Chapter 5 Flashcards
Which of the following statements is correct?
The CPI can be used to compare dollar figures from different points in time.
What basket of goods and services is used to construct the CPI?
The goods and services that are typically bought by consumers as determined by government surveys
If the consumer price index was 93 in Year 1, 97 in Year 2, and 100 in Year 3, then the base year must be
Year 3.
Suppose a basket of goods and services has been selected to calculate the CPI and Year 1 has been selected as the base year. In Year 1, the basket’s cost was $50; in Year 2, the basket’s cost was $52; and in Year 3, the basket’s cost was $55. The value of the CPI in Year 3 was
110.0
The price index was 105 in Year 1 and 111 in Year 2. What was the inflation rate?
5.7%
An increase in the price of bread produced domestically will be reflected in
both the GDP deflator and the consumer price index.
Mia Denton was an accountant in 1943 and earned $21,000 that year. Her son is an accountant too and he earned $270,000 this year. Suppose the price index was 18.3 in 1943 and 20.2 in the current year.
Mia’s 1943 income in current year dollars is
$23,180.
Social Security payments are indexed for inflation using the CPI. A recent newspaper editorial claimed that Social Security recipients are harmed by years of low inflation because they do not receive as large an increase in their payments as they do in years of high inflation. Which of the following statements is correct?
The newspaper editorial could be correct if the prices of the goods consumed by Social Security recipients change at a different rate than the prices of the goods in the market basket used to compute the CPI
If the nominal interest rate is 5 percent and the real interest rate is 7 percent, then the inflation rate is
-2%
The consumer price index is used to
turn dollar figures into meaningful measures of purchasing power.
