Exam 6: Measuring the Cost of Living

You know that a chocolate 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?

If the nominal interest rate is 8 percent and the rate of inflation is 2 percent, what is the real interest rate?

Which of the following is NOT a widely acknowledged problem with the CPI as a measure of the cost of living?

If the nominal interest rate is 5 percent and the rate of inflation is 10 percent, what is the real interest rate?

Ruth collected pension benefits of $220 a month in 2015. If the price index rose from 90 to 105 in the period 2015-2015, what should her pension benefits for 2015 be?

If the prices of New Zealand wool blankets imported into Canada increase, what happens to the GDP deflator and the CPI?

The price index in 2014 is 120, and in 2015 it is 127.2. What is the inflation rate?

Table 6-3 In the country of Shem, the CPI is calculated using a market basket consisting of 5 apples, $4 \mathrm{~kg}$ of chicken, 3 shirts, and 2 litres of gasoline. The per-unit prices of these goods have been as follows: -Refer to the Table 6-3. What was the inflation rate, as measured by the CPI, between 2013 and 2014?

Although they sometimes diverge, generally the CPI and GDP deflator move in the same direction.

Al and Amanda meet with Shino, the banker, to work out the details of a mortgage. They all expect that inflation will be 3 percent over the term of the loan, and they agree on a nominal interest rate of 7 percent. As it turns out, the inflation rate is 4 percent over the term of the loan. a. What was the expected real interest rate? b. What was the actual real interest rate? c. Who benefitted and who lost because of the unexpected inflation?

What does "substitution bias" in the consumer price index refer to?

What does the real interest rate tell you?

Suppose that the CPI is currently 600 and was 100 in 1969. Then, according to the CPI, $300 today purchases the same amount of goods and services as what amount in 1969?

Which goods are supposed to be included in the CPI?

If the consumer price index was 100 in the base year and 114 the following year, what was the inflation rate?

Which is likely to have the larger effect on the CPI, a 2 percent increase in food or a 3 percent increase in diamond rings? Explain.

In recent years, there have been increases in the size of golf club drivers and the methods and materials used for making them have improved. Which problem in the construction of the CPI is this change in drivers most relevant to?

A German automobile company produces cars in Canada, some of which are exported to other nations. If the price of these cars increases, what happens to the GDP deflator and the CPI?

If the cost of transportation and the cost of food both increase by 25 percent, then, other things the same, how much is the CPI likely to increase?

When the relative price of a good increases, how will consumers respond?