Exam 6: Measuring the Cost of Living

Laura bought word processing software for $50.A year later,Laura's twin brother Laurence bought an upgraded version of the same software for $50.Which problem in the construction of the CPI does this situation best represent?

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

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

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?

Suppose that the nominal interest rate was 3 percent and the inflation rate was 1 percent.What happened with the value of savings?

Ingrid takes a job in 1981 at a salary of $10,000.By 2014,she has been promoted,with a salary of $50,000.If the price index in 1981 is 50,and the price index in 2014 is 180,what is Ingrid's 2014 salary in 1981 dollars?

When the overall level of prices in the economy is increasing,what is the economy experiencing?

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

The price of imported silk dresses produced by a Canadian company operating in Thailand increases.By itself,what effect will this change have on the Canadian GDP deflator and CPI?

How do the CPI and the GDP deflator relate to each other?

When does a cost-of-living allowance (COLA)automatically raise the wage rate?

Ruth wants to save an amount of money to buy a new computer two years from now.She estimates that the price of the computer will be $800,and she wants to save the money in two tranches at the beginning of each of the next two years.For simplicity,suppose interest is computed only at the end of the year and Ruth wants to save equal amounts every year.If the interest rate is 10% per year,how much does Ruth need to save every year?

Which statement best defines "indexation"?

Statistics Canada has recently adjusted the CPI basket of goods and services by increasing the share of shelter in total expenditure from 25.7 to 27.5 percent,and decreasing the share of recreation,education,and reading from 13 to 11.8 percent.What could the reasons for these changes be? What do you think the reasons for these changes are?

Suppose OPEC succeeds in raising world oil prices by 300 percent.This price increase causes inventors to look at alternative sources of fuel for internal-combustion engines.A hydrogen-powered engine is developed,and it is cheaper to operate than gasoline engines.Which problem in the construction of the CPI would this situation represent,respectively?

What does the CPI measure?

Which goods are supposed to be included in the CPI?

For the CPI,what is the base year?

Ms.Smith borrowed $1000 from her bank for one year at an interest rate of 10 percent per year.During that year the price level went up by 15 percent.Who loses and who gains because of the unexpected inflation?

What is the goal of the consumer price index?