Which one of the following is not a measure of the price level?
answer
A. Producer Price Index: an average of prices received by firms for goods and services at all stages of production.
B. Government Price Index: an average of the prices paid by the government for goods and services used only by different government agencies.
C. Consumer Price Index: an average of the prices of goods and services a typical family of four would purchase.
D. GDP Deflator: broadest measure of the average price level as it includes prices of every final good and service.
B
question
The price index which is used to measure changes in the cost of living is the
answer
Consumer Price Index (CPI).
question
Briefly explain whether you agree or disagree with the following statement:
"I don't believe the government price statistics. The CPI LOADING... for 2016 was 210, but I know that the inflation rate LOADING... couldn't have been as high as 110 percent in 2016."
answer
Disagree. The inflation rate is the percentage increase in the price level from the previous year, not the base year.
question
In the fall of 2015, Apple introduced a new model of its iPhone. The new model had a faster processor and a better camera than the previous model but sold for the same price. How was the CPI affected by the introduction of the new model of the iPhone?
If Apple's new iPhones offer more features for the same price as the previous model, how was the consumer price index affected by the introduction of the new iPhone?
answer
The CPI does not change.
question
What index is used to measure the average prices paid by a typical family?
An average of the prices of the goods and services purchased by a typical family is the:
answer
consumer price index (CPI).
question
Suppose the economy's consumer price index (CPI) in 2008 was 190 and the CPI in 2009 was 204
answer
The inflation rate over the period from 2008-2009 was equal to
7.4%
question
Which of the following causes changes in the CPI to overstate the true inflation rate?
answer
All of the above:
New product bias
Substitution bias
Increase in quality bias
question
Which of the following statements about prices and inflation is not correct?
answer
A. The inflation rate shows the percentage change in prices across periods of time.
B. Inflation represents a general rise in prices over periods of time.
C. Prices generally increase at the same rate across most periods of time.
D. The price level measures the average prices of goods and services across the economy.
C
question
The difference between a nominal variable and a real variable is that
answer
nominal variables are calculated in current-year prices and the real variables are measured in dollars of the base year for the price index to correct the effects of inflation.
question
In 1924, the famous novelist F. Scott Fitzgerald wrote an article for the Saturday Evening Post titled "How to live on $36,000 a Year," in which he wondered how he and his wife had managed to spend all of that very high income without saving any of it. In 1924, the consumer price index (CPI) was 17, and the CPI in 2012 was 230.
Source: F. Scott Fitzgerald, "How to live on $36,000 a Year," Saturday Evening Post, April 5, 1924.
answer
The income you would have needed in 2012 to have had the same purchasing power that Fitzgerald's $36,000 had in 1924 is
$487,059
question
The difference between the nominal interest rate and the real interest rate is
answer
the nominal interest rate is the stated interest rate whereas the real interest rate is the nominal interest rate minus the inflation rate.
question
The chapter explains that it is impossible to know whether a particular nominal interest rate is "high" or "low" because
answer
it all depends on the inflation rate.
question
The following appeared in a newspaper article:
"Inflation in the Lehigh Valley during the first quarter of [the year] was less than half the national rate...So, unlike much of the nation, the fear here is deflation-when prices sink so low that the CPI drops below zero."
Source: Dan Shope, "Valley's Inflation Rate Slides," (Allentown, PA) Morning Call, July 9, 1996.
Do you agree with the reporter's definition of deflation?
answer
No. Deflation is defined as a negative inflation rate.
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