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Fall 2004
Practice Questions 5
Readings
Chapter 6, Appendix to Chapter 6
Concepts:
CPI
Inflation
Nominal and Real Wage
I. Multiple Choices:
1) Which of the following statements about the Consumer Price Index (CPI) is not true?
a.
The CPI is an index that tracks the prices of all the goods produced in a country
during a defined period of time.
b.
The CPI is always equal to 100 in the base year.
c.
The CPI is used to translate nominal variables into real variables.
d.
The CPI tracks the change in the average price level for a set of goods consumers
purchase.
2) The CPI in Italy was 150 at the end of year 2000 and 156 at the end of year 2001.
What was the inflation rate in Italy in 2001?
a.
6%
b.
4%
c.
2%
d.
56%
3) Consider the following information about the CPI in the country of Myland:
CPI (base 2000)
CPI (base 2001)
2000
100
84.246
2001
118.7
100
The inflation rate in 2001 computed using the CPI (base 2000) is:
a.
Higher than the inflation rate computed using the CPI (base 2001).
b.
Lower than the inflation rate computed using the CPI (base 2001).
c.
The same as the inflation rate computed using the CPI (base 2001).
d.

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