Exercise Topic 3

# Exercise Topic 3 - Topic 3. Measuring the Cost of Living 1....

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Topic 3. Measuring the Cost of Living 1. Which price index measures the average price of things purchased by the typical family in an urban area? a. GDP deflator b. producer price index c. consumer price index d. minimum wage 2. Which item would receive the most weight in the consumer price index? a. salt b. toothpicks c. pencils d. food 3. Which item would receive the least weight in the consumer price index? a. brooms b. automobiles c. color televisions d. automobile tires 4. The good that receives the most weight in the CPI is the good that a. consumers buy most frequently. b. has experienced the greatest price increase. Topic 3 - 1 -

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c. has the highest price. d. consumers spend the largest fraction of their income on. 5. Which of the following is a reason why the Consumer Price Index (CPI) is not calculated as a simple average of all prices? a. Some goods experience large price changes and the CPI would be too variable if computed by a simple average. b. Goods differ in their importance in the average consumer’s budget. c. Some goods never experience price changes and the CPI would not be variable enough if computed as a simple average. d. It would be difficult to compute a price index using a simple average of all prices. 6. If the price of the market basket of goods in the base year of 1994 was \$20,000 and the price of the same basket had risen to \$22,000 by 1998, the CPI for 1998 a. cannot be calculated. b. is \$12,000. c. is 200. d. is 110. 7. Suppose you spend 30 percent of your budget on food, 20 percent on medical care, 40 percent on rent, 5 percent on entertainment, and 5 percent on miscellaneous items. If the price of all parts of your budget rises equally in percentage terms, which would have the most weight on your cost of living increase? (Assume you calculate your index the
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## This note was uploaded on 07/15/2011 for the course ACCT 122 taught by Professor Barry during the Spring '11 term at Universitas Pelita Harapan.

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Exercise Topic 3 - Topic 3. Measuring the Cost of Living 1....

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