Answered: Briefly discuss the most important…

Briefly discuss the most important differences between the calculation of the CPI and the GDP deflator and their consequences

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter18: Introduction To Macroeconomics: Unemployment, Inflation, And Economic Fluctuations

Section: Chapter Questions

Problem 19P

See similar textbooks

Related questions

Q: a. Calculate the inflation rate for % 2007-2008: 2008-2009: 2014-2015: 2015-2016: % b, c. Which…

A: Inflation is defined as a rise in the cost of consumer goods and services. Rising prices are…

Q: Consider the following table. Price Price Goods Production Import Export (2019) (2020) Good 49 17 18…

A: GDP is the gross domestic product which includes all the goods produced within the economic borders…

Q: The table below shows the GDP deflator and the CPI over the past five years. By what percentage did…

A: To ascertain a percentage change, first work out the distinction (increment/decrement) between the…

Q: The table below shows some data I got from FRED on the CPI and PCE deflator. The PCE deflator is a…

A: Inflation rate is calculated as a percentage change in PCE deflator or CPI. CPI calculated the…

Q: Please analyse it. How we found the GDP deflator and the CPI. I'm confused

Q: Suppose that the prices of capital goods (goods purchased by firms as investment) rose. How would…

A: In an economy, capital goods at ethe goods that are produced and consumed for the long-run.

Q: The market basket used to calculate the CPI in Aquilonia is 4 loaves of bread, 6 gallons of milk, 2…

A: The market basket at base year price (2005):The market basket at base year price (2005) can be…

Q: (a) What was the rate of growth of real GDP from 2016 to 2017, and 2017 to 2018? (b) What was the…

A: The GDP growth rate, or Gross Domestic Product growth rate, is a key economic indicator that…

Q: The table shows the cost of a fixed basket of goods that a typical urban consumer would buy in the…

A: Consumer price index refers to the changes in the price level of consumer goods and services…

Q: Explain the difference between GDP Deflator and Consumer Price Index. And explain problems in…

A: Macroeconomics studies the economy as a whole and focuses on the overall picture rather than…

Q: What is the relationship between real GDP and CPI

A: GDP refers to the final value of all goods and services produced in an economy within a year. It…

Q: The following table gives nominal GDP and the price index for two years. Find real GDP in each year,…

A: Here, the given table provides information about nominal GDP and price index for 2010 and 2011.

Q: Why is the Consumer Price Index likely more relevant to your own personal economic situation as…

A: For a product to be manufactured, cost is important and when cost is initiated, then process of…

Q: What is the main reason why GDP deflator and CPI differ from each other? A) CPI includes…

A: The measure that depicts the final value of goods and services being produced in an economy during a…

Q: The accompanying table contains the values of the two price indexes for the years 2010, 2011, and…

A: (1) The percentage change in GDP deflator measures the inflation rate. Inflation rate using the GDP…

Q: Explain the differences between the Consumer Price Index (CPI) and the GDP deflator

A: The consumer price index and GDP deflator are both used to measure inflation in the economy.…

Q: Consider an economy that produces and consumes bread and automobiles. In the table below are data…

A: Given information. Year 2010 Year 2025 Price of an auntomobile 5000 6000 Price of a loaf…

Q: Describe how the CPI is calculated. How might the CPI overstate the true increase in cost of living?

A: Consumer price index is a weighted average of price of fixed market basket of goods and services. It…

Q: ETIT Quantity (2011) Price (2011) Quantity (2012) $5.00 $6.00 Item Price Magazines 400 450 Movie…

A: CPI is measured using fixed basket of goods.

Q: Use the concept of real and nominal GDP to compare the years 1980 (Nominal GDP was $2.863 Trillion)…

A: We are going to calculate real GDP using price index levels.

Q: The market basket used to calculate the CPI in Aquilonia is 4 loaves of bread, 6 gallons of milk, 2…

A: [Dear student , as you have posted multiple questions , we are supposed to do only the first…

Q: Consider an economy that produces and consumes bread and automobiles. In the table below are data…

A: Nominal GDP measures the value of output at current year prices. Real GDP measures the value of…

Q: Using the Consumer Price Index (CPI) detailed in the table below, Year 1990 1991 1992 1993 1994 1995…

A: Inflation is defined as a rise in the cost of consumer goods and services. Rising prices are…

Q: explain four main differences between the GDP Deflator and CPI, with one example for each…

A: Differences between GDP deflator and CPI 1.Gross domestic product(GDP) deflator measures the…

Q: 2. The CPI was 96 in 1982, and the CPI was 208 in 2010. How much money would you have needed in 2010…

A: A consumer price index is a price index, the price of a weighted average market basket of consumer…

Q: The economy of Sumer produces only three products: rice, pajamas, and beer. The base year is 2018.…

A: Nominal GDP measures the market value of all final goods and services produced in an economy during…

Q: The table below presents a brief summary of City A’s total spending, local GDP, and population…

A: Gross Domestic Product (GDP) measures the value of final goods and services produced within the…

Q: The GDP deflator for this year is calculated by dividing the using by the using and multiplying by…

Q: Briefly explain how the CPI index summarizes all the prices in the economy by using a single number.

A: The purpose of CPI indexes is to summarize the information on all the prices of the multiple goods…

Q: One difference between the CPI and the GDP deflator is CPI uses a fixed basket, Deflator…

A: An economic indicator refers to a piece of economic data, often on a macroeconomic scale, that…

Q: Explain what is the difference between CPI and GDP deflator?

A: 2. Both CPI and GDP deflator is use to measure the inflation rate. Following are the difference…

Q: Basket Items Unit $ per unit (2020) $ per unit (2021) $ per unit (2022) Cougar Tail 1 donut $5 $4.50…

A: Inflation is measured using the consumer price index (CPI). It is used to calculate the typical…

Q: a. What is the cost of the CPI basket in 2000? b. What is the cost of the CPI basket in 2001? c.…

A: here we calculate the cost of the CPI basket and CPI of the following year which are as follow-

Question

Briefly discuss the most important differences between the calculation of the CPI and the GDP deflator and their consequences

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Explain what is the difference between CPI and GDP deflator?
The table below shows the GDP deflator and the CPI over the past five years. By what percentage did prices change between years for each measure? Instructions: Enter your answers as percentages rounded to two decimal places. Change in GDP Year GDP deflator CPI Change in CPI deflator 2016 100 100 2017 105 104 2018 112 110 2019 123 113 2020 128 122 2016-2020
explain four main differences between the GDP Deflator and CPI, with one example for each difference.
What is the main reason why GDP deflator and CPI differ from each other? A) CPI includes investments, while GDP deflator doesn’t B) CPI includes durable goods, while GDP deflator doesn’t C) GDP deflator includes exports, but not imports D) CPI includes exports, but not imports
Briefly explain how the CPI index summarizes all the prices in the economy by using a single number.
Explain the difference between GDP Deflator and Consumer Price Index. And explain problems in computing the CPI!
The economy of Sumer produces only three products: rice, pajamas, and beer. The base year is 2018. The quantities and prices of these products in 2018 and 2019 are shown in the table below. 2018 Price $5 Rice Pajamas Beer Total Quantity 460 160 95 Item Rice Pajamas Beer Total 15 Quantity 20 $ $ 2018 Nominal GDP $ d. The value of the CPI for 2019 is 2018 Price Quantity 520 175 100 a. Complete the table above. Calculate the nominal and real GDPs for the two years and enter the values in the table below. 2019 $ $ Nominal GDP Real GDP b. The value of the GDP deflator for 2019 is Answer to one decimal place. c. Supposing the average inhabitant of Sumer consumes 10 units each of beer and rice and 5 units of pajamas each year, complete the following table. 2018 Basket cost Price $5.7 14 23 2019 Price Answer to one decimal place. $ Real GDP 4
Consider the following table. Price Price Goods Production Import Export (2019) (2020) Good 49 17 18 A Good 36 10 19 B Good 22 11 8 C Good 59 59 46 39 Calculate the following (give your answer in 2-decimal places when applicable): a. The GDP for 2019: b. The CPI for 2020 (consider 2019 as the base year):
Consider an economy that produces and consumes bread and automobiles. In the table below are data for two different years: Year 2010 Year 2025 Price of an automobile $5000 $6000 Price of a loaf of bread $10 $20 Number of automobiles produced 100 120 Number of loaves of bread produced 500,000 400,000 Using the year 2010 as the base year, compute the following: nominal GDP, implicit price deflator and the CPI.
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 concept of real and nominal GDP to compare the years 1980 (Nominal GDP was $2.863 Trillion) and 2017 (Nominal GDP was $19.49 Trillion). 1980 Consumer Price Index was 82.14 and 2017 Consumer Price Index was 246.6. The base year is 1982 - 1984 when the CPI would have been 100.
Describe how the CPI is calculated. How might the CPI overstate the true increase in cost of living?