Select True or False

1. The base period for an index number refers to the first period in the series of measurements. F
2. Five years ago, a company experienced some extremely unusual events, including a major strike and a widely publicized health concern about one of its products. Since the firm tended to hit bottom during the time, the year would be a good choice as a base period for an index reflecting production volume.
3. The Dow Jones Industrial Average is an example of an index T
4. The simple relative index is the most elementary form of an index number construction. F
5. Simple relative indexes can be constructed for price or quantity, but not for value.
6. For a simple relative price index, the base period is 1986 and the index value for 1989 is 120.0. This indicates that price increased 20% from 1986 to 1989.
7. A simple aggregate index can be viewed as a weighted aggregate index in which each component is a sign assigned the same weight.
8. A simple aggregate relative index is the sum of prices in the selected period divided by the sum of those in the base period, with the quotient being multiplied by 100
9. If one of the item in a simple aggregate price index is milk, the index will be unchanged if the price of milk is expressed in dollars per quart instead of dollars per gallon.
10. One of the problems with a simple aggregate quantity index is that the quantities may be expressed in different units.
11. In a Passche index, prices are weighted according to the quantities of the various items in the base period.
12. The Consumer Price Index is a simple aggregate index.
13. One application of the Consumer Price Index is to automatically increase wages or benefits through its inclusion in labor contracts.
14. "Real income" refers to the amount money available after government taxes have been paid.
15. The Producer Price Index measures changes in the physical volume or quantity of output of manufacturing, mining, and electric and gas utilities.

Section II

Multiple Choice

1. The base period, the value of an index will be
2. 0.
3. 1.
4. 100.
5. 10.

1. In 1990, the price of a certain commodity was $5/lb., compared to $3/lb. in 1984 and $4/lb. in 1986. If 1984 is the base period, the simple relative price for 1990 is
2. 166.7.
3. 133.3.
4. 125.0.
5. 60.0.

1. In a simple aggregate price index for grocery expenditures, the price of hamburger is changed from dollars per pound to dollars per ounce. This will result in the price of hamburger having ________ influence on the numerical value of the index
2. Less
3. Greater
4. Unchanged
5. Not enough information has been provided.

1. For which of the following weighted aggregate indexes is it necessary to change the weightings of the items every year?
2. Paasche
3. Laspeyres
4. Fixed-weight aggregate
5. Simple aggregate

1. A weighted aggregate price index for 1990 has item weightings based on consumption patterns for 1986, and the base period for prices is 1984. This suggests that the method of index construction is the
2. Paasche.
3. Laspeyres.
4. Fixed-weight aggregate
5. Simple aggregate.

1. A weighted aggregate price index for 1990 has item weightings based on consumption patterns for 1984, and the base period for prices is also 1984. This suggest that the method of index construction is the
2. Paasche.
3. Laspeyres.
4. Fixed-weight aggregate
5. Simple aggregate.

1. A weighted aggregate price index for 1990 has item weightings based on consumption patterns for 1990. The base period for prices is 1984. This suggest that the method of index construction is the
2. Paasche.
3. Laspeyres.
4. Fixed-weight aggregate.
5. Simple aggregate.

1. The "market basket" for the Consumer Price

Index includes about _________different items.

1. 10
2. 50
3. 200
4. 400

1. The Consumer Price Index in 1987 was 113.6 (1982 - 84 = 100), compared to 30.2 in 1962. Given that the price of a certain subcompact automobile was $9000 in 1987, and using the CPI as a deflator, what would have been the vehicle's equivalent price in 1962?
2. $3187
3. $7739
4. $2393
5. $13,492

1. An individual's annual salary increased from $12,000 in 1962 to $42,000 in 1987. Using the CPI values provided in Question 24, this person's spending power _______ from 1962 to 1987.
2. increased
3. decreased
4. was unchanged
5. None of the preceding.

1. The weightings in the Consumer Price Index are periodically revised. An important reason for such revision is to
2. correct for past arithmetic errors in index construction.
3. better reflect current consumption patterns.
4. decide whether or not food expenditures should be included as an item in the index.
5. better reflect current prices of the items included in the index.

1. The Sales & Marketing Management Buying Power Index is 1.3 for a given city. This is intended to suggest that this market has
2. 1.3% greater buying power than it did the year before.
3. 130% of the buying power of the average U.S. city.
4. 1.3% of the total buying power in the nation.
5. a cost of living 30% higher than average for a city of this size.

28. Given the following simple relative price indexes:

1985	1986	1987	1988	1989	1990
83.5	100.0	104.2	108.3	112.5	119.7

If the indexes are converted so that the base year is 1988, the index value for 1990 will become

1. 110.5.
2. 119.7.
3. 106.4.
4. 105.3.
5. For 1985 to 1990, the simple relative price indexed for two commodities were as follows:

	1985	1986	1987	1988	1989	1990
Commodity A	72.3	95.4	100.0	104.5	110.2	121.6
Commodity B	93.2	100.0	106.8	102.3	109.4	104.8

The relative levels in the prices of A and B could be better compared if

1. the base period for A were changed to 1986.
2. the base period for B were changed to 1987.
3. the base periods for both A and B were changed to 1988.
4. Any of the above would be suitable.

1. Among the difficulties encountered in using index numbers is that
2. some persons may overgeneralize in interpreting the meaning of the index.
3. the standard features included in a product may change over the years.
4. many index number are based on a sample of all of the possible items that could have been included.
5. All of the above.