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Quiz 2 - Worksheets - Causes - Inflation - Monetary Policy - Economics bank - Virtual US Bank of Biz/ed

Monetary Policy - Inflation - Causes

Quiz 2 - Measuring inflation - what is being inflated and by how much?

1. Which of the following economic variables would you normally expect to be measured using an index?
(Type your answer in lower case)

yes - no


2. The change in the Consumer Price Index (CPI) shows the rate of inflation. What is the rate of inflation in each of the cases below?
(Type your answer)


3. Why do we weight the Consumer Price Index?
(Select one answer)

(a) * to balance it up
(b) * to ensure that the index doesn't grow too fast
(c) * to compensate for seasonal changes
(d) * to reflect the fact that people spend different amounts on goods

       
4. If there has been 10% inflation in a year and the Consumer Price Index started the year at 110, what value did it finish the year at?
(Type your answer)

 *

   
5. If there has been 15% inflation in a year and the Consumer Price Index started the year at 120, what value did it finish the year at?
(Type your answer)

 *

   
6. If there has been 30% inflation in a year and the Consumer Price Index started the year at 130, what value did it finish the year at?
(Type your answer)

 *

   
7. The Federal Reserve Bank's Open Market Committee (FOMC) informally sets an inflation target of 5%. If the Consumer Price Index starts at 100 in year 1, what value should it be each year if the informal target is precisely hit?
(Give your answer to 2 decimal places)


8. Say there are three products in a price index - products A, B and C. The weights for each of them are as follows:
  • A = 40
  • B = 50
  • C = 10
The price index started at 100 in year 1 and during the year the prices of A, B and C went up as follows:
  • A = 20%
  • B = 30%
  • C = 5%
What will be the value of the weighted index at the end of the year?
(Type your answer to one decimal place)

 *