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Measuring the Cost of Living 141
23. Refer to Scenario 24-1. In 1975 dollars, a 1975 tennis ball cost $0.10 and a 2005 tennis ball cost
a. $0.27, so tennis balls were cheaper in 1975.
b. $0.27, so tennis balls were cheaper in 2005.
c. $3.66, so tennis balls were cheaper in 1975.
d. $3.66, so tennis balls were cheaper in 2005.
Scenario 24-2
The price tag on a golf ball in 1975 read $0.20, and the price tag on a golf ball in 2005 read $2.00.
The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3.
24. Refer to Scenario 24-2. The price of a 1975 golf ball in 2005 dollars is
a. $0.05.
b. $0.53.
c. $0.73.
d. $2.00.
142 Measuring the Cost of Living
25. Refer to Scenario 24-2. In 1975 dollars, a 1975 golf ball cost $0.20 and a 2005 golf ball cost
a. $0.55, so golf balls were cheaper in 1975.
b. $0.55, so golf balls were cheaper in 2005.
c. $7.32, so golf balls were cheaper in 1975.
d. $7.32, so golf balls were cheaper in 2005.
26. Henri earned a salary of $50,000 in 2001 and $60,000 in 2012. The consumer price index was 177
in 2001 and 225 in 2012. Henri's 2001 salary in 2012 dollars is
a. $39,333.33.
b. $74,000.00.
c. $89,333.33.
d. $63,559.32.
Measuring the Cost of Living 143
27. Henri earned a salary of $50,000 in 2001 and $70,000 in 2006. The consumer price index was 177
in 2001 and 265.5 in 2006. Henri's 2006 salary in 2001 dollars is
a. $35,000.00.
b. $46,666.67.
c. $61,950.00
d. $105,000.00.
28. Janelle earned a salary of $62,000 in 2004 and $80,000 in 2014. The consumer price index was
126 in 2004 and 170 in 2014. Janelle’s 2004 salary in 2014 dollars is
a. $45,953.
b. $89,280.
c. $107,953.
d. $83,651.
144 Measuring the Cost of Living
29. Janelle earned a salary of $40,000 in 1996 and $65,000 in 2006. The consumer price index was
160 in 1996 and 266 in 2006. Janelle’s 2006 salary in 1996 dollars is
a. $39,097.74.
b. $43,062.50.
c. $68,900.00.
d. $108,062.50.
30. Dewey earned a salary of $75,000 in 2001 and $95,000 in 2006. The consumer price index was
177 in 2001 and 266 in 2006. Dewey’s 2001 salary in 2006 dollars is
a. $37,711.86.
b. $49,906.02.
c. $66,750.00.
d. $112,711.86.
Measuring the Cost of Living 145
31. Dewey earned a salary of $75,000 in 2001 and $95,000 in 2006. The consumer price index was
177 in 2001 and 266 in 2006. Dewey’s 2006 salary in 2001 dollars is
a. $47,768.36.
b. $63,214.29.
c. $84,550.00.
d. $142,768.36.
32. Iggie took a university teaching job as an assistant professor in 1980 at a salary of $15,000. By
2011, she had been promoted to full professor, with a salary of $70,000. If the price index was 82
in 1980 and 225 in 2011, then what is Iggie's 1980 salary in 2011 dollars?
a. $5,400
b. $20,466
c. $26,158
d. $41,159
146 Measuring the Cost of Living
33. Iggie took a university teaching job as an assistant professor in 1980 at a salary of $15,000. By
2011, she had been promoted to full professor, with a salary of $70,000. If the price index was 82
in 1980 and 225 in 2011, then what is Iggie's 2011 salary in 1980 dollars?
a. $25,511
b. $52,073
c. $40,140
d. $41,159
34. Arlo is offered a job in Des Moines, where the CPI is 80, and a job in New York, where the CPI
is 125. Arlo's job offer in Des Moines is for $42,000. How much does the New York job have to
pay in order for the two salaries to represent the same purchasing power?
a. $42,000
b. $65,625
c. $68,880
d. $189,000
Measuring the Cost of Living 147
35. Arlo is offered a job in Des Moines, where the CPI is 60, and a job in New York, where the CPI
is 125. Arlo's job offer in Des Moines is for $48,000. How much does the New York job have to
pay in order for the two salaries to represent the same purchasing power?
a. $23,040
b. $52,000
c. $79,200
d. $100,000
36. Ruben earned a salary of $60,000 in 2001 and $80,000 in 2006. The consumer price index was
177 in 2001 and 221.25 in 2006. Ruben's 2001 salary in 2006 dollars is
a. $75,000; thus, Ruben's purchasing power increased between 2001 and 2006.
b. $75,000; thus, Ruben's purchasing power decreased between 2001 and 2006.
c. $85,000; thus, Ruben's purchasing power increased between 2001 and 2006.
d. $85,000; thus, Ruben's purchasing power decreased between 2001 and 2006.
148 Measuring the Cost of Living
37. Ruben earned a salary of $60,000 in 2001 and $80,000 in 2006. The consumer price index was
177 in 2001 and 221.25 in 2006. Ruben's 2006 salary in 2001 dollars is
a. $20,000; thus, Ruben's purchasing power increased between 2001 and 2006.
b. $20,000; thus, Ruben's purchasing power decreased between 2001 and 2006.
c. $64,000; thus, Ruben's purchasing power increased between 2001 and 2006.
d. $64,000; thus, Ruben's purchasing power decreased between 2001 and 2006.
38. In 1970, Professor Plum 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
Plum's salary was highest in
a. 1980 and lowest in 1970.
b. 1980 and lowest in 1990.
c. 1990 and lowest in 1970.
d. 1990 and lowest in 1980.
Measuring the Cost of Living 149
39. In 1970, Professor Plum earned $12,000; in 1980, he earned $24,000; and in 1990, he earned
$36,000. If the CPI was 40 in 1970, 70 in 1980, and 130 in 1990, then in real terms, Professor
Plum's salary was highest in
a. 1970 and lowest in 1980.
b. 1970 and lowest in 1990.
c. 1980 and lowest in 1970.
d. 1980 and lowest in 1990.
40. Harry spent $39,000 in 2009 and $42,000 in 2014 on goods and services. The consumer price
index was 220 for 2009 and 231 for 2014. Harry’s 2009 spending in 2014 dollars is about
a. $43,290.
b. $37,143.
c. $40,950.
d. $40,857.
150 Measuring the Cost of Living
41. Harry spent $39,000 in 2009 and $42,000 in 2014 on goods and services. The consumer price
index was 220 for 2009 and 231 for 2014. Harry’s 2014 spending in 2009 dollars is about
a. $40,000.
b. $44,100.
c. $37,838.
d. $40,091.
Scenario 24-3
Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway,
is an accountant today and he earned $210,000 in 2013. The price index was 17.6 in 1944 and
218.4 in 2013.
42. Refer to Scenario 24-3. Sue Holloway’s 1944 income in 2013 dollars is
a. $23,033.
b. $136,909.
c. $148,909.
d. $240,960.
Measuring the Cost of Living 151
43. Refer to Scenario 24-3. Josh Holloway’s 2013 income in 1944 dollars is
a. $11,528.
b. $16,923.
c. $149,009.
d. $26,059.
44. Refer to Scenario 24-3. In real terms, Josh Holloway’s income amounts to about what
percentage of Sue Holloway’s income?
a. 71 percent
b. 141 percent
c. 165 percent
d. 198 percent
152 Measuring the Cost of Living
45. Refer to Scenario 24-3. In real terms, Sue Holloway’s income amounts to about what
percentage of Josh Holloway’s income?
a. 11.0 percent
b. 65.2 percent
c. 70.9 percent
d. 114.7 percent
Scenario 24-4
Quinn has job offers in Wrexington and across the country in Charlieville. The Wrexington job
would pay a salary of $50,000 per year, and the Charlieville job would pay a salary of $40,000 per
year. The CPI in Wrexington is 150, and the CPI in Charlieville is 90.
46. Refer to Scenario 24-4. The Wrexington salary in Charlieville dollars is
a. $30,000.00.
b. $33,333.33.
c. $45,000.00
d. $83,333.33.
Measuring the Cost of Living 153
47. Refer to Scenario 24-4. The Charlieville salary in Wrexington dollars is
a. $24,000.00.
b. $26,666.67.
c. $60,000.00
d. $66,666.67.
48. Refer to Scenario 24-4. If Quinn only cares about maximizing her purchasing power, then she
should
a. take the Charlieville job.
b. take the Wrexington job.
c. take either job because they both have the same purchasing power.
d. The answer cannot be determined from the information given because a salary is not the same
as purchasing power.
154 Measuring the Cost of Living
Table 24-11. Megan’s salary for three consecutive years, along with other values, are presented
in the table below.
Year
2011
2012
2013
Salary
$65,000
$72,000
$76,000
Consumer Price Index
226
230
235
Real Interest Rate
2.5 percent
2.7 percent
1.8 percent
49. Refer to Table 24-11. Megan’s 2011 salary in 2013 dollars is
a. $67,600.
b. $67,489.
c. $67,588.
d. $70,850.
50. Refer to Table 24-11. Suppose the consumer price index for 2013 is not necessarily 235. Then
Megan’s 2013 salary represents more purchasing power than her 2011 salary as long as the
consumer price index for 2013 is
a. greater than 264.25.
b. less than 264.25.
c. greater than 258.71.
d. less than 258.71.
Measuring the Cost of Living 155
51. Refer to Table 24-11. The nominal interest rate for 2012 is
a. 0.93 percent.
b. 6.70 percent.
c. 4.44 percent.
d. 4.47 percent.
52. Refer to Table 24-11. Suppose the consumer price index for 2013 is not necessarily 235. If the
nominal interest rate for 2013 is 7.3 percent , then the consumer price index for 2013 is, in fact,
a. 239.1.
b. 235.5.
c. 242.7.
d. 250.9.
156 Measuring the Cost of Living
Table 24-12. Will’s expenditures on food for three consecutive years, along with other values,
are presented in the table below.
Year
2009
2010
2011
Expenditures on Food
$5,000
$5,800
$6,600
Consumer Price Index
160.0
168.0
x
53. Refer to Table 24-12. Will’s 2009 food expenditures in 2010 dollars amount to
a. $5,500.
b. $5,250.
c. $4,975.
d. $3,625.
54. Refer to Table 24-12. To the nearest dollar, Will’s 2010 food expenditures in 2009 dollars
amount to
a. $5,236.
b. $5,431.
c. $5,524.
d. $5,608.
Measuring the Cost of Living 157
55. Refer to Table 24-12. Suppose Will’s 2010 food expenditures in 2011 dollars amount to $6,235.
Then x, the consumer price index for 2011, has a value of
a. 171.2.
b. 175.0.
c. 177.5.
d. 180.6.
56. Refer to Table 24-12. Suppose Will’s 2009 food expenditures in 2011 dollars amount to $5,750.
Then x, the consumer price index for 2011, has a value of
a. 184.0.
b. 185.8.
c. 187.5.
d. 189.4.
158 Measuring the Cost of Living
57. Refer to Table 24-12. Suppose the consumer price index is 15.5 percent higher in 2011 than in
2009. Then Will’s food expenditures for 2010 in 2011 dollars amount to
a. $6,352.
b. $6,380.
c. $6,426.
d. $6,651.
58. Refer to Table 24-12. Suppose Will’s 2009 food expenditures in 2011 dollars amount to $5,670.
Then
a. the consumer price index was 11.8 percent higher in 2011 than it was in 2009.
b. the inflation rate in 2011 was 8 percent.
c. Will’s 2011 food expenditures in 2009 dollars amount to $5,740.
d. Will’s 2010 food expenditures in 2011 dollars amount to $6,210.
Measuring the Cost of Living 159
59. Refer to Table 24-12. Suppose Will’s 2009 food expenditures in 2011 dollars amounted to
$5,670. Suppose also that the real interest rate in 2011 was 3 percent. Then, in 2011,
a. the inflation rate was 8 percent and the nominal interest rate was 5 percent.
b. the inflation rate was 9 percent and the nominal interest rate was 6 percent.
c. the inflation rate was 8 percent and the nominal interest rate was 11 percent.
d. the inflation rate was 9 percent and the nominal interest rate was 12 percent.
60. Refer to Table 24-12. If the nominal interest rate was 8 percent in 2010, then
a. the real interest rate in 2010 was 3 percent.
b. the real interest rate in 2010 was 4 percent.
c. Will’s 2009 food expenditures in 2010 dollars amount to $5,800.
d. Will’s 2009 food expenditures in 2011 dollars amount to $6,200.
160 Measuring the Cost of Living
61. Refer to Table 24-12. Suppose Will’s 2009 food expenditures in 2011 dollars amount to $5,750.
Then the inflation rate for 2011 is about
a. 9.08 percent.
b. 9.52 percent.
c. 10.24 percent.
d. 10.78 percent.
Table 24-13. Olivia’s expenditures on clothing for three consecutive years, along with some
values for the CPI, are presented in the table below.
Year
2009
2010
2011
Expenditures on Clothing
$1,200
$1,600
$1,800
Consumer Price Index
X
180
200
62. Refer to Table 24-13. To the nearest dollar, how much is Olivia’s 2010 clothing expenditure in
2011 dollars?
a. $1,683
b. $1,778
c. $1,800
d. $3,600
