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Cost of Living practice problem.pdf

4 Pages
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Department
Economics
Course Code
ECON 1BB3
Professor
Bridget O' Shaughnessy

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Description
Chapter 24 Measuring the Cost of Living Practice Test Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. ____ 1. What is the basket of goods used to construct the CPI? a. A random sample of all goods and services produced in the economy. b. The goods and services determined by the American Medical Association to be most healthy. c. The goods and services typically bought by consumers, according to Bureau of Labor Statistics surveys. d. the least expensive goods and services in each major category of consumer expenditures. ____ 2. When constructing the CPI, the Bureau of Labor Statistics tries to include a. all goods and services produced in the economy. b. all goods and services purchased in the economy. c. all goods and services that typical consumers buy. d. The Bureau of Labor Statistics does not construct the CPI. ____ 3. The steps involved in calculating the consumer price index include, in order: a. fix the basket, find the prices, compute the basket's cost, choose a base year and compute the index, compute the inflation rate b. choose a base year, find the prices, fix the basket, compute the basket's cost, compute the index and the inflation rate c. fix the basket, find the prices, compute the inflation rate, choose a base year and compute the index d. choose a base year, fix the basket, compute the inflation rate, compute the basket's cost and compute the index ____ 4. The price index in the first year is 125, in the second year is 150, and in the third year is 200. What is the inflation rate between the first and second year and between the second and third year? a. 20 percent between the first and second year, 33 percent between the second and third year b. 50 percent between the first and second year, 100 percent between the second and third year c. 25 percent between the first and second year, 75 percent between the second and third year d. 25 percent between the first and second year, 50 percent between the second and third year ____ 5. Which change in the price index shows the greatest rate of inflation: 80 to 96, 100 to 125, or 150 to 180? a. 80 to 96 b. 100 to 125 c. 150 to 180 d. All changes show the same rate of inflation. ____ 6. When prices change by differing amounts, consumers substitute _____ the goods that have become relatively _____ expensive. a. toward, more b. away from, more c. toward, less d. Both b and c are correct. Table 23-1 The following questions are based on the information below: Wally Plowman earns $3,000 from his farm operation in 1945. In 2005, Wally's grandson Vern earns $30,000 from the same farm. The price index for 1945 is 10, and the price index for 2005 is 150. ____ 7. Refer to Table 23-1. What is Wally's income in 2005 dollars? a. $3,000 b. $30,000 c. $45,000 d. $130,000 Table 23-2 The following questions are based on the information below: Ingrid takes a university teaching job as an assistant professor in 1972 at a salary of $10,000. By 2002, she has been promoted to full professor, with a salary of $50,000. The price index in 1972 is 50, and the price index in 2002 is 125. ____ 8. Refer to Table 23-2. What is Ingrid's 1972 salary in 2002 dollars? a. $125,000 b. $50,000 c. $25,000 d. $10,000 Table 23-3 The following questions are based on the information below: Marie is offered a job in Boston at a salary of $60,000 per year. She is also offered a job in Austin at
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