Question : 11) Assume the average annual CPI values for 2010 and : 1266899

11) Assume the average annual CPI values for 2010 and 2011 were 207.3 and 215.3, respectively. What was the percent increase in the CPI between these two years?

A) 0.96

B) 1.04

C) 3.86

D) 8.0

12) A consumer price index of 160 in 1996 with a base year of 1982-1984 would mean that the cost of the market basket

A) equaled $160 in 1996.

B) equaled $160 in 1983.

C) rose 160% from the cost of the market basket in the base year.

D) rose 60% from the cost of the market basket in the base year.

Table 13-5

Year

CPI

2010

207

2011

215

13) Refer to Table 13-5.  Consider the following values of the consumer price index for 2010 and 2011. The inflation rate for 2011 was equal to

A) 215 percent.

B) 21.5 percent.

C) 8.0 percent.

D) 3.9 percent.

Table 13-6

Year

CPI

1996

157

1997

161

1998

163

14) Refer to Table 13-6. Consider the following values of the consumer price index for 1996, 1997, and 1998: The inflation rate for 1997 was equal to

A) 1.2 percent.

B) 2.0 percent.

C) 2.5 percent.

D) 4.0 percent.

15) Your grandfather tells you that he earned $7,000/year in his first job in 1961.  You earn $35,000/year in your first job in 2011.  You know that average prices have risen steadily since 1961.  You earn

A) 5 times as much as your grandfather in terms of real income.

B) more than 5 times as much as your grandfather in terms of real income.

C) less than 5 times as much as your grandfather in terms of real income.

D) less than 5 times as much as your grandfather in terms of nominal income.

16) If we want to use a measure of inflation that foreshadows price changes before they affect prices at the retail level, we would base our measure of inflation on

A) the producer price index.

B) the consumer price index.

C) the GDP deflator.

D) the household price index.

17) The substitution bias in the consumer price index refers to the idea that consumers ________ the quantity of products they buy in response to price, and the CPI does not reflect this and ________ the cost of the market basket.

A) change; over-estimates

B) change; under-estimates

C) do not change; over-estimates

D) do not change; under-estimates

18) The increase in quality bias in the consumer price index refers to the idea that price increases in the CPI reflect pure inflation, but ________ quality increases. This causes the CPI to ________ the cost of the market basket.

A) also; understate

B) also; overstate

C) not; understate

D) not; overstate

19) The “new product bias” in the consumer price index refers to the idea that

A) consumers switch to new goods when the prices of old goods increase, and the CPI overestimates the cost to consumers.

B) consumers switch to old goods when the prices of new goods increase, and the CPI underestimates the cost to consumers.

C) consumers prefer new goods, even if they are worse in quality than old goods, and this causes the CPI to underestimate the cost to consumers.

D) new products’ prices often decrease after their initial introduction, and the CPI is adjusted infrequently and overestimates the cost to consumers.

20) The consumer price index implicitly assumes that the demand curve for each good and service in the representative market basket is

A) positively sloped.

B) negatively sloped.

C) vertical.

D) horizontal.