Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 22, Problem 2.3P
To determine
Bundle price indexation and inflation.
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The market basket used to calculate the CPI in Aquilonia is 4 loaves of bread, 6 gallons of milk, 2 shirts, and 2 pairs of pants. In 2005, bread cost $1.00 per loaf, milk cost $1.50 per gallon, shirts cost $6.00 each, and pants cost $10.00 per pair. In 2006, bread cost $1.50 per loaf, milk cost $2.00 per gallon, shirts cost $7.00 each, and pants cost $12.00 per pair. Using 2005 as the base year, what was Aquilonia’s inflation rate in 2006?
This question is stumping me. I thought that this answer was 124.4 but it seems that it is 24.4. I cant figure it out
The GDP deflator for this year is calculated by dividing the
using
by the
using
and multiplying by 100.
However, the CPI reflects only the prices of all goods and services
The CPI is used to measure the cost of a typical basket of goods. The typical household in
the nation of Jaskson buys 4 loaves of bread, 3 pounds of cream cheese, and 8 books each
week. The prices of these goods in years 2015-2017 are given the table below:
Price of a
Year loaf of
bread
2015 $1
2016 $2
2017 $3
Price of a lb
of cream
cheese
$3
$6
$6
Price of a
book
$10
$20
$25
• Calculate the CPI in 2015, using 2016 as the base year.
(Enter your answer as an Integer)
Chapter 22 Solutions
Principles of Economics (12th Edition)
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- In the country of Gastronamia, the CPI is calculated using a market basket consisting of 6 apples, 5 loaves of bread, 4 robes, and 3 gallons of gasoline. The per-unit prices of these goods have been as follows: Year 2008 2009 2010 2011 Apples $1.00 $1.00 $2.00 $3.00 Bread $2.00 $1.50 $2.00 $3.00 Robes $10.00 $9.00 $11.00 $15.00 Gasoline $1.00 $1.50 $2.00 $2.50 Using 2009 as the base year, determine the following: places.) (Round all to two decimal 2008 CPI: 2009 CPI: 2010 CPI: 2011 CPI: 2009 Inflation rate: 2010 Inflation rate: 2011 Inflation rate:arrow_forward2018 2019 Item Quantity Price Quantity Price Books 10 €30 8 €50 Pens 20 €1 15 €2 In 2018, consumers in a hypothetical economy consumed only books and pens. The prices and quantities for 2018 and 2019 are listed in the table above. The reference base period is 2018. Calculate the CPI in 2019. Give only a numerical answer. Where needed, use only a point () for decimals (e.g., 3.25, not 3,25) and no thousands separator (e.g., 2000, not 2,000).arrow_forwardAssume that people in an economy only consume the following goods shown in the table: Rice Meat Juice Year 1 price P2 P4 P1 Year 1 quantity 100 100 200 Year 2 price P2 P6 P2 Year 2 quantity 100 100 200 Calculate the % change in the price of every goods. Using the same method with the CPI, calculate the % change of the overall price level. If you were to learn that juice increased in size from Year 1 to Year 2, should that information affects your calculation of the inflation rate? If so, how? If you were to learn that juice introduced new flavors in Year 2, should that information affect your calculation of the inflation rate? If so, how?arrow_forward
- The market basket used to calculate the CPI in Aquilonia is 4 loaves of bread, 6 gallons of milk, 2 shirts and 2 pants. In 2001 bread cost $1.00 per loaf, milk cost $1.50 per gallon, shirts cost $6.00 each and pants cost $10.00 per pair. In 2002 bread cost $1.50 per loaf, milk cost $2.00 per gallon, shirts cost $7.00 each and pants cost $12.00 per pair. What was the inflation rate, as measured by the CPI, for Aquilonia between 2001 and 2002? a. 24.4 percent b. 21.6 percent c. It is impossible to determine without knowing the base year. d. 30 percentarrow_forwardThe market basket used to calculate the CPI in Aquilonia is 4 loaves of bread, 6 gallons of milk, 2 shirts and 2 pants. In 2001 bread cost $1.00 per loaf, milk cost $1.50 per gallon, shirts cost $6.00 each and pants cost $10.00 per pair. In 2002 bread cost $1.50 per loaf, milk cost $2.00 per gallon, shirts cost $7.00 each and pants cost $12.00 per pair. What was the inflation rate, as measured by the CPI, for Aquilonia between 2001 and 2002? O a. It is impossible to determine without knowing the base year. O b. 21.6 percent O C 24.4 percent d. 30 percent Which of the following statements is correct? O a. GDP at factor cost = Net price increase + direct tax O b. GDP at factor cost = Net Value Addition + Depreciation O c. GDP at factor cost = Net price increase + indirect tax O d. GDP at factor cost = Net Value Addition - Depreciationarrow_forwardOne difference between the CPI and the GDP deflator is CPI uses a fixed basket, Deflator uses current production quantities CPI use current production quantities, Deflator uses a fixed basket of goods CPI measures price changes for consumer goods only, GDP deflator measures price changes for producer goods only CPI excludes imported goods while the deflator does notarrow_forward
- One criticism of the CPI is that the market basket used in the CPI may not reflect current spending priorities. Which of the following is an example of this? Personal computers were less powerful in 1982-1984. Cell phones are more commonly purchased today than in 1993-1995. Using extreme couponing methods, a family can save hundreds of dollars a month. Goods cost more in Alaska and Hawaii due to transportation costs.arrow_forwardThis table gives the monthly purchases of an average consumer in a small economy. Suppose 1977 is the reference base period unless stated otherwise. Item Quantity (1977) Clementines Burritos Bags of trail mix 90 Price (1977) 30 $0.10 $2.00 10 $1.00 $2.00 Find the total cost of the market basket for 1977 and 1978. Price (1978) What is the CPI in 1977 and 1978? $0.15 $2.25 Use the CPIs calculated in part b to find the inflation rate between 1977 and 1978. Recalculate the CPIs using 1978 as the base year. How does the inflation rate change?arrow_forwardWhat is the interpretation of a consumer price index (CPI) of 122 in year X? A bundle of goods in year X costs $22 more than in the base year. A bundle of goods in year X costs $122 more than in the previous year. A bundle of goods in year X costs 122% more than in the base year. A bundle of goods in year X costs 22% more than the previous year. A bundle of goods in year X costs 22% more than in the base year. p_arrow_forward
- As a result of a drought, prices and produced quantities in a country change as follows: Assume that the economy produces and consumes only the above agricultural products.a) Calculate the nominal GDP and the real GDP for the year 2021 with the base year 2020.b) By how many percent have the prices of goods increased?c) Calculate the CPI for the year 2021 according to Laspeyres and Paasche.d) Describe the general differences between the CPI and the GDP deflator.arrow_forwardThe CPI was 218.1 in 2010 compared to 99.6 in 1983. Suppose that the price of a ticket at a local movie theater rose from $4 to $10 between 1983 and 2010. Did the real ticket price increase or decrease? Calculate the 1983 ticket price measured in 2010 dollars.arrow_forwardYear Price of a pound of Bacon (10 units) Price of a dozen Eggs (15 units) Price of a pound of Coffee (20 units) $5.50 $1.75 $4.00 $5.25 $2.00 $4.50 3. $5.50 $2.00 $5.00 Use the information in the table above to calculate the CPI in Year 2, using Year 1 as the base year. Round to the nearest whole number.arrow_forward
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