Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN: 9781337091985
Author: N. Gregory Mankiw
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 6, Problem 4CQQ
To determine
Thesubstitution effect with
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Because consumers can sometimes substitutecheaper goods for those that have risen in price,a. the CPI overstates inflation.b. the CPI understates inflation.c. the GDP deflator overstates inflation.d. the GDP deflator understates inflation.
One commonly used measure of inflation is the annual rate of change of the Consumer Price Index (CPI). A TV news story says that the annual rate of change of the CPI is increasing. What does this say about the shape of the graph of the CPI?
Choose the correct answer below.
A.
The graph of the CPI is falling.
B.
The graph of the CPI is concave upward.
C.
The graph of the CPI is rising.
D.
The graph of the CPI is concave downward.
What is the relationship between the CPI and the inflation rate?
When the CPI _______.
A.
is constant, the inflation rate is negative
B.
falls, the inflation rate is positive and low
C.
rises slowly, the inflation rate is low
D.
rises slowly, the inflation rate is negative
Chapter 6 Solutions
Brief Principles of Macroeconomics (MindTap Course List)
Knowledge Booster
Similar questions
- Which of the following are signs of inflation? A.The price of a house in a high-demand market increased by 6% last year. B. CPI in the European Union was 101 in 2017 and 104 in 2018. c.The price of lithium-ion batteries falls as new production technologies make manufacturing cheaper.arrow_forwardThe table shows the quantities of the goods Suzie bought and the prices she paid during two consecutive weeks. Suzie's CPI market basket contains the goods she bought in Week 1. Calculate the cost of Suzie's CPI market basket in Week 1 and in Week 2. What percentage of the CPI market basket is gasoline? Calculate the value of Suzie's CPI in Week 2 and her inflation rate in week 2. The cost of her CPI market basket in Week 2 is $ 95.75. >>> Answer to 2 decimal places. Gasoline is 36.3 percent of the CPI market basket. >>> Answer to 1 decimal place. Week 1 Item The cost of Suzie's CPI market basket in Week 1 is $ 103.25. >>> Answer to 2 decimal places. The value of Suzie's CPI in Week 2 is >>> Answer to 1 decimal place. Coffee Books Gasoline Week 2 Item Coffee Books Gasoline Concert Quantity 13 cups 1 15 gallons Quantity 13 cups 2 5 gallons 1 ticket Price $2.75 a cup $30.00 each $2.50 a gallon Price $2.75 a cup $15.00 each $3.00 a gallon $95 eacharrow_forwardThe table shows the quantities of the goods Suzie bought and the prices she paid during two consecutive weeks. Suzie's CPI market basket contains the goods she bought in Week 1. Calculate the cost of Suzie's CPI market basket in Week 1 and in Week 2. What percentage of the CPI market basket is gasoline? Calculate the value of Suzie's CPI in Week 2 and her inflation rate in week 2. The cost of Suzie's CPI market basket in Week 1 is $ >>> Answer to 2 decimal places. m Week 1 Item Coffee Books Gasoline Week 2 Item Coffee Books Gasoline Concert Quantity 8 cups 1 25 gallons Quantity 8 cups 4 15 gallons 1 ticket Price $4.00 a cup $25.00 each $2.00 a gallon Price $4.00 a cup $12.50 each $2.50 a gallon $95 eacharrow_forward
- What is the effect of the sources of bias on the CPI calculation? A. Changes in relative prices lead consumers to change the items they buy, and the CPI reflects this substitution. B. The new goods bias injects a downward bias into the CPI. C. When faced with higher prices, people use discount stores more frequently and convenience stores less frequently, but the CPI doesn't include this outlet substitution. D. When the quality of a good improves over time, the CPI doesn't include the portion of the price rise attributable to the higher quality in its calculation.arrow_forwardWhat type of bias might be introduced if the CPI only represents the change in the price of a gallon of gas? A. new goods bias B. quality change bias C. commodity substitution bias D. outlet substitution biasarrow_forwardWhat is a consequence that arises from the CPI bias? A. A wage contract linked to the CPI gives workers less income than the firm intended. B. The bias in the CPI decreases government outlays. C. Tax adjustments based on the CPI decrease the amount paid in taxes. D. The bias in the CPI eliminates the need for people to shop in discount stores.arrow_forward
- If inflation is expected to increase, A. the nominal interest rate will increase. B. the nominal interest rate will decrease. C. the real interest rate will increase. D. the nominal interest rate will remain the samearrow_forwardWhat information is given by the CPI? The CPI tells us _______. A. the price level in a given period expressed as a percentage of the price level in the base period, which equals zero B. the price level in a given period expressed as a percentage of the price level in the base period, which equals 100 C. the inflation rate in a given period compared to the inflation rate in the base period, which equals 100 D. the inflation rate in a given period compared to the inflation rate in the base period, which equals zeroarrow_forwardThe table below pertains to Studious, an economy in which the typical consumer’s basket consists of 5 books and 10 calculators. Year Price of Books Price pf Calculator 2010 $24 $8 2011 $30 $12 2012 $32 $15 - Referring to the above table compute the followings: A- The cost of the basket. B- The consumer price index. C- The inflation rate in 2012.arrow_forward
- 7) In 2010, a bottle of Coke cost $1. In 2020, it would cost $1.50. The CPI for 2020 was 260 and the CPI for 2010 was 220. Which of the following statements is correct? A) The real price of Coke stayed the same. B) The real price of Coke decreased. C) The real price of Coke increased. D) The nominal price of Coke stayed the same.arrow_forwardWhat does it mean when the CPI is higher this year than last? Select one: a. The rate of inflation has increased. b. There has been inflation since last year. c. Real prices have increased. d. Real prices have decreased.arrow_forwardThe price of a brand-name laptop is $1,000 in 2018 and $1,100 in 2019. How could this price rise inject a bias into the CPI? A. If students buy more generic laptops when brand-name laptops experience a rise in price but the BLS ignores this commodity substitution, then the CPI understates inflation. B. If students buy their laptops online instead of in brick-and-mortar stores but the BLS ignores this outlet substitution, then the CPI understates inflation. C. If the laptop quality has increased but the BLS counts most of the price rise as inflation, then the CPI overstates inflation. D. The CPI has a bias of 1.1 percent a year regardless of price changes.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Essentials of Economics (MindTap Course List)EconomicsISBN:9781337091992Author:N. Gregory MankiwPublisher:Cengage LearningBrief Principles of Macroeconomics (MindTap Cours...EconomicsISBN:9781337091985Author:N. Gregory MankiwPublisher:Cengage Learning
- Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Essentials of Economics (MindTap Course List)
Economics
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Brief Principles of Macroeconomics (MindTap Cours...
Economics
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning