ECON 1101 Chapter Notes - Chapter 6: Price Signal, Menu Cost, Relative Price

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13 Jun 2015

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Chapter 6: measuring the price level and inflation. The consumer price index (cpi) is an example of a fixed-weight price index. The cpi is calculated by measuring the prices of a fixed bundle of goods. Using our example from chapter 5: production (no. of units) We found that the gdp deflator for 2014 was: 100 = (nominal gdp/real gdp) (446/355) . The gdp deflator represents: cost of 2014 goods at 2014 prices cost of 2014 goods at 2013 prices. To calculate the cpi, assume that the fixed bundle is represented by the quantities produced in. Cpi2014 = cost of 2013 bundle at 2014 prices cost of 2013 bundle at 2013 prices. According to the cpi, prices increased by ____% between 2013 and 2014. Notice that the inflation rate according to the cpi (____%) is not the same as the inflation rate according to the gdp deflator (____%).

Related Questions

Consider an economy that produces and consumes bread and automobilies , In the following table are data for two different years

	YEAR 2000	YEAR 2000	YEAR 2010	YEAR 2010
GOOD	QUANTITY	PRICE	QUANTITY	PRICE
AUTOMOBILES	100	$50000	120	$60.000
BREAD	500.000	$10	400.000	$20

a)Using the year 2000 as the base year ,compute the following statistics for each year : nominal GDP ,real GDP ,the implicit price deflator for GDP ,and a fixed-weight price index such as the CPI

b)How much have prices risen between 2000 and 2010? Compare the answers given by the Laspeyres and Paasche price indexes. Explain the difference

c) Supopose you are a senator writing a bill to index Social Sewcurity and federal pensions. That is ,yout bill will adjust these benefits to offset changes in the cost of living. Will you use the GDP deflator or the CPI? Why?

Table 24-7. The table below applies to an economy with only two goods â hamburgers and hot dogs. The fixed basket consists of 4 hamburgers and 8 hot dogs.

Year	Price of hamburgers	Price of hot dogs
2009	$5	$3
2010	5.50	3.30
2011	5.61	3.63

Refer to Table 24-7. Between 2009 and 2011, the cost of living increased by

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because

A. the CPI is calculated more often than the GDP deflator is.

B. the CPI is easier to measure.

C. the GDP deflator cannot be used to gauge inflation.

D. the CPI better reflects the goods and services bought by consumers.

A COLA automatically raises the wage when:

A. the consumer price index increases.

B. the producer price index increases.

C. taxes increase.

D. GDP increases.

Consider a simple economy that only produces two goods; apples and oranges. The following table shows prices and quantities over a 3 year period.

	Price of	Quantity of	Price of	Quantity of
YEAR	Apples	Apples	Oranges	Oranges
2012	2	20	1	10
2013	3	24	2	12
2014	4	30	3	20

Use the information from the previous table to fill out the following table:

		Real GDP	GDP
YEAR	Nominal GDP ($)	(The base year 2012)($)	Deflator
2012
2013
2014

Choose one from each:

From 2013 to 2014, nominal GDP (increased or decreased) and real GDP (increased or decreased).

The inflation rate in 2014 was (10%, 40.6%, 29.4%, -28.9%, or -9.1%).

Why is real GDP a more accurate measure of an economyâs production than nominal GDP?

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ECON 1101 Chapter Notes - Chapter 6: Price Signal, Menu Cost, Relative Price

ECON 1101 Full Course Notes

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