EBK ESSENTIALS OF ECONOMICS
8th Edition
ISBN: 8220103599832
Author: Mankiw
Publisher: Cengage Learning US
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Question
Chapter 16, Problem 6PA
Subpart (a):
To determine
Identify the problem with
Subpart (b):
To determine
Identify the problem with CPI.
Subpart (c):
To determine
Identify the problem with CPI.
Subpart (d):
To determine
Identify the problem with CPI.
Subpart (e):
To determine
Identify the problem with CPI.
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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 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 each
Which of the following statements about the CPI is true? How does the PCEPI differ from the CPI?
The CPI _______.
A.
has a bias of approximately 2.0 percentage points a year
B.
is a measure of the change in the amount of money that people need to spend to achieve a given standard of living
C.
measures all the changes in the cost of living
D.
is a relatively useless measure because every year new goods become available and some old goods disappear
The PCEPI _______.
A.
uses the same market basket as the CPI but gives a greater weight to sticky-price items
B.
introduces even more biases into the inflation rate than the CPI
C.
excludes the prices of food and energy
D.
uses the prices of goods and services included in the consumption expenditure component of GDP
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- Please solve weeks 1 and 2 percentage of the CPI market basket.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 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_forwardIn each scenario, determine the effects on the CPI and the GDP deflator. Armani raises the price of the Italian jeans it sells in Saudi Arabia.arrow_forward
- Which of the following statements is true if the CPI rises from 120 to 126? If the CPI rises from 120 to 126, then _______. A. on average, the price paid by urban consumers for a fixed basket of consumer goods and services rises by 5 percent B. on average, the price paid by urban consumers for a fixed basket of consumer goods and services rises by 6 percent C. the price of food rises by 6 percent D. the price of housing rises by at least 5 percentarrow_forwardHow does commodity subsitution bias influence the CPI? The CPI ____ consumer subisuttions between goods, so when the price of carrots rises and consumers switch to broccoi, the CPI ____ the rise in the price of vegetables. A. ignores; overstates B. incorporates; correctly measures C. ignores; correctly measures D. incorporates; overstatesarrow_forwardEconomists in the Statistics Bureau decide to check the CPI substitution bias. To do so, they conduct a Consumer Expenditure Survey in both 2018 and 2019. The table shows the results of the survey. It shows the items that consumers buy and their prices. 2018 2019 Item Quantity Price Quantity Price The Statistics Bureau fixes the reference base year as 2018. Burgers 30 $1 35 $1 Chicken 35 $4 25 $6 Calculate the CPI in 2019 if the CPI basket contains the 2019 quantities. The CPI in 2019 if the CPI basket contains the 2019 quantities is >>> Answer to 1 decimal place. Question Viewer Enter your answer in the answer box. MacBook Air DII DD F11 F10 000 000 888 F9 80 F7 F8 F6 F5 F4 F3 esc F2 F1 & % ! @ 6 7 8 2 3 4 5 1 | P Y U Q W E R tab K 云 00 %24arrow_forward
- Mr. G says that “A 20% increase in the price of salt has a greater impact on the CPI than a 20% increase in the price of dark chocolate”. With proper reasoning state whether you agree with this statement or not.arrow_forwardExamine the price-change numbers shown in the picture a. Use the formula to calculate the increase in the CPI from March 2007 to March 2008 to two decimal places. Verify that the number shown in the table is correct to a single decimal place. b. The level of the CPI in March 2007 was 205.10. Calculate the CPI for March 2008arrow_forwardIn a simple economy, people consume only two goods: food and clothing. The market basket of goods used to compute the CPI has 50 units of food and 10 units of clothing. Food Clothing Last year's price $4 $8 This year's price $6 $16 a. What are the percentage increases in the price of food and in the price of clothing? b. What is the percentage increase in the CPI? c. Do these price changes affect all consumers to the same extent? Explainarrow_forward
- Use the following table to answer the question. The table shows the prices and the quantities consumed in Vegetarian Country. Suppose the base year is 2020. Also, suppose that 2020 is the year the typical consumption basket was determined, so the quantities consumed in 2020 are the only quantities needed to calculate the CPI in each year. Year Price of Celery Price of Carrots $2.00 2.50 2.75 Quantity of Carrots 100 90 105 2020 2021 2022 What is the inflation rate for 2021? a. 0 percent b. 9.2 percent c. 11 percent d. 13.3 percent e. None of the answer choices are correct. $1.00 0.90 1.00 Quantity of Celery 100 120 130arrow_forwardSuppose the price of a quart of milk rises from $1.00 to $1.20 and the price of a T-shirt rises from $8.00 to $9.60. If the CPI rises from 150 to 195, then people likely will buy (Note that this is not a two goods economy anymore) a.more milk and more T-shirts. b.more milk and fewer T-shirts. c.less milk and more T-shirts. d.less milk and fewer T-shirts. Suppose the price of a gallon of ice cream rises from $4 to $5 and the price of a can of coffee rises from $2 to $2.50. If the CPI rises from 150 to 177, then people likely will buy a.more ice cream and more coffee. b.more ice cream and less coffee. c.less ice cream and more coffee. d less ice cream and less coffee. Can you please explain how we got answer a for the first question and d for the second one. Thank you.arrow_forwardPlease dont answer Question 1. Just the scenario for Question 2. Computing the CPI: 1. The table below shows a hypothetical typical consumer’s market basket that consists of 10 units of beef and 20 units of chicken. Year Price of Beef Price of Chicken 2018 $4 $4 2019 $5 $5 2020 $9 $6 A. Compute the CPI in 2019. B. What is the CPI inflation rate from 2019-2020? CPI vs. GDP deflator: 2. In each scenario, determine the effects on the CPI and the GDP deflator: A. Starbucks raises the price of Frappuccino (assuming Frappuccino is in the CPI basket). B. Caterpillar raises the price of the industrial tractors it manufactures at its Illinois factory. C. Armani raises the price of the Italian jeans it sells in the U.S. (assuming this good is included…arrow_forward
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