Reading 22: Monitoring Cycles, Jobs, and the Price Level - current, black, annual, class

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1.The current annual inflation rate, as measured by using the Consumer Price Index (CPI), is best defined as:

A)   increase in the CPI from a year ago.

B)   percentage change in the CPI from its base period.

C)   percentage change in the CPI from a year ago.

D)   increase in the CPI from its base period.

2.David Landau, CFA, was discussing the biases associated with the Consumer Price Index (CPI). He was also discussing the effect of these biases on determining the inflation rate of an economy. Which of the following is least likely a source of bias in CPI data and does the CPI generally understate or overstate the true rate of inflation?

Not a source of bias

CPI bias direction

 

A)                Outlet substitution                Overstate

B)                Quality  changes                Understate

C)                Consumer preferences           Overstate

D)                New goods                          Understate

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答案和详解如下：

1.The current annual inflation rate, as measured by using the Consumer Price Index (CPI), is best defined as:

A)   increase in the CPI from a year ago.

B)   percentage change in the CPI from its base period.

C)   percentage change in the CPI from a year ago.

D)   increase in the CPI from its base period.

The correct answer was C)

The inflation rate is the percentage change in the price index from a year earlier.

2.David Landau, CFA, was discussing the biases associated with the Consumer Price Index (CPI). He was also discussing the effect of these biases on determining the inflation rate of an economy. Which of the following is least likely a source of bias in CPI data and does the CPI generally understate or overstate the true rate of inflation?

Not a source of bias

CPI bias direction

 

A)                Outlet substitution                 Overstate

B)                Quality  changes                 Understate

C)                Consumer preferences           Overstate

D)                 New goods                         Understate

The correct answer was C)

The four sources of bias associated with CPI data are: new goods, quality changes, commodity substitution, and outlet substitution. As a result, in 1996 a Congressional Advisory Commission concluded that the CPI tends to overstate the true rate of inflation by 1.1% per year.