13.4 Measuring Inflation
1) The average price of goods and services in the economy is also known as
A) the price level.
B) the inflation rate.
C) a market basket.
D) the cost of living.
2) If the price level rose in three consecutive years from 100 to 120 to 140, then the annual inflation rate over those years would
A) increase.
B) remain the same.
C) decrease.
D) equal 20%.
3) Which of the following is true about the consumer price index?
A) It accounts for people switching to goods whose prices have fallen.
B) It assumes that consumers purchase the same amount of each product in the market basket each month.
C) It frequently updates the price changes of new products added to the market basket, as these have a tendency to fall.
D) It filters out the part of price increases that occurs because of quality improvements in products.
4) Which of the following price indices comes closest to measuring the cost of living of the typical household?
A) GDP deflator
B) producer price index
C) consumer price index
D) household price index
5) Which of the following would be the best measure of the cost of living?
A) real GDP
B) real GDP per person
C) GDP deflator
D) consumer price index
6) The consumer price index is the
A) cost of a market basket of goods and services typically consumed in the base year.
B) cost of a market basket of goods and services typically consumed in the current period.
C) average of the prices of the goods and services purchased by a typical urban family of four.
D) average of the prices of new final goods and services produced in the economy over a period of time.
Table 13-2
Base Year (2006) 2011
Product
Quantity
Price
Price
Milk
50
$1.20
$1.50
Bread
100
1.00
1.10
7) Refer to Table 13-2. Assume the market basket for the consumer price index has two products — bread and milk — with the following values in 2006 and 2011 for price and quantity: The Consumer Price Index for 2011 equals
A) 118.
B) 116.
C) 86.
D) 85.
Table 13-3
Base Year (2006) 2011
Product
Quantity
Price
Price
Cokes
100
$0.50
$0.75
Hamburgers
200
2.00
2.50
CDs
10
20.00
21.00
8) Refer to Table 13-3. Assume the market basket for the consumer price index has three products — Cokes, hamburgers, and CDs — with the following values in 2006 and 2011 for price and quantity: The Consumer Price Index for 2011 equals
A) 75.
B) 93.
C) 108.
D) 121.
Table 13-4
Base Year (2006) 2011
Product
Quantity
Price
Quantity
Price
Meat
100
$10
120
$12
Potatoes
200
2
180
3
9) Refer to Table 13-4. Assume the market basket for the consumer price index has two products — meat and potatoes — with the following values in 2006 and 2011 for price and quantity: The Consumer Price Index for 2011 equals
A) 125.
B) 129.
C) 135.
D) 141.
10) The percent increase in the CPI from one year to the next is a measure of the
A) GDP deflator.
B) unemployment rate.
C) real interest rate.
D) inflation rate.
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