2.4 Price Indices and Inflation

Assume that an economy produces just two goods, X and Y, as shown in the table above. If year 1 is the base year, the consumer price index for year 2 in this economy is

• 57.1

• 66.7

• 100

• 175

• 250

The table above shows the consumer price index for selected years. On the basis of these data, how much did it cost in 1995 to buy the same goods and services that cost $50 in 1929 ?

• $25

• $100

• $125

• $250

• $300

The consumer price index measures which of the following?

• The change over time of the weighted prices of a particular group of goods and services

• The change over time of the weighted wholesale price index

• The change over time of the difference between the gross domestic product deflator and the wholesale price index

• Inflation corrected for changes in the real gross domestic product

• Inflation corrected for changes in the wholesale price index

The consumer price index (CPI) measures the

• value of current gross domestic product in base-year dollars

• prices of all consumer goods and services produced in the economy

• prices of selected raw materials purchased by firms

• prices of a specific group of goods and services purchased by consumers

• prices of imports, but not exports

When inflation is high the _______________of the dollar decreases

• cost value
• purchasing power
• importance
• validity

If CPI goes from 100 to 300 and your salary goes from $100,000 to $200,000, what happened to your purchasing power?

• Increase
• Decrease
• No change

What is inflation?

• rise in all prices
• rise in most prices
• rise in some prices
• rise in general prices

An index that measures the prices of a market basket of goods that typical consumers purchase.

• Consumer Price Index
• Federal Reserve
• Bank
• Deflation

What the definition of deflation? 

• decrease in the average price of goods and services
• occurs when the price of goods and services rise
• increase in prices
• I don't know

True or False: If you wished to calculate the rate of price inflation for all goods produced in a nation, you would use the Consumer Price Index.

• True

• False