Macro 2

When the consumer price index rises, the typical family

• has to spend more dollars to maintain the same standard of living.

• can spend fewer dollars to maintain the same standard of living.

• finds that its standard of living is not affected.

• can offset the effects of rising prices by saving more.

The consumer price index is used to

• track changes in the level of wholesale prices in the economy.

• monitor changes in the cost of living.

• monitor changes in the level of real GDP

• track changes in the stock market

The term inflation is used to describe a situation in which

• the overall level of prices in the economy is increasing

• incomes in the economy are increasing

• stock-market prices are rising.

• the economy is growing rapidly

The economy's inflation rate is the

• price level in the current period.

• change in the price level from the previous period.

• change in the gross domestic product from the previous period.

• percentage change in the price level from the previous period.

The CPI is a measure of the overall cost of

• inputs purchased by a typical producer.

• goods and services bought by a typical consumer.

• goods and services produced in the economy.

• stocks on the New York Stock Exchange.

The CPI is calculated

• monthly by the Department of Commerce.

• monthly by the Bureau of Labor Statistics.

• quarterly by the Department of Commerce.

• quarterly by the Bureau of Labor Statistics.

In the CPI, goods and services are weighted according to

• how long a market has existed for each good or service.

• the extent to which each good or service is regarded by the government as a necessity.

• how much consumers buy of each good or service.

• the number of firms that produce and sell each good or service.

The steps involved in calculating the consumer price index, in order, are as follows:

• Choose a base year, fix the basket, compute the inflation rate, compute the basket's cost, and compute the index.

• Choose a base year, find the prices, fix the basket, compute the basket's cost, and compute the index.

• Fix the basket, find the prices, compute the basket's cost, choose a base year and compute the index.

• Fix the basket, find the prices, compute the inflation rate, choose a base year and compute the index.

For any given year, the CPI is the price of the basket of goods and services in the

• given year divided by the price of the basket in the base year, then multiplied by 100.

• given year divided by the price of the basket in the previous year, then multiplied by 100.

• base year divided by the price of the basket in the given year, then multiplied by 100.

• previous year divided by the price of the basket in the given year, then multiplied by 100.

In calculating the consumer price index, a fixed basket of goods is used. The quantities of the goods in the fixed basket are determined by

• surveying consumers.

• surveying sellers of those goods.

• working backward from the rate of inflation to arrive at imputed values for those quantities.

• arbitrary choices made by federal government employees.