Bus Econ 3

Front 1

T/F

Any economy aims for high prices of consumer goods.

Back 1

false - stable

Front 2

T/F

no economy in the world has stable price.

All of them are experiencing price increases – some experience price increase over a period of time, while others experience it almost every month or every week.

Back 2

True

Front 3

is a rise in the general level of prices

Back 3

Inflation

Front 4

T/F

When inflation occurs, each peso of income will buy more goods and services than before.

Back 4

False - Fewer

Front 5

T-F

Inflation increase the “purchasing power” of money

Back 5

False - Reduce

Front 6

T/F

inflation does not mean that all prices are rising. Even during periods of rapid inflation, some prices may be relatively constant while others are falling.

Back 6

True

Front 7

T/F

During inflation, prices rise evenly – some shoot upward, others rise slowly, still others do not rise at all.

Back 7

False - unevenly

Front 8

The main measure of inflation is the

The government uses this index to report inflation rates each month and each year.

Back 8

consumer price index

Front 9

It also uses to adjust social security benefits and income tax brackets for inflation.

Back 9

CPI

Front 10

is a measure of the overall cost of the goods and services bought by a typical consumer

Back 10

Consumer price index (CPI)

Front 11

T/F

The composition of the market basket for the CPI is based on spending patterns of urban consumers in a specific period.

Back 11

True

Front 12

updates the composition of the market basket every two years

so that it reflects the most recent patterns of consumer purchases and captures the inflation that consumers are currently experiencing.

Back 12

The Bureau of Agricultural Statistics (BAS) of the Department of Agriculture

Front 13

How the Consumer Price Index is Calculated

Back 13

1. Fix the basket

2. Find the prices

3. Compute the basket’s cost

4. Choose a base year and compute the index

5. Compute the inflation rate

Front 14

T/F

The second step in computing the consumer price index is to determine which prices are most important to the typical consumer.

Back 14

false - first step

Front 15

T/F

The second step in computing the consumer price index is to find the prices of each of the goods and services in the basket for each point in time

Back 15

True

Front 16

T/F

The forth step is to use the data on prices to calculate the cost of the basket of goods and services at different times.

Back 16

False - Third

Front 17

T/F

The fourth step is to designate one year as the base year, which is the benchmark against which other years are compared.

Back 17

True

Front 18

T/F

The forth step is to use the consumer price index to calculate the inflation rate, which is the percentage change in the price index from the preceding period.

Back 18

Fifth and Final step

Front 19

T/F

In addition to the consumer price index for the overall economy,

it calculates several other price indexes.

It reports the index for specific regions within the country and for some narrow categories of goods and services, such as food, clothing, and energy.

Back 19

Bureau of Agricultural Statistics

Front 20

which is a measure of the cost of a basket of goods and services bought by firms.

Back 20

producer price index (PPI)

Front 21

T/F

firms eventually pass on their costs to consumers in the form of higher consumer prices, changes in the producer price index are often thought to be useful in predicting changes in the consumer price index.

Back 21

True

Front 22

T/F

the goal of the PPI is to measure changes in the cost of living.

Back 22

False - CPI

Front 23

T/F

In other words, the CPI tries to gauge how much incomes must rise in order to maintain a constant standard of living.

Back 23

True

Front 24

T/F

The CPI, a perfect measure of the cost of living.

Back 24

False - Not Perfect

Front 25

Problems in Measuring the Cost of Living

Back 25

Substitution bias.

Introduction of new goods.

Unmeasured quality change.

Front 26

Types of Inflation

Back 26

Demand-Pull Inflation

Cost-Push Inflation

Front 27

When prices change from one year to the next, they do not all change proportionately

Some prices rise more than others. Consumers respond to these differing price changes by buying less of the goods whose prices have risen by large amounts and by buying more of the goods whose prices have risen less or perhaps even have fallen

Back 27

Substitution bias

Front 28

When a new good is introduced, consumers have more variety from which to choose.

Greater variety, in turn, makes each peso more valuable, so consumers need fewer pesos to maintain any given standard of living.

Back 28

Introduction of new goods.

Front 29

If the quality of a good deteriorates from one year to the next, the value of a peso falls, even if the price of the good stays the same.

Similarly, if the quality rises from one year to the next, the value of a peso rises. The BAS does its best to account for quality change.

Despite these efforts, changes in quality remain a problem, because quality is so hard to measure.

Back 29

Unmeasured quality change.