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Exam 4: Measuring the Cost of Living

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Question 31

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The CPI is used to

A) monitor changes in the level of wholesale prices in the economy.
B) monitor changes in the cost of living over time.
C) monitor changes in the level of real GDP over time.
D) monitor changes in the stock market.

E) B) and C)
F) C) and D)

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Question 32

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A worker received R50 for a daily wage in 2000.What is the value of that wage today if the CPI was 20 in 2000 and is 80 today?

A) R50
B) R200
C) R300
D) R400

E) A) and C)
F) A) and B)

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Question 33

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Which of the following would probably cause the CPI to rise more than the GDP deflator in SA? An increase in the price of

How does the GDP deflator differ from the CPI?

If your wage rises from R5000 per week to R6250 per week while the Consumer Prices Index (CPI) rises from 112 to 121, you should feel an increase in your standard of living.

Which price index measures the average price of things purchased by the typical family?

The first step in computing the CPI is to determine which prices are most important to the

Since the global financial crisis in 2007-09, real interest rates have been negative.This means that inflation is eroding people's savings more quickly than ________________ are increasing their savings.

If the nominal interest rate is 7 per cent and the inflation rate is 3 per cent, then the real interest rate is

Suppose your income rises from R361 000 to R589 000 while the CPI rises from 122 to 169.Your standard of living has likely

Which is likely to have the larger effect on the CPI, a 2 per cent increase in the price of food or a 3 per cent increase in the price of diamond rings? Explain.

Substitution bias

Inflation can be measured by all of the following except the

The "base year" in a price index is the benchmark year against which other years are compared.

List the three major problems in using the CPI as a measure of the cost of living.

Jay and Joyce meet George, the banker, to work out the details of a mortgage.They all expect that inflation will be 2 per cent over the term of the loan, and they agree on a nominal interest rate of 6 per cent.As it turns out, the inflation rate is 5 per cent over the term of the loan. a.What was the expected real interest rate? b.What was the actual real interest rate? c.Who benefited and who lost because of the unexpected inflation?

Compute how much each of the following items is worth in terms of today's euros using 177 as the price index for today. a.In 1926, the CPI was 17.7 and the price of a cinema ticket was r₀.25. b.In 1932, the CPI was 13.1 and a cook earned r₁5.00 a week. c.In 1943, the CPI was 17.4 and a litre of petrol cost r₀.19.

Under which of the following conditions would you prefer to be the lender?