Topic 3 - Measuring the Cost of Living

The inflation rate is defined as the

• price level

• change in the price level

• price level divided by the price level in the previous period

• percentage change in the price level from the previous period

The “basket” on which the CPI is based is composed of

• total current production

• raw materials purchased by firms

• consumer production

• products purchased by the typical consumer

• none of the above.
  

The CPI of Vietnam will be most influenced by a 10% increase in the price of which of the following consumption categories?

• housing
  

• transportation

• medical care

• food and beverages

• all of the above would produce the same impact

Which of the following would likely cause the CPI to rise more than the GDP deflator in Vietnam?

• an increase in the price of Thong Nhat bicycle

• an increase in the price of tanks purchased by the military

• an increase in the price of Piaggio LX produced in Italy and sold in Vietnam

• an increase in price of the industrial tractors produced domestically

The CPI is a measure of the overall cost of

• stocks on the New York Stock Exchange

• goods and services produced in the economy

• goods and services bought by a typical consumer

• inputs purchased by a typical producer

When the consumer price index rises, the typical family

• can offset the effects of rising prices by saving more

• finds that its standard of living is not affected

• can spend fewer money to maintain the same standard of living

• has to spend more money to maintain the same standard of living

If this year the CPI is 125 and last year it was 120, then we know that

• all goods have become more expensive

• the price level has increased

• All of the above are correct

• the inflation rate has increased

The price index in the first year is 100, in the second year is 90, and in the third year is 80. What is the deflation rate between the first and second year, and between the second and third year?

• 11 percent between the first and second year, 12 percent between the second and third year

• 10 percent between the first and second year, 11 percent between the second and third year

• 11 percent between the first and second year, 11 percent between the second and third year

• 10 percent between the first and second year, 12 percent between the second and third year

The consumer price index is

• not a perfect measure of the cost of living

• not used as a measure of the cost of living

• a perfect measure of the cost of living

• not very useful as a measure of the cost of living

Laura buys word processing software in 2011 for $50. Laura’s twin brother Laurence buys an upgrade of the same software in 2013 for $50. What problem in the construction of the CPI does this situation best represent?

• income bias

• substitution bias

• unmeasured quality change

• introduction of new goods