Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 24, Problem 3QCMC
To determine
Theprice hike and its affect on CPI and GDP deflator.
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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.
The table shows the cost of a fixed basket of goods that a typical urban consumer would buy in the economy of Kindleberger. The base period for the consumer price index (CPI) is the year 2000. Please specify answers to two decimal places.
Year
Cost of a basket of goods
2000
$5,150.00
2011
$4,500.00
2012
$7,725.00
What is the CPI for 2000?
CPI for 2000:
What is the CPI for 2011?
CPI for 2011:
What is the CPI for 2012?
CPI for 2012:
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)
Chapter 24 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
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- Consider the following basket of student essentials: 2019 2020 Burritos $6.30 $6.60 Pizzas $9.90 $10.00 Movie Tickets $10.00 $10.50 Energy Drinks $4.99 $5.99 a. Using 2019 as the base year, what is the CPI in 2019? b. Assume students buy 30 burritos, 25 pizzas, 15 movie tickets, and 200 energy drinks each year. What is the CPI in 2020 using 2019 as a base year? What is the inflation rate? Would this rate be higher or lower if students bought more energy drinks?arrow_forwardIn 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_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_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_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 $18 on juice and $24 on cloth. The price of juice in 2015 was $2 a bottle, and the price of cloth was $6 a yard. In 2016, juice is $3 a bottle and cloth is $4 a yard. Calculate the CPI in 2016 and the inflation rate between 2015 and 2016.arrow_forward
- A 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 $27 on juice and $20 on cloth. The price of juice in 2015 was $3 a bottle, and the price of cloth was $5 a yard. In 2016, juice is $5 a bottle and cloth is $4 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. The inflation rate between 2015 and 2016 is percent. >>> Answer to 1 decimal place. >>> If your answer is negative, include a minus sign. If your answer is positive, do not include a plus sign.arrow_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_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_forward
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