For any given year, the CPI is the price of the basket of goods and services in the
A. given year divided by the price of the basket in the base year, then multiplied by 100.
B. base year divided by the price of the basket in the base year, then divided by 100.
C. base year divided by the price of the basket in the given year, then divided by 100.
D. base year divided by the price of the basket in the given year, then multiplied by 100.
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Substitution causes the increase in the cost of living from one year to the next to be
A. neither overstated or understated by the CPI because the CPI is based on the price of all goods.
B. overstated by the CPI because the basket of goods used to compute the CPI changes from year to year and so does not take into account the fact that as prices rise people purchase more of the goods they like less.
C. understated by the CPI because the CPI changes from year to year and so does not take into account the fact that people substitute higher quality goods for lower quality ones as income increases.
D. overstated by the CPI because the CPI is based on a fixed basket of goods that does not reflect increases in the purchases of goods that become relatively cheap.
Unmeasured quality change is a problem in the CPI because
A. if the quality of a good deteriorates, the purchasing power of a dollar increases even if the price of the good remains the same.
B. the Bureau of Labor Statistics does not attempt to account for any quality changes that affect the standard of living.
C. if the quality of a good improves, the purchasing power of a dollar increases even if the price of the good remains the same.
D. Both a and b are correct.
The nominal interest rate is
A. the interest rate paid or charged by a bank.
B. the interest rate as usually reported without a correction for the effects of inflation.
C. both a and b above.
D. None of the above is correct.
When Georgie died he left $5,000 to be invested for a period of 200 years to benefit medical students and scientific research. According to the “rule of 70,” how often would this money have doubled if it grew 7 percent per year every year?
A. about every 10 years
B. about every 7 years
C. about every 5 years
D. about every 3.5 years
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