232 Measuring the Cost of Living
16.
Refer to Scenario 24-6. Using 2011 as the base year, what is the inflation rate in 2011?
Table 24–14
The table below lists the per pound prices of meat and potatoes for the months of January,
February, and March.
Assume that the typical consumer buys 25 pounds of meat and 15 pounds
of potatoes each month, and that January
is the base period.
Month
Price of Meat
Price of Potatoes
January
$3.50
$1.50
February
$3.38
$0.60
March
$4.00
$1.40
17.
Refer to Table 24-14. Calculate the cost of a basket of goods for each month.
18.
Refer to Table 24–14. Calculate the consumer price index for February and March.
19.
Refer to Table 24-14. Calculate the inflation rate for February.
20.
Refer to Table 24–14. Calculate the inflation rate for March.
Table 24–15
The table below lists the prices of chips and salsa for the months of October, November, and
December. Assume
that the typical consumer buys 8 bags of chips and 4 jars of salsa each
month, and that October is the base period.
Month
Price of Chips
Price of Salsa
October
$2.50
$2.50
November
$2.40
$2.55
December
$2.60
$2.75
21.
Refer to Table 24-15. Calculate the inflation rate for November.
22.
Refer to Table 24-15. Calculate the inflation rate for December.
Table 24–16
The table below lists annual consumer price index and inflation rates for a country over the period
2010-2013.
Assume the year 2010 is used as the base year.
Year
Consumer
Price Index
Inflation Rate
2010
100
2011
120
B
2012
A
15%
2013
134
C
23.
Refer to Table 24-16. Calculate the missing value that belongs in space B.
24.
Refer to Table 24-16. Calculate the missing value that belongs in space A.
25.
Refer to Table 24-16. Calculate the missing value that belongs in space C.
26.
What is the difference between the Consumer Price Index and the Producer Price Index?
27.
Explain how the prices of goods and services used in the CPI differ from the prices used in the
PPI.
28.
What measure reflects the overall cost of goods and services produced domestically?
29.
Explain how the prices of goods and services used in the CPI differ from the prices reflected by
GDP deflator.
30.
Consumer spending in what category is the largest component of the CPI?
31.
Explain how the introduction of new goods might bias the calculation of the consumer price index.
32.
If the price of beef rises and consumers buy more chicken and less beef, what kind of bias does
the consumer price
index exhibit?
33.
For a country like the United States, explain why the CPI would increase at a faster rate than the
GDP deflator
during periods of oil and gasoline price increases.
34.
If the CPI was 120 in 1994, was 126 in 1995, and was 134.82 in 1996, what was the inflation rate
in 1995 and in 1996?
35.
Suppose the typical basket for the calculation of the CPI includes one computer. Since computers
have gotten better
over time as a result of technological change, what problem does this create
for calculating the CPI?
36.
The CPI assumes a fixed basket of goods over time. In fact, consumers are likely to change
purchasing behavior
over time by purchasing less of the goods whose prices have risen by
relatively large amounts and by buying more of
the goods whose prices have risen less or maybe
even fallen. What problem does this cause for measuring the cost
of living?
37.
If the real value of an item bought ten years ago is less than it’s nominal value at that time, what
can one infer about the change in the overall price level during this ten year period?
38.
Suppose that the price of one gallon of milk was $0.25 in 1950, that the CPI in 1950 was 25, and
that in 2000 the CPI
was 200.What is the price of a 1950 gallon of milk in 2000 dollars?
39.
Suppose that the price of one ear of corn was $0.05 in 1920, that the CPI in 1920 was 10, and
that in 1990 the CPI
was 180. What is the price of a 1920 ear of corn in 1990 dollars?
40.
Suppose Stan Musial earned $115,000 in 1947. If the CPI was 82 in 1947, and was 246 in 1990,
what is Stan Musial’s 1947 salary in 1990 dollars?
41.
In 1954, Mickey Mantle earned $21,000 playing for the New York Yankees. The CPI in 1954
was 26.9, and the CPI
in 2010 was 218.06. What is Mickey Mantle’s 1954 salary in 2010 dollars?
42.
Michael Jordan’s rookie salary in 1984 was $550,000. The CPI in 1984 was 103.9, while the CPI
in 2010 was 218.1. What is Michael Jordan’s rookie salary in 2010 dollars?
43.
Suppose the Tooth Fairy paid 50 cents for a tooth in 1970. The CPI in 1970 was 38.8, while the
CPI in 2010 was 218.1. What is the value of the Tooth Fairy’s payment in 2010 dollars?
44.
What do real interest rates account for that nominal interest rates do not?
45.
If the real interest rate is 10.3% and the nominal interest rate is 12.6%, what is the inflation rate?
46.
If the real interest rate is 6.8% and the inflation rate is 3.9%, what is the nominal interest rate?
47.
If the nominal interest rate is 8.3% and the inflation rate is 4.4%, what is the real interest rate?
48.
Suppose the nominal interest rate this year is 6.5% and that the economy experiences 2.3%
deflation. What is the
real interest rate?
49.
If the CPI increased from 215 to 218 between the years 2012 and 2013, while the nominal
interest rate increased
from 3.25% to 3.80%, what is the real interest rate in 2013?
50.
If the inflation rate decreased from 3.33% to 2.90% between October and November, while the
nominal interest rate
increased from 4.75% to 4.80%, what is the real interest rate in November?