two goods: books and calculators. The fixed basket consists of 5 books and 10 calculators.
 
-Refer to the Table 6-5. Using 2015 as the base year, what is the consumer price index?

Accepted Answer

A)  52.66 in 2015, 84.25 in 2014, and 106.50 in 2015 
B)  64.52 in 2015, 87.10 in 2014, and 100.00 in 2015 
C)  52.66 in 2015, 90.89 in 2014, and 100.00 in 2015 
D)  100.00 in 2015, 135.00 in 2014, and 155.00 in 2015 
A)  52.66 in 2015, 84.25 in 2014, and 106.50 in 2015 
B)  64.52 in 2015, 87.10 in 2014, and 100.00 in 2015 
C)  52.66 in 2015, 90.89 in 2014, and 100.00 in 2015 
D)  100.00 in 2015, 135.00 in 2014, and 155.00 in 2015

Question 16

Which price changes when an inflation rate is calculated using the CPI?

Accepted Answer

A)  all prices 
B)  the prices of all final goods and services 
C)  the prices of all consumer goods 
D)  the prices of some consumer goods 
A)  all prices 
B)  the prices of all final goods and services 
C)  the prices of all consumer goods 
D)  the prices of some consumer goods

Question 17

The inflation rate is computed as 100 × (the current year CPI - the CPI of the previous year) ÷ the CPI of the previous year.

Accepted Answer

A) True 
 B)False

Question 18

The 2015 CPI was 225 and the 1982 CPI was 96.5. How much would you need in 2015 in order to buy what you were able to buy with the $1000 in 1982?

Accepted Answer

A)  $960.00 
B)  $1777.77 
C)  $1834.20 
D)  $2331.61 
A)  $960.00 
B)  $1777.77 
C)  $1834.20 
D)  $2331.61

Question 19

The formula to calculate CPI between a base year (say, Year 0) and another, specified year, say Year 1, is CPI=(Expenditure on basket in Year 1)/(Expenditure on basket in Year 0)×100. Suppose an economy produces only two goods, food (f) and clothing (c). Let quantities and prices in Year 0 be qf0, qc0, pf0 and pc0, respectively, and let us adopt similar notations for Year 1, with the caveat that, for CPI, the quantities remain the same as in Year 0.
a) Calculate, using the notations in the problem, the expenditure on the basket in Year 0, the expenditure on the basket in Year 1, and the CPI.
b) Find the formulas for the share of each of the two goods in the expenditure on the basket in Year 0. Let sf and sc be the two shares. Show that the sum of the two shares is equal to 1. Let us multiply each of these shares by 100 and call them weights, wf and wc. Check that their sum is equal to 100.
c) Using the notations wf and wc for the two weights, re-write the CPI formula.
d) Replace wf and wc in the formula that you just wrote, and compare the result to the formula of definition for CPI. Are they identical? If not, what changes do you need to make in order to make them identical?
e) Did you need to know quantities in Year 1 in order to compute CPI?

Accepted Answer

a)Let E₀ be expenditure in Year 0. E₀= p

Question 20

Most, but not all, athletic apparel sold in Canada is imported from other nations. If the price of athletic apparel increases, what will happen to the GDP deflator?

Accepted Answer

A)  It will increase less than the consumer price index will. 
B)  It will increase more than the consumer price index will. 
C)  It will not increase, but the consumer price index will increase. 
D)  It will increase, but the consumer price index will not increase. 
A)  It will increase less than the consumer price index will. 
B)  It will increase more than the consumer price index will. 
C)  It will not increase, but the consumer price index will increase. 
D)  It will increase, but the consumer price index will not increase.

Henry Ford paid his workers $5 a day in 1914 when the CPI was 10. Today, with the price index at 177, the $5 a day is worth $88.50.

What does the nominal interest rate tell you?

Babe Ruth's 1931 salary was $80,000. The price index for 1931 is 16 and the price index for the current year is 210. What would Ruth's 1931 salary be equivalent to in the current year?

For the CPI, what is the base year?

For the average Canadian consumer, what percentage of total consumption does shelter and food expenditures make up, respectively?

-Refer to the Table 6-1. Suppose that the typical consumer basket consists of 5 bushels of peaches and 10 bushels of pecans and that the base year is 2014. What is the consumer price index for 2015?

How does a rise in the consumer price index affect a typical family?

In sequence, what are the steps involved in calculating the consumer price index and the inflation rate?

What happened in the early 2000s?

If the cost of health and personal care increases by 20 percent, then, other things the same, how much is the CPI likely to increase?

In the country of Hyrkania, the CPI in 2014 was 140 and the CPI in 2015 was 154. Jake, a resident of Hyrkania, borrowed money in 2014 and repaid the loan in 2015. If the nominal interest rate on the loan was 14 percent, what was the real interest rate?

In 1964 in London, Ontario, one could buy a fish and chips for $2.00; today the same fish and chips cost $5.55. Which set of CPIs represents the same purchasing power for the cost in 1964 and the cost today?

In Japan in 2000, nominal interest rates were 1.5 percent and the inflation rate was -0.5 percent. What was the real interest rate?

Table 6-5 This table pertains to an economy with only two goods: books and calculators. The fixed basket consists of 5 books and 10 calculators. -Refer to the Table 6-5. Using 2015 as the base year, what is the consumer price index?

Which price changes when an inflation rate is calculated using the CPI?

The inflation rate is computed as 100 × (the current year CPI - the CPI of the previous year) ÷ the CPI of the previous year.

The 2015 CPI was 225 and the 1982 CPI was 96.5. How much would you need in 2015 in order to buy what you were able to buy with the $1000 in 1982?

Most, but not all, athletic apparel sold in Canada is imported from other nations. If the price of athletic apparel increases, what will happen to the GDP deflator?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Exam 6: Measuring the Cost of Living

Henry Ford paid his workers $5 a day in 1914 when the CPI was 10. Today, with the price index at 177, the $5 a day is worth $88.50.

What does the nominal interest rate tell you?

Babe Ruth's 1931 salary was $80,000. The price index for 1931 is 16 and the price index for the current year is 210. What would Ruth's 1931 salary be equivalent to in the current year?

For the CPI, what is the base year?

For the average Canadian consumer, what percentage of total consumption does shelter and food expenditures make up, respectively?

-Refer to the Table 6-1. Suppose that the typical consumer basket consists of 5 bushels of peaches and 10 bushels of pecans and that the base year is 2014. What is the consumer price index for 2015?

How does a rise in the consumer price index affect a typical family?

In sequence, what are the steps involved in calculating the consumer price index and the inflation rate?

What happened in the early 2000s?

If the cost of health and personal care increases by 20 percent, then, other things the same, how much is the CPI likely to increase?

In the country of Hyrkania, the CPI in 2014 was 140 and the CPI in 2015 was 154. Jake, a resident of Hyrkania, borrowed money in 2014 and repaid the loan in 2015. If the nominal interest rate on the loan was 14 percent, what was the real interest rate?

In 1964 in London, Ontario, one could buy a fish and chips for $2.00; today the same fish and chips cost $5.55. Which set of CPIs represents the same purchasing power for the cost in 1964 and the cost today?

In Japan in 2000, nominal interest rates were 1.5 percent and the inflation rate was -0.5 percent. What was the real interest rate?

Table 6-5 This table pertains to an economy with only two goods: books and calculators. The fixed basket consists of 5 books and 10 calculators. -Refer to the Table 6-5. Using 2015 as the base year, what is the consumer price index?

Which price changes when an inflation rate is calculated using the CPI?

The inflation rate is computed as 100 × (the current year CPI - the CPI of the previous year) ÷ the CPI of the previous year.

The 2015 CPI was 225 and the 1982 CPI was 96.5. How much would you need in 2015 in order to buy what you were able to buy with the $1000 in 1982?

Most, but not all, athletic apparel sold in Canada is imported from other nations. If the price of athletic apparel increases, what will happen to the GDP deflator?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters