Q: Suppose the cost of a CPI basket in the base year is $$100, and in the current year it is 120. $$What is the CPI for the current year?

$$ \frac{120}{100} \times 100 = 120 $$

Q: If the CPI in 2018 is 105.7 and in 2017 is 100.0, what is the inflation rate from 2017 to 2018?

$$ \frac{105.7 - 100.0}{100.0} \times 100 = 5.7\% $$

Q: If the CPI basket in a simple economy consists of 10 oranges and 5 haircuts, and the cost in the base period is $$50 while the current period is 70$$, what is the percentage increase in the price level?

$$ \frac{70 - 50}{50} \times 100 = 40\% $$

Q: If the CPI in 2019 is 114.3 and in 2018 is 105.7, what is the inflation rate from 2018 to 2019?

$$ \frac{114.3 - 105.7}{105.7} \times 100 = 8.1\% $$

Question 1

Which of the following best describes the aggregate price level in an economy?

Accepted Answer

The average level of prices for a number of different goods and services.

Question 2

Suppose the cost of a CPI basket in the base year is $$100, and in the current year it is 120. $$What is the CPI for the current year?

Accepted Answer

$$ \frac{120}{100} 	imes 100 = 120 $$

Question 3

Which price index uses the quantities of the base period as the underlying basket?

Accepted Answer

Laspeyres price index

Question 4

If the CPI in 2018 is 105.7 and in 2017 is 100.0, what is the inflation rate from 2017 to 2018?

Accepted Answer

$$ \frac{105.7 - 100.0}{100.0} 	imes 100 = 5.7\% $$

Question 5

Which of the following is NOT a bias that causes the CPI to overstate inflation?

Accepted Answer

Interest rate bias

Question 6

A persistently rising price level is called:

Accepted Answer

Inflation

Question 7

Which of the following best explains why unpredictable inflation is problematic?

Accepted Answer

It redistributes income and wealth, lowers real GDP and employment, and diverts resources from production.

Question 8

Suppose you earn $200/week and the CPI is 100. What is your real wage in terms of consumer baskets?

Accepted Answer

$$ \frac{200}{100} = 2 $$ consumer baskets

Question 9

Which price index is used by the Federal Reserve as the main price level indicator for monetary policy?

Accepted Answer

Personal Consumption Expenditure (PCE) deflator (core measure)

Question 10

If the CPI basket in a simple economy consists of 10 oranges and 5 haircuts, and the cost in the base period is $$50 while the current period is 70$$, what is the percentage increase in the price level?

Accepted Answer

$$ \frac{70 - 50}{50} 	imes 100 = 40\% $$

Question 11

Which of the following is a real variable in macroeconomics?

Accepted Answer

Real wage rate

Question 12

The GDP deflator differs from the CPI because:

Accepted Answer

It includes the prices of all goods and services counted in GDP, not just consumer goods.

Question 13

Which of the following would cause the CPI to be biased upward?

Accepted Answer

Consumers switch to cheaper outlets, but the CPI does not account for this.

Question 14

If the CPI in 2019 is 114.3 and in 2018 is 105.7, what is the inflation rate from 2018 to 2019?

Accepted Answer

$$ \frac{114.3 - 105.7}{105.7} 	imes 100 = 8.1\% $$

Question 15

Which of the following is NOT included in the calculation of the Consumer Price Index (CPI)?

Accepted Answer

Prices of intermediate goods used by producers

Question 16

The chained CPI differs from the traditional CPI because:

Accepted Answer

It uses a changing basket of goods, reflecting substitutions consumers make.

Question 17

Which of the following is a consequence of the CPI bias?

Accepted Answer

It distorts private contracts and increases government outlays.

Question 18

If the CPI basket in 2020 costs $$410 and in 2019 costs 400$$, what is the inflation rate from 2019 to 2020?

Accepted Answer

$$ \frac{410 - 400}{400} 	imes 100 = 2.5\% $$

Question 19

Which of the following best describes core inflation?

Accepted Answer

The CPI inflation rate excluding food and fuel prices.

Question 20

Which price index is most useful for predicting changes in the CPI and GDP Deflator?

Accepted Answer

Producer Price Index (PPI)

Measuring the Price Level and Inflation: The Consumer Price Index and Related Concepts

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