a) Explain why fixed-weighted measures lead to substitution bias. Your answer b) What does the CPI in the base year equal to? c) Look at the following table. What is the base year? Nominal Nominal Year CPI Year CPI Income Income 1990 31.8 400 2003 96.5 45000 1991 34.4 650 2004 99.6 50000 1992 39.8 800 2005 103.9 55000 1993 40.2 2000 2006 107.6 65000 1994 41.8 5000 2007 109.6 70000 9000 12000 1995 44.4 2008 113.6 85000 1996 53.8 2009 118.3 90000 1997 56.9 15000 2010 124 105000 1998 60.6 19000 2011 130.7 115000 1999 65.2 22000 2012 136.2 125000 2000 72.6 28000 2013 140.3 132000 2001 82.7 32000 2014 144.5 137000 2002 90.9 35000 2015 148.2 150000
a) Explain why fixed-weighted measures lead to substitution bias. Your answer b) What does the CPI in the base year equal to? c) Look at the following table. What is the base year? Nominal Nominal Year CPI Year CPI Income Income 1990 31.8 400 2003 96.5 45000 1991 34.4 650 2004 99.6 50000 1992 39.8 800 2005 103.9 55000 1993 40.2 2000 2006 107.6 65000 1994 41.8 5000 2007 109.6 70000 9000 12000 1995 44.4 2008 113.6 85000 1996 53.8 2009 118.3 90000 1997 56.9 15000 2010 124 105000 1998 60.6 19000 2011 130.7 115000 1999 65.2 22000 2012 136.2 125000 2000 72.6 28000 2013 140.3 132000 2001 82.7 32000 2014 144.5 137000 2002 90.9 35000 2015 148.2 150000
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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The question is in the attached image. Answer all three
Transcribed Image Text:a) Explain why fixed-weighted measures lead to substitution bias.
Your answer
b) What does the CPI in the base year equal to?
c) Look at the following table. What is the base year?
Nominal
Nominal
Year
CPI
Year
CPI
Income
Income
1990
31.8
400
2003
96.5
45000
1991
34.4
650
2004
99.6
50000
1992
39.8
800
2005
103.9
55000
1993
40.2
2000
2006
107.6
65000
1994
41.8
5000
2007
109.6
70000
1995
44.4
9000
2008
113.6
85000
1996
53.8
12000
2009
118.3
90000
1997
56.9
15000
2010
124
105000
1998
60.6
19000
2011
130.7
115000
1999
65.2
22000
2012
136.2
125000
2000
72.6
28000
2013
140.3
132000
2001
82.7
32000
2014
144.5
137000
2002
90.9
35000
2015
148.2
150000
Your answer
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