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College tuition prices have been on the rise for the past several years but tuition is not the only price increase college students are facing

College tuition prices have been on the rise for the past several years, but tuition is not the only price increase college students are facing.  A report issued by the College Board shows that increases in room and board prices at a typical public university have been outpacing inflation for more than 10 years. The following figures account for inflation as measured by the CPI and are measured in 2010 dollars. The average yearly published tuition and fees for a typical public university rose from $6,130 for the 2005-2006 academic year to an estimated $7,610 for the 2010-2011 academic year. When scholarships, financial aid, and tax credits are deducted, the net tuition and fees actually decreased from $2,080 to $1,540 for the same academic years. Room and board, however, experienced a dramatic price increase during this time frame, rising from $7,390 to $8,540. When combined, the net tuition and fees along with room and board increased by 6% in real terms over the 5 year period.

 

Source: Kim Clark, “College Living Prices Rise Faster Than Inflation,” U.S. News and World Report, November 8, 2010.

 

2) Refer to the Article Summary. If the market basket for a simple economy consisted only of the published tuition and fees listed in the article and the base year is the 2005-2006 academic year,  what would be the value of the CPI for the 2010-2011 academic year?

A) 76.1

B) 80.6

C) 100.0

D) 124.1

3) Refer to the Article Summary. If the market basket for a simple economy consisted only of the net tuition and fees listed in the article and the base year is the 2005-2006 academic year,  what would be the value of the CPI for the 2010-2011 academic year?

A) 15.4

B) 74.0

C) 100.0

D) 135.1

4) Refer to the Article Summary. If the market basket for a simple economy consisted only of the room and board listed in the article and the base year is the 2005-2006 academic year,  what would be the value of the CPI for the 2010-2011 academic year?

A) 85.4

B) 86.5

C) 100.0

D) 115.6

5) Refer to the Article Summary. If the market basket for a simple economy consisted only of the net tuition and fees plus the room and board listed in the article and the base year is the 2005-2006 academic year,  what would be the value of the CPI for the 2010-2011 academic year?

A) 6.0

B) 93.9

C) 100.0

D) 106.4.

6) Which of the following is true about the consumer price index?

A) It is updated continuously to account for the introduction of new goods.

B) It accounts for people switching away from goods whose prices have risen.

C) It assumes that consumers purchase the same quantity of each product in the market basket each month.

D) It accurately reflects quality changes in goods and services over time.

7) The Fed believes there are three advantages to using the personal consumption expenditures (PCE) price index instead of the CPI as a measure of inflation. These advantages include all of the following except

A) the PCE is a chain-type index as opposed to the market-basket approach used for the CPI, and the market-basket approach tends to overstate inflation.

B) the PCE includes the prices of more goods and services than the CPI, so it is a broader measure of inflation.

C) the PCE allows the Fed to better track historical trends in inflation than does the CPI because PCE values can be recalculated as new data becomes available.

D) the PCE includes the value of imported products purchased by consumers , whereas the CPI does not, and imports make up a growing portion of consumer purchases in the United States.

8) Since 2004, the Fed has focused on a core price index that excludes food and energy prices to measure inflation because

A) food and energy are necessities, so consumers have no choice but to purchase these.

B) food and energy prices tend to remain stable in the short run, so are not relevant to the calculation of inflation.

C) including food and energy prices tends to overstate the true inflation rate by 0.5% to 1%.

D) food and energy prices tend to fluctuate up and down for reasons that may not be related to the general causes of inflation.

9) The cost of borrowing funds which is stated on a loan is the

A) prime interest rate.

B) nominal interest rate.

C) real interest rate.

D) core PCE interest rate.

10) When the cost of borrowing funds which is stated on a loan is adjusted for the effects of inflation, the resulting interest rate is called the

A) prime interest rate.

B) nominal interest rate.

C) real interest rate.

D) core PCE interest rate.

11) If the real interest rate is 3% and the expected inflation rate is 6%, then the nominal interest rate is

A) 0.5%.

B) 2%.

C) 3%.

D) 9%.

Mar 13 2020 View more View Less

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