EBK ESSENTIALS OF ECONOMICS
7th Edition
ISBN: 8220102452107
Author: Mankiw
Publisher: CENGAGE L
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Chapter 16, Problem 3QCMC
To determine
Theprice hike and its affect on
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If a Pennsylvania gun manufacturer raises the priceof rifles it sells to the U.S. Army, its price hikes willincreasea. both the CPI and the GDP deflator.b. neither the CPI nor the GDP deflator.c. the CPI but not the GDP deflator.d. the GDP deflator but not the CPI.
What is the relationship between real GDP and 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)
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Similar questions
- 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 importsarrow_forwardexplain four main differences between the GDP Deflator and CPI, with one example for each difference.arrow_forwardBasket Items Unit $ per unit (2020) $ per unit (2021) $ per unit (2022) Cougar Tail 1 donut $5 $4.50 $4.25 Mint Brownie ½ sheet $29.98 $34.99 $39.99 Graham Canyon ice cream 5 quarts $14.99 $16.49 $17.99 Calculate the CPI for each year, using 2020 as the base year.arrow_forward
- Which goods are supposed to be included in the CPI? Group of answer choices All goods and services that typical consumers buy. All goods and services produced in the economy. All goods and services in the consumption component (C) of the GDP. All the goods, but not the services, in the consumption component (C) of the GDP.arrow_forwardhow would an increase in the price of Starbucks coffee effect the CPI and GDP deflator? both would rise CPI would raise but the deflator would stay constant CPI would stay constant but the deflator would rise both would fallarrow_forwardThe 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 2016-2020arrow_forward
- The data in the table below show the consumption by families in an economy. The year 2018 is the reference base period. Item Quantity (2018) Price (2018) Quantity (2019) Price (2019) Magazines 400 $5.00 450 $4.50 Movie tickets 50 $6.00 200 $8.00 Pizzas 100 $10.00 120 $10.50 Based on the table above, the CPI for 2019 is Part 2 A. 102.5. B. 100. C. 105.1. D. 5.0 percent. E. 98.5arrow_forwardSuppose you are a senior public servant writing a bill to index Social Security and pensions. That is your bill will adjust these benefits to offset changes in the cost of living. Will you use the GDP deflator or the CPI? Explainarrow_forwardThe information in the table identifies a market basket purchased by the average urban consumer, and the prices of the goods in two different years. The base year is 2015. Item Market Basket Price 2015 Price 2016 Movie tickets 4. $10 $13 Bags of $5 $8 poрcorn Drinks of soda 4. $4 $6 Calculate the consumer price index for 2016. Enter a number rounded to two decimal places. ASUSarrow_forward
- If only cars and bikes are sold in a country and the consumer price index(CPI) has exceeded the GDP deflator what does this mean for the prices of the cars and the bike? they remain the same? Do they change differently? how does the GDP deflator supposed to move with CPI?arrow_forwardConsider 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):arrow_forwardYear Income CPI 2012 2013 62,464 65,692 226.7 230.3 2014 2015 66,899 70,500 233.9 233.7 2016 72,904 236.9 Answer of the following questions using the data in the table above (Show the analysis): a) Provide the adjusted median incomes (convert to 2016 dollars) b) Calculate the mean of the nominal incomes c) Calculate the mean of the adjusted incomes d) Explain the importance of adjusting values for inflation (2-5 sentences)arrow_forward
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