EBK PRINCIPLES OF ECONOMICS
7th Edition
ISBN: 8220102958395
Author: Mankiw
Publisher: CENGAGE L
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Chapter 24, Problem 3QCMC
To determine
Theprice hike and its affect on CPI and GDP deflator.
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Price (2011) Quantity (2012)
$5.00
$6.00
Item
Quantity (2011)
Price (2012)
Magazines
450
200
$4.50
$8.00
$10.50
400
Movie tickets
50
Pizzas
100
$10.00
120
The data in the table above shows the consumption by families in an economy. The year 2011 is the reference base period.
Based on the table above, the CPI for 2012 is
A. 105.1.
B. 5.0 percent.
C. 102.5.
O D. 100.
O E. 98.5.
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.
Explain what is the difference between CPI and GDP deflator?
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- 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)arrow_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_forwardWhat 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_forward
- Explain the difference between GDP Deflator and Consumer Price Index. And explain problems in computing the CPI!arrow_forwardDescribe how the CPI is calculated. How might the CPI overstate the true increase in cost of living?arrow_forwardexplain four main differences between the GDP Deflator and CPI, with one example for each difference.arrow_forward
- In a simple economy, people consume only two goods: food and clothing. The market basket of goods used to compute the CPI has 40 units of food and 20 units of clothing. Food Clothing Last year's price $10 $ 18 This year's price $14 $21 a) What are the percentage increases in the price of food? Number b) What are the percentage increases in the price of clothing? Number c) What is the percentage increase in the CPI? Numberarrow_forwardWhich 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_forwardA Consumer Expenditure Survey in Sparta shows that people buy only juice and cloth. In 2015, the year of the Consumer Expenditure Survey and also the reference base year, the average household spent $20 on juice and $12 on doth The price of juice in 2015 was $2 a bottle, and the price of doth was 54 a yard. In 2016, juice is $6 a bottle and cloth is $3 a yard Calculate the CPI in 2016 and the inflation rate between 2015 and 2016. The CPI in 2016 is >> Answer to 1 decimal place.arrow_forward
- how 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 shows the quantities in the CPI basket and the prices in 2018, 2019, and 2020. The reference base year is 2018. Item Quantity 2018 Price 2019 Price 2020 Price Bread 2 loaves $0.50 a loaf $0.75 a loaf $0.75 a loaf Milk 5 cartons $0.75 a carton $1.00 a carton $0.75 a carton Eggs 3 dozen $2.00 a dozen $3.00 a dozen $2.50 a dozen Calculate the cost of the CPI basket in 2019 prices and the cost of the CPI basket in 2020 prices. Calculate the CPI in 2019 and in 2020. Calculate the inflation rate in 2020. The cost of the CPI basket in 2019 prices is $nothing and the cost of the CPI basket in 2020 prices is $nothing. >>> Answer to 2 decimal places. The CPI in 2019 is nothing and the CPI in 2020 is nothing. >>> Answer to 1 decimal place. The inflation rate in 2020 is nothing percent.arrow_forwardA Consumer Expenditure Survey in Sparta shows that people buy only juice and cloth. In 2015, the year of the Consumer Expenditure Survey and also the reference base year, the average household spent $24 on juice and $20 on cloth. The price of juice in 2015 was $3 a bottle, and the price of cloth was $4 a yard. In 2016, juice is $4 a bottle and cloth is $3 a yard. Calculate the CPI in 2016 and the inflation rate between 2015 and 2016. 1- The CPI in 2016 is… 2- The inflation rate between 2015 and 2016 is ……percent.arrow_forward
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