101 Econ Class 23 Questions 1. If the CPI of Simple Land is 1.00 in 2005, 1.07 in 2006, and 1.05 in 2007 then A. B. C. D. Simple Land experienced inflation in 2006 and deflation in 2007. ** Prices in Simple Land rose by about 12 percent between 2005 and 2007. Simple Land experienced a large rate of inflation in 2006 and a small rate of inflation in 2007. Prices in Simple Land rose by 2 percent between 2005 and 2007.
2. If Babe Ruth earned $80,000 in 1930 and Barry Bonds earned $15.5 million in 2007 and if the CPI in 1930 was 16.8 and the CPI in 2001 was 208.3, then A. B. C. D. Babe Ruth had a higher standard of living than Barry Bonds. Barry Bonds had a higher standard of living than Babe Ruth. ** Babe Ruth experienced more inflation than Barry Bonds. Barry Bonds more experienced inflation than Babe Ruth.
3. At each family gathering, your grandfather is fond of pointing gout that when he was a boy a loaf of bread cost only ten cents. He decries the fact that the price of bread today is $2.00 and concludes somehow that times are bad. Which of the following correctly explains to your grandfather why his conclusion about the quality of life is bad? A. B. C. D. The higher price of bread today is due to the higher quality of bread today. Today, the US consumes a larger fraction of GDP than it did when grandfather was a boy. Inflation makes it impossible to compare todays price of bread with the price of bread 50 years ago. Today, the ratio of the price of bread to the hourly wage is smaller than it was 50 years ago. **