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Exam 4: Measuring the Cost of Living

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Question 21

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In a simple economy, people consume only 2 goods, food and clothing.The market basket of goods used to compute the CPI consists of 50 units of food and 10 units of clothing. $\begin{array} { | l | c | c | } \hline & \text { Food } & \text { Clothing } \\\hline \text { 2013 price per urit } & \text { R4 } & \text { R10 } \\\hline \text { 2014 priceper urit } & \text { R6 } & \text { R20 } \\\hline\end{array}$ a.What is the percentage increases in the price of food and in the price of clothing? b.What is the percentage increase in the CPI? c.Do these price changes affect all consumers to the same extent? Explain.

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a. The price of food increased by 50 per...

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Question 22

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Which item would receive the least weight in the CPI?

A) Brooms.
B) Cars.
C) Televisions.
D) Car tyres.

E) A) and C)
F) All of the above

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Question 23

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If inflation is 8 per cent and the real interest rate is 3 per cent, then the nominal interest rate must be

An increase in the price of diamonds will have a greater impact on the Consumer Prices Index (CPI) than an equal percentage increase in the price of food because diamonds are so much more expensive.

If you borrow money at a nominal interest rate of 5 per cent and the inflation rate is 10 per cent, what real interest rate will you pay?

If there is an increase in the price of apples, which causes consumers to purchase fewer kilograms of apples and more kilograms of oranges, the CPI will suffer from

If borrowers and lenders agree on a nominal interest rate and inflation turns out to be less than they had expected,

The good that receives the most weight in the CPI is the good that

Which of the following answers would accurately describe the bias in the CPI resulting from the fact that oil prices suddenly increase?

Why will individual shoppers face different inflation rates?

What does the CPI measure?

The CPI differs from the GDP deflator in that the CPI includes

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

The table shows the prices and the quantities consumed in Carnivore Country.The base year is 2013.This means that 2013 is the year the typical basket was determined so the quantities consumed in 2013 are the only quantities needed to calculate the CPI in each year. Table $\begin{array} { | c | c | c | c | c | } \hline \text { Year } & \begin{array} { c } \text { Price of } \\\text { beef }\end{array} & \begin{array} { c } \text { Quartity of } \\\text { beef }\end{array} & \begin{array} { c } \text { Price of } \\\text { pork }\end{array} & \begin{array} { c } \text { Quartity of } \\\text { pork }\end{array} \\\hline 2013 & \text { R38 } & 100 & \text { R19 } & 100 \\\hline 2014 & \text { R47.50 } & 90 & \text { R.7.10 } & 120 \\\hline 2015 & \text { R52.25 } & 105 & \text { R19 } & 130 \\\hline\end{array}$ -Refer to the table above.What is the value of the basket in the base year?

If the Consumer Prices Index (CPI) rises at 5 per cent per year, then every individual in the country needs exactly a 5 per cent increase in their income for their standard of living to remain constant.

The second step in computing the CPI is to find the prices of each of the goods and services in the ________ for each point in time.

Which item would receive the most weight in the consumer price index?

If the nominal interest rate is 12 per cent and the rate of inflation is 7 per cent, then the real rate of interest is 5 per cent.

When the inflation rate ends up being lower than expected,

It is impossible for real interest rates to be negative.