Question 1

In 1972 in Riverside,Iowa one could buy a bag of chips,a pound of hamburger,a package of buns,and a small bag of charcoal for about $2.50.If the same goods today cost about $6.00,which pair of CPIs would make the cost in today's dollars the same for both years?

Accepted Answer

To adjust for inflation, we need to use a CPI ratio. We can calculate the ratio by dividing today's CPI (which is 156 as given) by the CPI in 1972 for each choice. 
For option A: 156/60 = 2.6
For option B: 156/65 = 2.4
For option C: 156/90 = 1.7333
The ratio with the closest value to 2.5 (which is approximately the ratio between $6.00 and $2.50) is option B, with a ratio of 2.4. 
So to get the cost in today's dollars for the 1972 purchase, we can multiply $2.50 by 2.4, which is $6.00 (the same price as today).

Question 2

In 1964 in Riverside,California,one could buy a chili-dog and a root beer for $1.25.Today the same chili dog and root beer cost $2.95.Which pair of CPIs would imply that the cost in today's dollars was the same for both meals?

Accepted Answer

To find the equivalent cost in today's dollars, we use the formula: Today's Price = Old Price * (Today's CPI / Old CPI). For the cost to be the same, $2.95 = $1.25 * (Today's CPI / Old CPI). Solving for the CPI ratio gives us 2.36. The pair of CPIs that gives this ratio is 141.6 / 60 = 2.36.

Question 3

Ruth collected Social Security payments of $220 a month in 1985.If the price index rose from 90 to 105 between 1985 and 1986,then her Social Security payments for 1986 should have been about

Accepted Answer

To calculate Ruth's Social Security payments for 1986, we need to adjust her payments for inflation using the price index. We can do this by dividing the price index for 1986 by the price index for 1985 and then multiplying this ratio by her 1985 payments.

Ratio = Price Index 1986 / Price Index 1985 = 105 / 90 = 1.1667
Social Security payments for 1986 = Ratio x 1985 payments = 1.1667 x $220 = $256.67

Therefore, the closest option to Ruth's Social Security payments for 1986 is option C, $256.67.

Question 4

Tiffany is offered a Job in Minneapolis that pays $80,000.She is offered a similar job in Memphis that pays $64,000.Which set of CPIs would make the two salaries have almost the same purchasing power?

Accepted Answer

The answer of Tiffany is offered a Job in Minneapolis...

Question 5

Andrew is offered a job in Little Rock,where the CPI is 80,and a job in New York,where the CPI is 125.Andrew's job offer in Little Rock is for $42,000.How much does the New York job have to pay in order for the two salaries to represent about the same purchasing power?

Accepted Answer

The answer of Andrew is offered a job in Little...

Question 6

A COLA automatically raises the wage rate when

Accepted Answer

COLA stands for "Cost of Living Adjustment." It automatically raises the wage rate when the consumer price index (CPI) increases. This is done to ensure that the purchasing power of the wage remains the same despite inflation.

Question 7

Leslie is offered a job in Seattle that pays $50,000.She is also offered a job in Boston that pays $60,000.Which set of CPIs below would make the two salaries have almost the same purchasing power?

Accepted Answer

To compare purchasing power, divide the salary by the CPI. For Seattle: $50,000/83.3 = $600.24. For Boston: $60,000/100 = $600. The purchasing powers are almost the same.

Question 8

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?

Accepted Answer

If the prices of the goods consumed by Social Security recipients increase faster than the prices of the goods in the market basket used to compute the CPI, then Social Security recipients would be harmed by years of low inflation since their payments would not increase in proportion to the actual increase in the cost of their goods. If the prices of the goods consumed by Social Security recipients increase more slowly than the prices of the goods in the market basket used to compute the CPI, then Social Security recipients would not be harmed by years of low inflation since their payments would increase more than the actual increase in the cost of their goods.

Question 9

When box office receipts are corrected for inflation,the No.1 movie of all time is

Accepted Answer

When box office receipts are corrected for inflation, the highest-grossing movie of all time is Gone With the Wind. As of 2020, it has earned over $1.8 billion worldwide. Star Wars: The Phantom Menace, Spiderman, and The Sound of Music do not rank as high when adjusted for inflation.

Question 10

Ingrid took a university teaching job as an assistant professor in 1974 at a salary of $10,000.By 2003,she had been promoted to full professor,with a salary of $50,000.If the price index in 1974 was 50 and the price index in 2003 was 180,what is Ingrid's 2003 salary in 1974 dollars?

Accepted Answer

To convert Ingrid's 2003 salary to 1974 dollars, use the formula: (2003 salary) * (1974 price index / 2003 price index). This gives $50,000 * (50 / 180) = $13,889.

Question 11

In 1972 in Sioux Falls,South Dakota,one could buy model rocket engines for $1.50 each.If those same engines cost $2.50 each today,which of the following pair of CPIs would make the engine prices in today's dollars the same for both years?

Accepted Answer

The answer of In 1972 in Sioux Falls,South Dakota,one could...

Question 12

Scenario 24-1
Grant Smith was a doctor in 1944 and earned $12,000 that year. His daughter, Lisa Smith, is a doctor today and she earned $210,000 in 2005. The price index in 1944 was 17.6 and the price index in 2005 was 184.
-Refer to Scenario 24-1.Lisa Smith's 2005 income in 1944 dollars is about

Accepted Answer

Lisa Smith's 2005 income in 1944 dollars is about $20,087. This is calculated by dividing her 2005 income by the ratio of the price index in 2005 to the price index in 1944.

Question 13

In 1949 Sycamore,Illinois built a hospital for about $500,000.In 1987 the county restored the courthouse for about $2.4 million.A price index for nonresidential construction was 14 in 1949,92 in 1987,and 114.5 in 2000.According to these numbers the hospital cost about

Accepted Answer

To calculate the inflation-adjusted cost of the hospital in 2000 dollars, we need to use the price index for each year to convert the original cost to its equivalent value in 2000.

The hospital was built in 1949, so we need to adjust for inflation from 1949 to 2000 using the price index for those years:

(114.5/14) * $500,000 = $4,104,286

So the hospital cost about $4.1 million in 2000 dollars.

This is more than the cost of the courthouse restoration in 2000 dollars, which was $2.4 million. Therefore, the answer is D.

Question 14

Mavis Corporation has an agreement with its workers to index completely the wage of its employees to the CPI.Mavis currently pays its production line workers $7.50 an hour and is scheduled to index their wages today.If the CPI is currently about 130 and was 120 a year ago,Mavis should increase the hourly wages of its workers by about

Accepted Answer

To calculate the increase in wages, we need to use the formula:

New wage = Old wage × (Current CPI / Previous CPI)

Substituting the values given in the question, we get:

New wage = $7.50 × (130/120)

New wage = $8.07

The increase in wages is the difference between the new wage and the old wage:

Increase in wages = $8.07 - $7.50

Increase in wages = $0.57

Rounding to the nearest cent, we get:

Increase in wages = $0.63

Therefore, the best choice is D) $0.63.

Question 15

In 1970 Professor Fellswoop earned $12,000;in 1980 he earned $24,000;and in 1990 he earned $36,000.If the CPI was 40 in 1970,60 in 1980,and 100 in 1990,then in real terms,Professor Fellswoop's salary was highest in

Accepted Answer

The answer of In 1970 Professor Fellswoop earned $12,000;in 1980...

Question 16

In 1969,Don bought a Dodge Dart for $2,500.He drove this car until 2003 when he bought a Honda Civic for $18,000.If the price index in 1969 was 36.7 and the price index in 2006 was 180,what is the price of the Dodge Dart in 2006 dollars?

Accepted Answer

The answer of In 1969,Don bought a Dodge Dart for...

Question 17

Ethel purchased a bag of groceries in 1970 for $8.She purchased the same bag of groceries in 2006 for $25.If the price index was 38.8 in 1970 and was 180 in 2006,what is the price of a 1970 bag of groceries in 2006 prices?

Accepted Answer

The answer of Ethel purchased a bag of groceries in...

Question 18

Scenario 24-1
Grant Smith was a doctor in 1944 and earned $12,000 that year. His daughter, Lisa Smith, is a doctor today and she earned $210,000 in 2005. The price index in 1944 was 17.6 and the price index in 2005 was 184.
-Refer to Scenario 24-1.Grant Smith's 1944 income in 2005 dollars is about

Accepted Answer

To find Grant Smith's 1944 income in 2005 dollars, we need to adjust his income for inflation using the price indices for both years. Using the formula:

(Income in year 2) = (Income in year 1) x (Price index in year 2) / (Price index in year 1)

We can calculate Grant Smith's 1944 income in 2005 dollars as:

(12000) x (184) / (17.6) = $125,455

Therefore, the answer is D.

Question 19

Scenario 24-1
Grant Smith was a doctor in 1944 and earned $12,000 that year. His daughter, Lisa Smith, is a doctor today and she earned $210,000 in 2005. The price index in 1944 was 17.6 and the price index in 2005 was 184.
-Refer to Scenario 24-1.In real terms,Lisa Smith's income amounts to about what percentage of Grant Smith's income?

Accepted Answer

To compare the two incomes in real terms, we need to adjust for inflation using the price indexes. The real value of Grant Smith's income in 2005 dollars is: 12,000 x (184/17.6) = $125,455. Lisa Smith's actual income in 2005 was $210,000, so her income in real terms is 210,000/125,455 = 1.67 or 167% of her father's income.

Question 20

Indexation refers to

Accepted Answer

Indexation is the process of adjusting a dollar amount for the effects of inflation. This can be done through laws or contracts that automatically correct for inflation by increasing the dollar amount based on a price index, such as the Consumer Price Index (CPI).

Quiz 24: Measuring the Cost of Living