ECN202-Topic2: Activity 2-1

What is the CPI in 2011?

(a)  

What is the inflation rate from 2011–2012?

(a)  

The country of Ambrosia calculates inflation using a consumer price index (CPI). Between 2016 and 2017 the CPI increased from 200 to 220. Inflation rate is:

• a. -10%

• b. 110%

• c. 10%

• d. 20%

Which of the following best describes what is necessary for consumers to maintain the same standard of living over time if there is inflation?

• a. Nominal incomes are the same over time

• b. Consumer incomes must increase at a faster rate than the official rate of inflation

• c. Government spending must increase at the same rate as the rate of inflation

• d. Consumer incomes must increase at least the same rate as the official rate of inflation

Calculate the cost of the basket in 2014 and 2015

Use this format to write your answer: $---- and $---

(a)  

Using 2014 as the base year, calculate the CPI for 2014 and 2015.

Use this format to write your answer: --- and---

(a)  

Calculate the Inflation rate in 2015

(a)  

If the CPI is 93 in 2014 and 97 in 2015, calculate the rate of inflation from 2014 to 2015.

• a. 4%

• b. 4.3%

• c. 4.12%

• d. 5.2%

Which of the following situations is an example of inflation occurring in a two-good economy?

• a. The price of apples is about 2% higher than it was five years ago, while the price of pears fell by about 2% over the same time period

• b. The price of apples and the price of pears both increased by about 2% in the last five years.

• c. The price of apples and the price of pears have remained the same over the past 5 years, but wages for factory workers have increased since then.

• d. The price of apples and the price of pears both decreased about 5% in the past 5 years.

Which of the following is a valid criticism of the consumer price index (CPI)?

• a. The CPI understates the burden of inflation on households because households can substitute cheaper goods for more expensive goods when prices increase.

• b. The CPI overstates the burden of inflation on households because households can substitute cheaper goods instead of more expensive goods when prices increase.

• c. The CPI overstates the actual burden of inflation because people look around for cheaper goods, which is costly to do when prices increase.

• d. The CPI understates the actual burden of inflation because the price changes are due to quality improvements.