Question 1

Dave brags to his dad that his $45,000 starting salary as a computer programmer is much higher than his dad's $28,000 starting salary some years ago.If the consumer price index the year Dave begins work is 180.5 and the year his dad started work it was 110.8,Dave is:

Accepted Answer

The answer of Dave brags to his dad that his...

Question 2

The GDP deflator for the base year is:

Accepted Answer

The GDP deflator is a measure of the level of prices of all new, domestically produced, final goods and services in an economy. It is typically calculated by taking the ratio of GDP in nominal terms (current prices) to GDP in real terms (constant prices). The base year is the year against which all other years are compared, and by definition, the GDP deflator in the base year is always equal to 100. This is because the nominal and real GDP values will be the same in the base year, and so the ratio will be 1, which is multiplied by 100 to get a value of 100 for the GDP deflator in the base year.

Question 3

Suppose the market basket of goods costs $10,000 in 2009,the reference or base period,and that same basket of goods now costs $11,200.What is the consumer price index for today?

Accepted Answer

To calculate the CPI, we use the formula: (Cost of basket in current year / Cost of basket in base year) x 100.

Plugging in the numbers given in the question, we get: (11,200 / 10,000) x 100 = 112.0

Therefore, the CPI for today is 112.0.

Question 4

Suppose the market basket of goods costs $10,000 in 2009,the reference or base period,and that same basket of goods now costs $11,200.What has been the percentage change in the cost of goods between the base period and the current period?

Accepted Answer

To calculate the percentage change, we use the formula: 
((new value - old value) / old value) x 100%
Using the information provided, we can plug in the numbers: 
((11,200 - 10,000) / 10,000) x 100% = 1,200 / 10,000 x 100% = 0.12 x 100% = 12%
However, we need to be careful and note that the question asks for the percentage change between the base period and the current period. Therefore, we need to use the base period as the old value and the current period as the new value. 
((11,200 - 10,000) / 10,000) x 100% = 1,200 / 10,000 x 100% = 0.12 x 100% = 12%
Therefore, the percentage change in the cost of goods between the base period and the current period is 11.2%, which is answer choice B.

Question 5

If the nominal GDP is $13 trillion for a given year and the GDP deflator for that year is 115,then the real GDP is:

Accepted Answer

Real GDP = Nominal GDP ÷ GDP deflator
= $13 trillion ÷ 1.15
= $11.3 trillion

Question 6

If your salary was $50,000 last year and this year you receive a cost-of-living increase tied to the consumer price index (CPI),what will your salary be,assuming the CPI has risen from 110 to 114?

Accepted Answer

The percentage increase in CPI is (114 - 110) / 110 = 0.03636 or 3.636%. Applying this increase to the salary: $50,000 * 1.03636 = $51,818.

Question 7

In 2009,a market basket of goods and services cost $100 in Merryland;the same basket cost $200 in Berryland.In 2010,the cost in Merryland was $150 and in Berryland it was $225.Based on that information,which of the following statements is true?

Accepted Answer

The answer of In 2009,a market basket of goods and...

Question 8

Which of the following is a problem in measuring consumer prices?

Accepted Answer

All answer choices are correct. The consumer price index has limitations such as not accounting for product substitution, difficulty in adjusting to changes in quality of products, and time-consuming process of including new products in the index.

Question 9

Jill has an escalator clause in her labor contract that gives her a raise commensurate with the consumer price index (CPI).Last year she earned $40,000 and the CPI was 100.If the CPI this year is 110,her new salary is:

Accepted Answer

To calculate Jill's new salary, we need to use the formula:

New salary = Old salary * (New CPI/Old CPI)

Plugging in the numbers we get:

New salary = $40,000 * (110/100) 
New salary = $44,000

Therefore, Jill's new salary is $44,000. Option (D) is correct.

Question 10

The inflation rate is 4%.Social Security payments automatically rise 4%.This adjustment is authorized by an:

Accepted Answer

An escalator clause is a contract provision that provides for an automatic adjustment of wages, rent, or other payments based on a certain index, such as the inflation rate. In this case, the Social Security payments automatically rise 4% due to the escalator clause authorized by the government. The other options (inflation rate, elevator clause, insanity clause) do not accurately describe the mechanism for the automatic adjustment.

Question 11

What is your new salary if you earned $40,000 last year,the consumer price index went from 120 to 125,and your salary is adjusted by the rate of inflation annually?

Accepted Answer

To calculate the new salary, we need to adjust the old salary based on the rate of inflation, which is (125-120)/120 or 4.17%.

The formula for calculating the new salary is:

New salary = Old salary * (1 + inflation rate)

Substituting the given values:

New salary = $40,000 * (1 + 0.0417) = $41,666.67

Therefore, the best choice is C) $41,666.67.

Question 12

Janet is receiving a 5% pay raise.If the rate of inflation is 2%,then Janet's purchasing power is:

Accepted Answer

Janet's purchasing power is rising because her pay raise is greater than the rate of inflation. This means that her income is increasing at a faster rate than the prices of goods and services are rising, giving her more purchasing power.

Question 13

John expects to get a raise equal to the increase in the consumer price index (CPI).The CPI has gone from 160 to 164.If John's salary last year was $50,000,what salary does he expect to earn this year?

Accepted Answer

The answer of John expects to get a raise equal...

Question 14

GDP is $10 trillion in 2001.The GDP deflator is 100 in 2000 and is 110 in 2001.What is real GDP?

Accepted Answer

Real GDP can be calculated using the formula Real GDP = Nominal GDP / GDP Deflator. In this case, nominal GDP is $10 trillion and the GDP deflator is 110 (in 2001), which gives us Real GDP = $10 trillion / 1.1 = $9.09 trillion. Therefore, the correct answer is (C) $9.09 trillion.

Question 15

The current consumer price index is:

Accepted Answer

The current consumer price index (CPI) is a cost-of-goods index, which measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

Question 16

The GDP deflator shows that since the mid-1980s,the U.S.economy has had:

Accepted Answer

The GDP deflator is a measure of inflation that reflects the price changes of all goods and services produced in an economy. Disinflation refers to a decrease in the rate of inflation, which means that although prices are still rising, they are rising at a slower rate. This is consistent with the trend in the U.S. economy since the mid-1980s, where inflation has remained positive but has been gradually decreasing.

Question 17

Which of the following is NOT generally considered a problem with using the consumer price index to measure consumer prices?

Accepted Answer

The answer of Which of the following is NOT generally...

Question 18

Nominal GDP in 2006 was $13,458.2 billion.The GDP deflator uses 2000 as the base year.In 2006,the GDP deflator was 116.9.What was the real GDP for 2006?

Accepted Answer

Real GDP is calculated by dividing nominal GDP by the GDP deflator (in hundredths). Real GDP = $13,458.2 billion / 1.169 = $11,512.6 billion.

Question 19

If the current year's consumer price index is 214 and last year's was 209,then the rate of inflation is:

Accepted Answer

The rate of inflation is calculated as (Current CPI - Last year's CPI) / Last year's CPI * 100. So, (214 - 209) / 209 * 100 = 2.4%.

Question 20

Prices from about ________ goods and services are collected each month by Bureau of Labor Statistics data collectors to be used in calculating the consumer price index.

Accepted Answer

The answer of Prices from about ________ goods and services...

Quiz 6: Measuring Inflation and Unemployment