QUESTION 29Suppose manufacturers introduce a new model car to replace a car currently included in the CPI basket. The price of the new car is 10percent higher than the discontinued model, but the new car also includes additional safety features. In this situation the CPI will tend toinflation as a result ofbias.A. understate; substitutionB. overstate; substitutionC. overstate; quality adjustmentunderstate; quality adjustmentD.

The CPI (Consumer Price Index) basket, also known as the "market basket," is a representative…

Answered: Suppose manufacturers introduce a new…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The 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 each
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.
The consumer price index (CPI), is based on a typical market basket of goods?Explain how?
Commodity substitution bias _______ when the CPI is calculated in 2021 using the 2020 market basket because _______. A. exists; over time preferences change and people prefer to eat pizza rather than pasta B. does not exist; pizza and pasta are not substitutes C. exists; people switch from the relatively more expensive pasta to the relatively less expensive pizza D. does not exist; the CPI market basket is updated frequently to eliminate substitution bias
In 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.
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.
The table below gives the CPI and the price of gasoline per gallon in the fictitious country "Alpha" between 2010 and 2015. For each year find the percent change in the price of gasoline from the previous year's price, the CPI inflation rate, and the change in the relative price of gasoline. Instructions: Enter your responses rounded to two decimal places for change in gasoline price and inflation, and one decimal place for percent values in the relative price change. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. Year 2010 2011 2012 2013 2014 2015 Gasoline price ($/gallon) $ 2.25 $ 2.35 $ 2.49 $ 2.60 $ 2.72 $ 2.86 Percent change in gasoline price 4.44 % 5.95 % 4.41 % 4.61 % 5.14 % CPI 2.25 2.28 2.34 2.38 2.42 2.70 Inflation % % % % % Change in relative price of gasoline % % % %
The first two columns of the table below describe the goods and quantities included in your current monthly consumption. Suppose you have been able to use all of your monthly income (no savings) to afford this level of fixed consumption over the last few years despite the increase in the cost of living. • Round all expenditure calculations to the nearest dollar. • Round CPI and inflation (expressed as an integer) to 1 decimal place. • Carry your rounded figures throughout the rest of the problem. 2018 2019 2020 Basket Prices Prices Item Prices Quantities Meal Kit Delivery $106.00 8 $107.00 $110.25 $48.25 $50.00 $46.00 $53.00 Water 16 Hydro Electricity 14 $56.90 $58.75 Dry cleaning $62.00 10 $64.75 $68.00 Entertainment $26.00 17 $28.75 $32.80 Part (a): Using the quantities specified in the 2018 basket of goods, calculate the CPI for 2018, 2019 and 2020. Part (b): What is the inflation rate between 2018 and 2019? 2019 and 2020? Part (c): Suppose inflation is expected to remain constant…
Locate an example of the localized Atlanta/Sandy Springs/Roswell CPI that is performing better than the national CPI. State the two numbers you researched--local and national-- and forecast based on the October data how you think the November data will look for both local/national CPIs. Will the local CPI continue to perform better than national? Will it slow down to align with national? Locate an example of the localized Atlanta/Sandy Springs/Roswell CPI that is performing worse than the national CPI. State the two numbers you researched--local and national-- and forecast based on the October data how you think the November data will look for both local/national CPIs. Will the local CPI improve so that it is more in line with the national CPI?
The cost of a gallon of gasoline was $0.57 in 1975. If the cost of gasoline grew with inflation what would the cost be in 2021? How does this compare this to the actual cost of gasoline in 2021? Explain your answer using a meaningful sentence. CPI in 1975 was 53.8 CPI in 2021 was 270.97
By not taking into account consumers' ability to substitute toward goods that become relatively cheaper over time, the CPI Group of answer choices may overstate or understate the increase in the cost of living, depending on how quickly prices rise., (Incorrect answer)may overstate or understate the increase in the cost of living, depending on how quickly prices rise. may overstate or understate the increase in the cost of living, regardless of how quickly prices rise. understates the increase in the cost of living. overstates the increase in the cost of living.
Suppose the price level reflects the number of dollars needed to buy a basket of goods containing one cup of coffee, one donut, and one newspaper. In year one, the basket costs $6.00. In year two, the price of the same basket is $7.00. From year one to year two, there is at an annual rate of . In year one, $12.00 will buy baskets, and in year two, $12.00 will buy baskets. This example illustrates that, as the price level rises, the value of money .

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