Question 1

A price index is designed to measure

Accepted Answer

A price index is designed to measure the changes in the cost of buying a market basket of goods at a point in time relative to the cost of buying the same market basket during an earlier time period. It is a measure of inflation, which affects the purchasing power of individuals and the economy as a whole. Options A and B are incorrect because they refer to employment and production levels, which are not measured by price indexes. Option C is incorrect because it refers to the comparison of output values, which is not the main purpose of price indexes.

Question 2

The consumer price index (CPI)is calculated

Accepted Answer

The answer of The consumer price index (CPI)is calculated
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Question 3

Given the following figures,by approximately what percentage did Mike's real income increase between 2004 and 2005?
Mike's 2004 money income = $50,000
Mike's 2005 money income = $55,000
2004 CPI = 120.0
2005 CPI = 128.0

Accepted Answer

To find the real income increase, adjust the nominal income for inflation using the CPI. Real income in 2004 = $50,000 / 120.0 = $416.67. Real income in 2005 = $55,000 / 128.0 = $429.69. The percentage increase in real income is (($429.69 - $416.67) / $416.67) * 100% ≈ 3.1%.

Question 4

Your brother graduated from college 10 years ago and started to work at a salary of $20,000.You expect to graduate this year and start to work for $35,000.If the consumer price index was 80 ten years ago and is 140 this year,who will have received the higher real starting salary?

Accepted Answer

The answer of Your brother graduated from college 10 years...

Question 5

A price index like the CPI,which uses a fixed basket of goods from one year to the next,will tend to overstate inflation because

Accepted Answer

A fixed basket of goods does not take into account consumer substitution behavior as prices change. Consumers will tend to substitute away from goods that become more expensive, which will lead to a lower overall price level than what is captured by the fixed basket.

Question 6

Your father tells you he earned $1.50 per hour when he was 16 in 1969;you remember making $6.00 per hour when you were 16 in 2003.Given that the CPI was 36.7 in 1969 and 184.0 in 2003,which of the following is the 2003 real equivalent of your father's hourly earnings when he was 16?

Accepted Answer

The answer of Your father tells you he earned $1.50...

Question 7

The consumer price index is designed to measure the extent to which

Accepted Answer

The consumer price index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. It is designed to reflect changes in the cost of living or inflation over time. Therefore, choice A, which refers to the cost of a typical bundle of consumer goods changing over time, is the best choice. The other choices - increased consumer spending, allocation of GDP to consumers, and changes in prices paid by employers to resource owners - are not directly related to the CPI.

Question 8

Your father tells you he earned $2.00 per hour when he was 16 in 1969;you remember making $10.00 per hour in 2003.Given that the CPI was 36.7 in 1969 and 184.0 in 2003,how does your father's 1969 wage (measured in 2003 dollars)compare with your wage in 2003?

Accepted Answer

To compare the wages, adjust your father's 1969 wage to 2003 dollars using the CPI: $2.00 * (184.0 / 36.7) = $10.03. This is approximately equal to your 2003 wage of $10.00.

Question 9

Why is it important to use real rather than nominal GDP figures when making comparisons of output across time periods?

Accepted Answer

Nominal GDP figures reflect changes in both quantity of output and general price level, whereas real GDP figures adjust for changes in the general price level and reflect changes only in the quantity of output. As a result, real GDP figures provide a more accurate picture of economic growth over time.

Question 10

In 1980,the price of a gallon of gasoline was $1.25.The Consumer Price Index was 82.4 in 1980 compared to 215.3 in 2008 (1983 - 1984 = 100).Measured in 2008 dollars,the price of gasoline in 1980 was

Accepted Answer

The answer of In 1980,the price of a gallon of...

Question 11

The price of a gallon of gasoline was $2.01 in May 2004 compared to 39 cents in 1973.However,the Consumer Price Index was 44.4 in 1973 compared to 189.1 in May 2004 (1980 - 1984 = 100).In terms of the purchasing power of the dollar in 2004,the 1973 price of gasoline was

Accepted Answer

To compare the purchasing power of the dollar in 1973 and 2004, we need to adjust for inflation using the CPI. We can do this by dividing the 1973 gasoline price by the 2004 CPI and multiplying by the 1973 CPI:
(0.39 / 44.4) * 189.1 = 1.66
Therefore, the 1973 gasoline price, adjusted for inflation, had the purchasing power of $1.66 in 2004.

Question 12

Given the following figures,by approximately what percentage did Jeff's real income increase between 2004 and 2005?
Jeff's 2004 money income = $60,000
Jeff's 2005 money income = $72,000
2004 CPI = 120.0
2005 CPI = 128.0

Accepted Answer

To calculate the percentage increase in Jeff's real income, we need to adjust his nominal income for the change in inflation from 2004 to 2005 using the CPI. The formula to do this is: 
Real income = (Nominal income / CPI) * 100

So for Jeff in 2004: 
Real income = ($60,000 / 120) * 100 = $50,000

And for Jeff in 2005: 
Real income = ($72,000 / 128) * 100 = $56,250

To find the percentage increase, we can calculate the difference in real income from 2004 to 2005, and then divide by the initial real income: 
Percentage increase = [(New real income - Old real income) / Old real income] * 100

Percentage increase = [(56,250 - 50,000) / 50,000] * 100 = 12.5%

Therefore, Jeff's real income increased by approximately 12.5% from 2004 to 2005.

Question 13

The CPI is based on

Accepted Answer

The CPI is based on a fixed basket of goods purchased during an earlier base period. It is used to measure changes in the cost of living over time by comparing the current cost of the fixed basket to the cost of the same basket in the base period.

Question 14

Your grandfather tells you he earned $0.65 per hour at his job when he was a boy in 1929.Given that the CPI was 17.1 in 1929 and 215.3 in 2008,how much would you have had to make in 2008 to have the same real hourly wage as your grandfather?

Accepted Answer

To find the equivalent real hourly wage in 2008, we need to adjust the 1929 wage for inflation using the CPI values provided. The inflation factor between 1929 and 2008 can be found using the formula:

Inflation factor = CPI in 2008 / CPI in 1929

In this case, the inflation factor is:

Inflation factor = 215.3 / 17.1 = 12.59

This means that prices in 2008 were, on average, 12.59 times higher than in 1929. To find the equivalent real hourly wage in 2008, we can simply multiply the 1929 wage by the inflation factor:

Real hourly wage in 2008 = 0.65 x 12.59 = $8.18

Therefore, the correct answer is (C) $8.18.

Question 15

Over time,GDP may increase as the result of either (i)expansion in the quantities of goods produced or (ii)higher prices.Which of the following is true?

Accepted Answer

Option (i) indicates an increase in the quantities of goods produced, which reflects an improvement in the efficiency of an economy. This implies that the economy can generate more goods and services with the same amount of resources that it had before. As a result, the standard of living of society is expected to rise. On the other hand, option (ii) reflects higher prices, which may be due to an increase in demand or a decrease in the supply of goods and services. This means that people have to pay more to buy the same amount of goods they bought before, and therefore, their purchasing power decreases. Option (ii) does not necessarily imply improvements in the economy's efficiency.

Therefore, only option (A) is correct, as an increase in the quantities of goods produced (i) is likely to increase living standards, but higher prices (ii) may not.

Question 16

An increase in the Consumer Price Index indicates that

Accepted Answer

The Consumer Price Index (CPI) measures the average prices of a basket of goods and services that households consume. An increase in the CPI means that the cost of buying the typical bundle of goods consumed by households is increasing, indicating higher inflation rates. Therefore, choice C is the correct answer. Option A is incorrect because an increase in CPI suggests that the purchasing power of households is decreasing. Option B is wrong since an increase in CPI points to a decrease in purchasing power, and hence the dollar's value is declining in inflationary conditions. Option D is incorrect because an increase in CPI indicates that prices are rising, reducing the net worth of households.

Question 17

Between 1991 and 2008,the federal minimum wage increased from $4.25 per hour to $6.55 per hour,while the CPI increased from 136.2 to 215.3.We can conclude from this that

Accepted Answer

The minimum wage increased from $4.25 to $6.55, which is an increase in nominal terms. However, the CPI also increased from 136.2 to 215.3, which means the cost of living increased significantly, resulting in a decrease in the real value of the minimum wage. Therefore, the minimum wage increased in nominal terms but decreased in real terms.

Question 18

The 2008 box office receipts for the movie The Dark Knight were $997 million.By way of comparison,the 1975 receipts for Jaws were $470.6 million.If the Consumer Price Index was 53.8 in 1975 and 215.3 in 2008,which of the following is true?

Accepted Answer

To compare the real receipts, adjust for inflation using the Consumer Price Index (CPI). The real value of Jaws in 2008 dollars is $470.6 million * (215.3 / 53.8) = $1,882.8 million. The Dark Knight's real value is $997 million. Jaws' real receipts are about 88% greater than The Dark Knight's.

Question 19

The consumer price index is

Accepted Answer

The consumer price index measures the cost of buying a typical bundle of goods during a given period (such as a month or a year) compared to the cost of buying the same bundle during an earlier base period (such as a previous year). It is used to track inflation and changes in the cost of living.

Question 20

Your brother graduated from college 10 years ago and started to work at a salary of $30,000.You expect to graduate this year and start to work for $47,250.If the consumer price index was 90 ten years ago and is 150 this year,who will have received the higher real starting salary?

Accepted Answer

To compare real salaries, adjust for inflation using the consumer price index (CPI). Your brother's real salary was $30,000 / 90 = $333.33 per CPI point. Your real salary is $47,250 / 150 = $315 per CPI point. Thus, your brother had a higher real starting salary.

Quiz 7: Ataking the Nations Economic Pulse

A price index is designed to measure

The consumer price index (CPI) is calculated

Given the following figures,by approximately what percentage did Mike's real income increase between 2004 and 2005? Mike's 2004 money income = $50,000 Mike's 2005 money income = $55,000 2004 CPI = 120.0 2005 CPI = 128.0