Which price index measures the average price of things purchased by the typical family?
GDP deflator
producer price index
consumer price index
minimum wage
The good that receives the most weight in the CPI is the good that
consumers buy most frequently.
has experienced the greatest price increase.
has the highest price
consumers spend the largest fraction of their income on
Which of the following is a reason why the Consumer Price Index (CPI) is not calculated as a simple average of all prices?
It would be difficult to compute a price index using a simple average of all prices
Some goods never experience price changes and the CPI would not be variable enough if computed as a simple average.
Goods differ in their importance in the average consumer's budget.
a. Some goods experience large price changes and the CPI would be too variable if computed by a simple average.
Substitution bias
is one factor that causes the CPI to underestimate the inflation rate
is caused by the poor quality of many imported products.
is one of the primary causes of inflation.
involves consumer behaviour that helps explain why the CPI overestimates the inflation rate.
Improvements in the quality of consumer goods and services over time
cause the CPI to overstate actual inflation.
cause the CPI to understate actual inflation.
are accounted for in the CPI.
are insignificant and thus would not affect the CPI even if accounted for
Factors that cause the CPI to exaggerate the inflation rate do NOT include
the tendency of consumers to substitute relatively cheaper goods for those that have become relatively more expensive.
political pressure from unions and retirees on the providers of a country’s official statistics to overstate the inflation rate.
the introduction of new technologies that make it easier to obtain the same standard of living.
improvements over time on the quality of products.
The CPI differs from the GDP deflator in that the CPI
uses base year quantities of goods to weight prices.
uses current year quantities of goods to weight prices
is not a weighted price index
always indicates a higher rate of inflation than the GDP deflator.
If the consumer price index has a value of 115 today and the base year is 2000, then consumer prices have
increased by 15 per cent since 2000
increased by 1.5 per cent since 2000
more than doubled since 2000.
declined 15 per cent since 2000
Use this table to find the real wage in 2002. Year Nominal Wage (€/Hour) CPI 2001 €12.50 155.0 2002 €13.00 160.0
€8.06
€8.13
€13.00
€20.80
The real interest rate on a loan
is the amount that the consumer agrees to pay
is always the same as the nominal rate
is the percentage increase in the lender's purchasing power that results from making the loan.
decreases as the inflation rate increases
When the inflation rate ends up being lower than expected,
everyone benefits because money is cheaper.
everyone benefits because prices do not increase.
lenders of fixed rate mortgages generally benefit because they will make higher profits than they had calculated.
borrowers with fixed rate loans will benefit because their purchasing power will not decline as much.
In general, a higher than anticipated inflation rate
helps everyone
hurts everyone.
helps creditors and harms debtors.
helps debtors and harms creditors.
