Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506725
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Chapter 7, Problem 10CQ
To determine
Identify the difference in the
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Suppose you are a senior public servant writing a bill to index Social
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offset changes in the cost of living. Will you use the GDP deflator or
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The island nation of Coronia subsists entirely on pancakes and syrup. That is, they produce and consume only pancakes and syrup in the following amounts:
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(a) Using a method like the CPI, compute the CPI in 2019 and 2020 and percentage change in the overall price level from 2019 to 2020 (inflation rate). Use 2019 as the base year and fix the market basket at 4 pancakes and 2 syrups.
(b) Using a method like the GDP deflator, compute the GDP deflator in 2019 and 2020 and percentage change in the overall price level from 2019 to 2020 (inflation rate). Use 2019 as the base year.
(c) Is there a difference in the inflation rate using the two methods? Explain why or why not.
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Economics: Private and Public Choice (MindTap Course List)
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- What is the difference between using a measure of inflation such as the consumer prices index (CPI) and the GDP deflator? Which do you think is the more accurate measure of price changes in an economy?arrow_forwardExamine the following information as reported for the foods below in the years 2010 and 2019. 2010 2019 Item Price (S) Quantity Price (S) Quantity Eggs (one dozen) $2.75 27 $3.37 40 Chicken (500 g) $3.20 11 $3.57 7 Bread (675 g) $2.28 18 $2.83 23 a) Compute a simple price index for each of the items, using the year 2010 as the base year. Enter them in the same order as above: Eggs, Chicken, Bread. Round answers to 1 decimal. b) Compute a simple aggregate price index. Use 2010 as the base period. Round to one decimal place. c) Compute the Laspeyres price index for 2019 using 2010 as the base year. Round to one decimal place. d) Determine a value index for 2019, using 2010 as the base year. Round to one decimal place.arrow_forwardThe 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 servicesarrow_forward
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