What is the consumer price index (CPI)? O a) The CPI is a measure of food, clothing, and housing prices. O b) The CPI is a measure of all prices in the economy. The CPI is the measure of consumer prices in both rural and urban areas. It Oc) calculated by adding up all prices. CDLU
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- 3. Suppose that people consume only three goods, as shown in this table: Bottles of Tennis Balls Golf Balls Gatorade 2020 price 2020 quantity $2 $4 $1 100 100 200 2021 price $2 $6 $2 2021 quantity 100 100 200 a. What is the percentage change in the price of each of the three goods? b. Using a method similar to the CPI, compute the percentage change in the overall price level. c. If you were to learn that a bottle of Gatorade increased in size from 2020 to 2021, should that information affect your calculation of the inflation rate? If so, how? d. If you were to learn that Gatorade introduced new flavors in 2021, should that information affect your calculation of the inflation rate? If so, how?n 2019 and in 2020, consumers in Dexter purchased only books and pens. The prices and quantities for 2019 and 2020 are listed in the table. The reference base period for Dexter's CPI is 2019 and 2019 is also the year of the Consumer Expenditure Survey. Calculate the CPI in 2020. The CPI in 2020 is O A. 104.0 B. 176.3 C. 56.7 D. 100.0Question 17 One problem with the CPI is the "substitution bias," which refers to consumers buying more of a good that has become cheaper and less of a good that has become more expensive. Assume that consumers consider Pepsi and Coke to be substitutes, so that when the price of Coke increases, consumers purchase less Coke and more Pepsi. When the CPI is calculated following the increase in the price of Coke, the substitution bias causes the CPI to O understate inflation since both the increase in the price of Coke and the increase in the amount of Pepsi purchased enter the CPI calculation O understate inflation since only the decrease in the price of Pepsi enters the CPI calculation O overstate inflation since both the increase in the price of Coke and the decrease in amount of Coke purchased enter the CPI calculation overstate inflation since only the increase in the price of Coke enters the CPI calculation
- 20) You know that a candy bar costs sixty OMR today.You also know the CPI for 1970 and the CPI for today.Which of the following would you use to compute the price of the candy bar in 1970 prices? Select one: O a. sixty OMR(today's CPI-1970 CPI) O b. sixty OMR(1970 CPI / today's CPI) O c. sixty OMR(1970 CPI-today's CPI) O d. sixty OMR(today's CPI / 1970 CPI)Question 4 Between 2015 and 2016, the CPI of a small nation rose from 1.82 to 1.85. If household incomes rose by 3% during that period of time, which of the following is true? O The purchasing power of household income fell between 2015 and 2016. O The purchasing power of household income rose between 2015 and 2016. O The purchasing power of household income remained constant between 2015 and 2016. O The CPI cannot be used to determine how the purchasing power of household income changes over time.When economists speak of the CPI bias, they are referring to O A. the tendency for the CPI to overstate price changes. O B. the tendency for government officials to impose their values on the data. O C. errors in measuring the prices used in the CPI. O D. the tendency for the CPI to understate inflation. O E. the tendency for the CPI to understate price changes. Click to select your answer.
- Price (2009) $55 $35 Quantity (2010) Price Quantity (2009) Item Sneakers (2010) $60 $40 2 2. Manicures Consumers in a country buy only two goods, sneakers and manicures. The prices and quantities purchased by urban households are in the table above. The reference base year is 2009. For these data, the CPI for 2010 is O 100 O 110 O 160 O 10 O 145.Why is the PCE deflator a preferred measure of consumer prices over the CPI? O the PCE data is released monthly while the CPI data are quarterly the PCE also is subject to substitution bias, but it does not include new goods O It is not a fixed basket, so it does not have the substitution bias present in the CPI O It is a fixed basket of goods whereas the CPI is not a fixed basketSuppose that, as a result of an increase in the price of wheat, several large U.S. grocery chains, such as Harris Teeter and Food Lion, increase the prices of all of their bread products. It follows that, ceteris paribus, the increase in the price will increase: O a. both the CPI and the GDP deflator. O b. neither the CPI nor the GDP deflator. O c. the GDP deflator but not the CPI. O d. the CPI but not the GDP deflator. Next page
- If the prices of Brazilian-made shoes imported in the US increase, then which of the following will occur? Both US GDP deflator and CPI will decrease. O US CPI will increase but the US GDP deflator will remain constant. O US GDP deflator will increase but the US CPI will remain constant. O Both US GDP deflator and CPI will increase.The difference between the CPI and the PCE is that the PCE index measures prices while the CPI measures spending the PCE is not a fixed basket of goods O the PCE includes food and energy prices while the CPI does not O the CPI includes food and energy prices while the PCE does notExercise 3 1) The table below gives the price and consumption (usage/sales) for two products x and y for four years. Using year 2000 as the base year calculate for each year, the b) Laspeyers price index, and Quantity x, q, a) Basic expenditure index Year c) Paasche price index Quantity y, q, Price of Price of y, Py х, р, 2000 R4 R3 3 2001 R5 6. R4 6. R5 R7 2002 R6 4 4 2003 R6 4 4 2) Below is a table of items consumed in a hotel for three years together with the average price of each item for each of the three years. Using 2003 as the base year, calculate for each subsequent year, the a) Basic expenditure index b) Laspeyers price index, and c) Paasche price index d) Laspeyers volume index e) Paasche volume index Item 2003 2004 2005 Quantity | Price (R) 3.95 Quantity Price (R) Quantity Price (R) Milk 2920 3100 4.10 3210 4.10 Bread 2190 3.60 2230 3.80 2200 4.00 Eggs (each) 0.60 7.20 14.00 16425 17563 0.60 17890 0.65 Butter 730 680 7.70 650 8.30 Cheese 1135 1086 14.9 1150 16.00 Margerine…