econ chap 11

Inflation can be measured by all of the following except the _______.

• a. GDP deflator

  
  

• b. consumer price index

• c. producer price index

  
  

• d. finished goods price index

• e. all of the answer choices are used to measure inflation

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

• a. Housing

• 
  b. Transportation

  
  

• c. Medical care

  
  

• d. Recreation

• 
  e. All of the answer choices would produce the same impact.

Answer explanation

A 10% increase in housing prices influences the CPI the most because housing has the largest weight in the CPI basket.

In 1989, the CPI was 124.0. In 1990, it was 130.7. What was the rate of inflation over this period?

• a. 5.1 percent

• b. 5.4 percent

• c. 6.7 percent

• d. 30.7 percent

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

• a. An increase in the price of domestically produced fighter planes sold exclusively to Israel

• b. An increase in the price of John Deere tractors

• c. An increase in the price of BMW automobiles produced in Germany and sold in the United States

• 
  d. An increase in the price of military aircraft purchased by the U.S. government

• e. An increase in the price of Ford automobiles

Answer explanation

consumer purchase and not gdp deflator

The "basket" on which the CPI is based is composed of _______.

• a. raw materials purchased by firms

  
  

• b. total current production of final goods and services

  
  

• 
  c. products purchased by the typical consumer

  
  

• d. household production

  
  

If there is an increase in the price of bananas that causes consumers to purchase fewer pounds of bananas and more pounds of grapes, the CPI will suffer from _______.

• a. substitution bias

• 
  b. bias due to the introduction of new goods

  
  

• c. bias due to unmeasured quality change

  
  

• d. base-year bias

  
  

Use the following table to answer the question. The table shows the prices and the quantities consumed in Vegetarian Country. Suppose the base year is 2020. Also, suppose that 2020 is the year the typical consumption basket was determined, so the quantities consumed in 2020 are the only quantities needed to calculate the CPI in each year.

What is the value of the basket in the base year?

• 
  a. $300

• b. $333

  
  

• c. $418.75

• d. $459.25

  
  

Use the following table to answer the question. The table shows the prices and the quantities consumed in Vegetarian Country. Suppose the base year is 2020. Also, suppose that 2020 is the year the typical consumption basket was determined, so the quantities consumed in 2020 are the only quantities needed to calculate the CPI in each year.

What are the values of the CPI in 2020, 2021, and 2022, respectively?

• a. 2020: 100; 2021: 111; 2022: 139.6

  
  

• b. 2020: 100; 2021: 109.2; 2022: 116

• 
  c. 2020: 100; 2021: 113.3; 2022: 125

  
  

• d. 2020: 83.5; 2021: 94.2; 2022: 100

  
  

Use the following table to answer the question. The table shows the prices and the quantities consumed in Vegetarian Country. Suppose the base year is 2020. Also, suppose that 2020 is the year the typical consumption basket was determined, so the quantities consumed in 2020 are the only quantities needed to calculate the CPI in each year.

What is the inflation rate for 2021?

• a. 0 percent

• 
  b. 9.2 percent

• c. 11 percent

  
  

• d. 13.3 percent

  
  

Use the following table to answer the question. The table shows the prices and the quantities consumed in Vegetarian Country. Suppose the base year is 2020. Also, suppose that 2020 is the year the typical consumption basket was determined, so the quantities consumed in 2020 are the only quantities needed to calculate the CPI in each year.

What is the inflation rate for 2022?

• a. 0 percent

  
  

• b. 10.3 percent

  
  

• c. 11 percent

  
  

• d. 13.3 percent