Week 13

Quiz 10
ECON 2143: Basic Economics
“Measuring the Cost of Living and Production & Growth”

1. The consumer price index (CPI) measures approximately the same economic phenomenon as
a. Nominal GDP
b. Real GDP
c. The GDP Deflator
d. The Unemployment Rate
2. Which of the following best describes the catch-up effect?
a. The property whereby the benefit from an extra unit of input declines as the quantity of
the input increases.
b. The property whereby countries that start off poor tend to grow more rapidly than
countries that start off rich.
c. The quantity of goods and services produced from each unit of labor input.
d. Society’s understanding of the best ways to produce goods and services.
3. Consider the following table: * Note that a basket consists of 100 quarts of milk and 50 quarts
of honey.*
Year Price of Milk Quantity of Milk Price of Honey Quantity of
Honey
2013 $1 100 quarts $2 50 quarts
2014 $2 100 $3 50
2015 $3 100 $4 50

a. Using 2013 as a base year, compute the CPI in 2014:

($350 ÷ $200) * 100 = 175

b. Using 2013 as a base year, compute the CPI in 2015:

($500 ÷ $200) * 100 = 250

c. Compute the inflation rate from 2014 to 2015:

[(250 – 175) ÷ 175] * 100 = 42.86%