Inflation Quiz

If the price index was 90 in Year 1, 100 in Year 2, and 95 in Year 3, then the economy experienced:

• 10 percent inflation between Years 1 and 2, and 5 percent inflation between Years 2 and 3.

• 10 percent inflation between Years 1 and 2, and 5 percent deflation between Years 2 and 3.

• 11.1 percent inflation between Years 1 and 2, and 5 percent inflation between Years 2 and 3.

• 11.1 percent inflation between Years 1 and 2, and 5 percent deflation between Years 2 and 3.

Suppose the price of a quart of milk rises from $1.00 to $1.20 and the price of a T-shirt rises from $8.00 to $9.60. If the CPI rises from 150 to 195, then people likely will buy:

• more milk and more T-shirts.

• more milk and fewer T-shirts.

• less milk and more T-shirts.

• less milk and fewer T-shirts.

Adam's expenditures on food for three consecutive years, along with other values, are presented in the following table. To the nearest dollar, Adam's Year 1 food expenditures in Year 2 dollars amount to:

• $8,604.

• $9,623.

• $9,101.

• $139.

The CPI does not reflect the increase in the value of the dollar that arises from the introduction of new goods.

• True

• False

Consumer spending in what category is the largest component of the CPI?

• Housing

• Transportation

• Food and Beverages

• Healthcare

Which of the following is the correct formula for calculating the consumer price index?

• (CPI in Year 1 – CPI in Year 2)/CPI in Year 2] × 100

• [(price of basket of goods and services in current year/price of basket in base year)]× 100

• [(price of basket of goods and services in current year – price of basket in base year)/price of basket in base year] × 100

• [(price of basket of goods and services in base year/price of basket in current year)] × 100

Which of the following is correct?

• The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers.

• The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers.

• The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers.

• The GDP deflator is more commonly used as a gauge of inflation than the CPI is.

The producer price index measures the cost of a basket of goods and services

• typically produced in the economy.

• produced for a typical consumer.

• sold by producers.

• bought by firms.

Suppose that the CPI in 1990 was 150, that the inflation rate in 1991 was 6%, and that the inflation rate in 1992 was 4%. What was the CPI in 1991 and 1992?

• CPI in 1991: 159, CPI in 1992: 165.36

• CPI in 1991: 156, CPI in 1992: 162.24

• CPI in 1991: 150, CPI in 1992: 156

• CPI in 1991: 160, CPI in 1992: 166.4

The following table pertains to Jouetpays, an economy in which the typical consumer's basket consists of 13 pounds of prunes and 6 dolls. If the base year is Year 1, then the CPI in Year 2 was

• 122.9

• 99.5

• 81.8

• 81.4