Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 22, Problem 2.2P
To determine
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What does the Consumer Price Index (CPI) measure? Be specific about what the categories of goods and services that the CPI tracks and measures.
The table below shows some data I got from FRED on the CPI and PCE deflator. The PCE deflator is a price index similar to the GDP
deflator but only uses the consumption ("personal consumption expenditures") part of the GDP data.
Year
CPI
PCE deflator
1989
123.94
60.69
2001
177.04
79.74
2020
258.84
111.15
You were probably born around 2001 so calculate the annualized inflation rate based on the CPI between 2001 and 2020. Repeat to
find the annualized inflation using the PCE deflator between 2001 and 2020.
The
gives a higher inflation rate
O PCE, and its noticeably higher (over 0.5 percentage points)
PCE, but its not that different from the CPI inflation rate (difference is under 0.5 percentage points)
CPI, and its noticeably higher (over 0.5 percentage points)
CPI, but its not that different from the CPI inflation rate (difference is under 0.5 percentage points)
Use the following table to answer question. The table shows the prices and the quantities consumed in Carnivore
Country. Suppose the base year is 2017. Also, suppose that 2017 is the year the typical consumption basket was
determined, so the quantities consumed in 2017 are the only quantities needed to calculate the CPI in each year.
Year Price of Beef Quantity of Beef Price of Pork Quantity of Pork
2017 $2.00
$1.00
2018 2.50
2019 2.75
100
e. none of the above
90
105
What is the inflation rate for 2019?
O a. 0 percent
Ob. 10.3 percent
c. 11 percent
O d. 13.3 percent
0.90
1.00
100
120
130
Chapter 22 Solutions
Principles of Economics (12th Edition)
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- Use the following table to answer the question. The table shows the prices and the quantities consumed in Vegetarian Country. Suppose the base year is 2020. Also, suppose that 2020 is the year the typical consumption basket was determined, so the quantities consumed in 2020 are the only quantities needed to calculate the CPI in each year. Year Price of Carrots Quantity of Carrots Price of Celery Quantity of Celery 2020 $2.00 100 $1.00 100 2021 2.50 90 0.90 120 2022 2.75 105 1.00 130 What are the values of the CPI in 2020, 2021, and 2022, respectively? a. 2020: 100; 2021: 111; 2022: 139.6 b. 2020: 100; 2021: 109.2; 2022: 116 c. 2020: 100; 2021: 113.3; 2022: 125 d. 2020: 83.5; 2021: 94.2; 2022: 100 e. None of the answer choices are correct.arrow_forwardThe island nation of Coronia subsists entirely on pancakes and syrup. That is, they produce and consume only pancakes and syrup in the following amounts: Pancake Mix (cases) Maple Syrup (gallons) Quantity Price Quantity Price 2019 16 5 8 30 2020 48 6 10 50 (a) Using a method like the CPI, compute the CPI in 2019 and 2020 and percentage change in the overall price level from 2019 to 2020 (inflation rate). Use 2019 as the base year and fix the market basket at 4 pancakes and 2 syrups. (b) Using a method like the GDP deflator, compute the GDP deflator in 2019 and 2020 and percentage change in the overall price level from 2019 to 2020 (inflation rate). Use 2019 as the base year. (c) Is there a difference in the inflation rate using the two methods? Explain why or why not.arrow_forwardWhich do you think has a greater effect on the CPI:a 10 percent increase in the price of chicken or a10 percent increase in the price of caviar? Why?arrow_forward
- Use the following table to answer the question. The table shows the prices and the quantities consumed in Vegetarian Country. Suppose the base year is 2020. Also, suppose that 2020 is the year the typical consumption basket was determined, so the quantities consumed in 2020 are the only quantities needed to calculate the CPI in each year. Year Price of Celery Price of Carrots $2.00 2.50 2.75 Quantity of Carrots 100 90 105 2020 2021 2022 What is the inflation rate for 2021? a. 0 percent b. 9.2 percent c. 11 percent d. 13.3 percent e. None of the answer choices are correct. $1.00 0.90 1.00 Quantity of Celery 100 120 130arrow_forwardIn compiling data for the CPI, the Bureau of Labor Statistics makes no attempt to adjust the data to reflect quality changes.” True or false? Explain.arrow_forwardExamine the following information as reported for the foods below in the years 2010 and 2019. 2010 2019 Item Price (S) Quantity Price (S) Quantity Eggs (one dozen) $2.75 27 $3.37 40 Chicken (500 g) $3.20 11 $3.57 7 Bread (675 g) $2.28 18 $2.83 23 a) Compute a simple price index for each of the items, using the year 2010 as the base year. Enter them in the same order as above: Eggs, Chicken, Bread. Round answers to 1 decimal. b) Compute a simple aggregate price index. Use 2010 as the base period. Round to one decimal place. c) Compute the Laspeyres price index for 2019 using 2010 as the base year. Round to one decimal place. d) Determine a value index for 2019, using 2010 as the base year. Round to one decimal place.arrow_forward
- The table shows the cost of a fixed basket of goods that a typical urban consumer would buy in the economy of Kindleberger. The base period for the consumer price index (CPI) is the year 2000. Please specify answers to two decimal places. Year Cost of a basket of goods 2000 $5,150.00 2011 $4,500.00 2012 $7,725.00 What is the CPI for 2000? CPI for 2000: What is the CPI for 2011? CPI for 2011: What is the CPI for 2012? CPI for 2012:arrow_forwardUsing those figures, fill in the following table, making sure to round your responses to the nearest U.S. dollar.YearGolferNominal WinningsU.S. CPIWinnings in 2021 Dollars(Dollars)(1983 = 100)1945 Byron Nelson 63,336 18 1972 Jack Nicklaus 320,542 41.8 1982 Craig Stadler 446,462 96.5 2021 John Rahm 7,705,933 264.7 7,705,933arrow_forwardThe table below contain an economy in which typical consumer's basket consists of 19 bushels of corn and 15 bushels of apple. Year 2017 2018 Price of corn $12 $14 Answer Price of apple $15 $20 Suppose the base year is 2017. What's the CPI for 2018? (Hint: enter your answer in 2 decimal places) Your Answer:arrow_forward
- Using the GDP Deflator calculate the average annual inflation rate that the U.S. experienced over the period beginning with the year of 1998 and ending with 2020. (Note: you do not use the inflation rate as the data you plug into the formula. Rather, you calculate an inflation rate by using the formula.) GDP Deflator: price index in 1998 is 75.3, in 2020 is 113.6 inflation rate in 1998 is 1.1, in 2020 is 1.2 nominal interest rates in 1998 is 6.53, in 2020 is 2.48 Real interest rates in 1998 is 5.41, in 2020 is 1.27arrow_forwardIf A senior public is servant writing a bill to index Social Security and pensions so that the bill will adjust these benefits to offset changes in the cost of living. What will be used; the GDP deflator or the CPI? (short explanation)arrow_forwardPlease calculate CPI and inflation using the following basket of goods (round outlays [for calculations] and all other answers to the second decimal place when necessary) Goods Average Qty Avg. Price 2021 Clothing 15 $200 Cell Phone Plan 11 $75 Housing 10 $1,250 Milk 30 $3 Streaming Services 22 $19 Vehicle Payments 10 $450 BASE YEAR OUTLAY = $14,000.00 2020 CPI = 147 What is the 2021 CPI? What was the inflation rate from 2020 to 2021?arrow_forward
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