CPI

1. In an imaginary economy, consumers buy only sandwiches and magazines. The fixed basket
consists of 20 sandwiches and 30 magazines. In 2006, a sandwich cost $4 and a magazine cost
$2. In 2007, a sandwich cost $5. The base year is 2006. If the consumer price index in 2007 was
125, then how much did a magazine cost in 2007?
a. $0.83
b. $2.25
c. $2.50
d. $3.00
2. In an imaginary economy, consumers buy only sandwiches and magazines. The fixed basket
consists of 20 sandwiches and 30 magazines. In 2006, a sandwich cost $4 and a magazine cost
$2. In 2007, a sandwich cost $5. The base year is 2006. If the inflation rate in 2007 was 16
percent, then how much did a magazine cost in 2007?
a. $1.87
b. $2.08
c. $2.32
d. $3.00
3. For an imaginary economy, the consumer price index was 80 in 2014, 100 in 2015, and 140 in
2016. Which of the following statements is correct?
a. If the basket of goods that is used to calculate the CPI cost $40 in 2014, then that
basket of goods cost $60 in 2015.
b. If the basket of goods that is used to calculate the CPI cost $25 in 2015, then that
basket of goods cost $35 in 2016.
c. The overall level of prices increased by 60 percent between 2014 and 2016.
d. All of the above are correct.
4. Suppose a basket of goods and services has been selected to calculate the consumer price index.
In 2005, the basket of goods cost $108.00; in 2006, it cost $135.00; and in 2007, it cost $168.75.
Which of the following statements is correct?
a. Using 2005 as the base year, the economy’s inflation rate was higher in 2007 than
it was in 2006.
b. If 2007 is the base year, then the CPI is 33.75 in 2006.
c. If the CPI is 156.25 in 2007, then 2005 is the base year.
d. Using 2005 as the base year, the economy’s inflation rate for 2006 was 27 percent.
5. If the cost of housing in the US increases by 10 percent, then, other things the same, the CPI is
likely to increase by about
a. 1.7 percent.
b. 3.3 percent.
 c. 4.1 percent.
d. 10 percent.
6. If the cost of transportation in the US increases by 20 percent, then, other things the same, the
CPI is likely to increase by about
a. 0.3 percent.
b. 1.7 percent.
c. 3.4 percent.
d. 10 percent.
7. If the cost of food & beverages in the US increases by 10 percent, then, other things the same,
the CPI is likely to increase by about
a. 1.5 percent.
b. 7.5 percent.
c. 10 percent.
d. 20 percent.
8. If the cost of medical care in the US increases by 40 percent, then, other things the same, the
CPI is likely to increase by about
a. 0.9 percent.
b. 2.8 percent.
c. 8.0 percent.
d. 40 percent.
9. If the cost of apparel in the US increases by 50 percent, then, other things the same, the CPI is
likely to increase by about
a. 0.5 percent.
b. 2.0 percent.
c. 3.0 percent.
d. 11.8 percent.
10. Suppose the price of a quart of milk rises from $1.00 to $1.20 and the price of a T-shirt
rises from $8.00 to $9.60. If the CPI rises from 150 to 195, then people likely will buy
a. more milk and more T-shirts.
b. more milk and fewer T-shirts.
c. less milk and more T-shirts.
d. less milk and fewer T-shirts.
11. Suppose the price of a gallon of ice cream rises from $4 to $5 and the price of a can of
coffee rises from $2 to $2.50. If the CPI rises from 150 to 177, then people likely will buy
a. more ice cream and more coffee.
b. more ice cream and less coffee.
c. less ice cream and more coffee.
d. less ice cream and less coffee.
12. Suppose the price of a six-pack of cola rises from $3 to $3.75 and the price of a pack of
mints rises from $1.25 to $1.75. If the CPI rises from 140 to 182, then people likely will buy
a. more cola and more mints.
b. more cola and fewer mints.
c. less cola and more mints.
d. less cola and fewer mints.
13. Suppose the price for one gallon of gasoline rises from $3.50 to $4.00 and the price of one
gallon of milk rises from $3.00 to $3.20. If the CPI rises from 120 to 132, then people likely will
buy
a. more gasoline and more milk.
b. more gasoline and fewer milk.
c. less gasoline and more milk.
d. less gasoline and fewer milk.
14. Which of the following pairs of values of the consumer price index (CPI) is consistent with
an inflation rate of 10 percent for 2014?
a. CPI in 2014 = 90; CPI in 2015 = 100
b. CPI in 2014 = 102; CPI in 2015 = 112
c. CPI in 2013 = 210; CPI in 2014 = 220
d. CPI in 2013 = 210; CPI in 2014 = 231
15. Ethel purchased a bag of groceries in 1970 for $8. She purchased the same bag of groceries
in 2006 for $25. If the price index was 38.8 in 1970 and the price index was 180 in 2006, then
what is the price of the 1970 bag of groceries in 2006 dollars?
a. $5.39
b. $25.00
c. $29.11
d. $37.11
16. In 1949, Sycamore, Illinois built a hospital for about $500,000. In 1987, the county restored
the courthouse for about $2.4 million. A price index for nonresidential construction was 14 in
1949, 92 in 1987, and 114.5 in 2000. According to these numbers, the hospital cost about
a. $3.6 million in 2000 dollars, which is less than the cost of the courthouse restoration
in 2000 dollars.
b. $3.6 million in 2000 dollars, which is more than the cost of the courthouse
restoration in 2000 dollars.
c. $4.1 million in 2000 dollars, which is less than the cost of the courthouse restoration
in 2000 dollars.
d. $4.1 million in 2000 dollars, which is more than the cost of the courthouse
restoration in 2000 dollars.
17. In 1970, Professor Plum earned $12,000; in 1980, he earned $24,000; and in 1990, he earned
$36,000. If the CPI was 40 in 1970, 60 in 1980, and 100 in 1990, then in real terms, Professor
 Plum's salary was highest in
a. 1980 and lowest in 1970.
b. 1980 and lowest in 1990.
c. 1990 and lowest in 1970.
d. 1990 and lowest in 1980.
18. Harry spent $39,000 in 2009 and $42,000 in 2014 on goods and services. The consumer
price index was 220 for 2009 and 231 for 2014. Harry’s 2014 spending in 2009 dollars is about
a. $40,000.
b. $44,100.
c. $37,838.
d. $40,091.
19. The consumer price index was 225 in 2008 and 232.2 in 2009. The nominal interest rate
during this period was 6.5 percent. What was the real interest rate during this period?
a. 1.6 percent
b. 3.3 percent
c. 5.1 percent
d. 7.4 percent
20. During a certain year, the nominal interest rate was 8 percent, the real interest rate was 3
percent, and the CPI was 176.7 at the beginning of the year. The CPI at the end of the year was
a. 196.1.
b. 185.5.
c. 168.3.
d. 159.2.
21. During a certain year, the consumer price index increased from 120 to 132 and the
purchasing power of a person’s bank account increased by 4 percent. For that year,
a. the nominal interest rate was 6 percent.
b. the nominal interest rate was 14 percent.
c. the inflation rate was 12 percent.
d. the inflation rate was 9 percent.
22. A worker received $5 for a daily wage in 1930, which has the equivalent value of $63.24
today. If the CPI was 17 in 1930 what is the value of the CPI today, rounded to the nearest
whole number?
a. 215
b. 134
c. 17
d. 1.3