ECON 1BB3 Chapter 6: Chapter 6

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graybeetle998

17 Sep 2017

School

McMaster University

Department

Economics

Course

ECON 1BB3

Professor

Bridget O' Shaughnessy

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ECON 1BB3 Full Course Notes

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When consumer price index cpi) rises, typical family has to spend more dollars to maintain the same standard of living. It is a measure of overall cost of the goods and services bought by a typical consumer. Of time: compute the basket"s cost: as in the tablenotice only prices r changed n quantities r constant, choose a base year n compute the index: Cpi = (price of goods in one year/price in base year) * 100: compute the inflation rate: Inflation rate in yr 2 = [(cpi in yr 2 cpi in yr 1)/cpi in yr 1] * 100. Core inflation: the measure of underlying trend of inflation. 3 prbms: substitutions bias: prices do not change proportionately from one year to the next; some rise more than others. Consumers respond to them by buying less expensive goods. But in cpi case we have fixed basket of goods; so it ignore possibility of consumer substitution.

Related Questions

There are many different types of market baskets that economists measure. For example, the market basket for consumers called the 'Consumer Price Index' tracks the prices associated with the typical consumer's purchases of goods and services. The 'Producer Price Index' tracks the prices that firms receive when selling their goods and services.

Indicate the appropriate market basket to use in each of the following instances.

Consumer Price Index:

a)	Measuring differences in the cost of living between different cities.
b)	Examining price changes that might affect businesses.
c)	Measuring the cost of living for a typical consumer.

Producer Price Index:

A)	Measuring differences in the cost of living between different cities.
B)	Examining price changes that might affect businesses.
C)	Measuring the cost of living for a typical consumer.

amaranthbuffalo689

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.

1. The peak of the business cycle

a. usually occurs when the natural rate of unemployment is equal to its actual rate.

b. is the point where an expansion ends and a recession begins

c. is the minimum level of nominal GDP.

2. The consumer price index (CPI) reflects

a. the median annual expenditures of a typical single family of four on consumer goods

b. the average price of all goods and services computed from the ratio of nominal GDP to real GDP.

c. the changes in the prices of goods and services typically purchased by consumers.

3. The Consumer Price Index is NOT used

a. to measure the average price level of all final goods and services produced

b. to compute the U.S. inflation rate.

c. to measure changes in the cost of living

4. Which of the following is true of a price index that uses a fixed market basket?

a. It excludes new goods and services

b. It accurately predicts the impact of rising prices when purchases are made at superstores.

c. It overstates the importance of items that fall in price.

5. A quality-change bias in the construction of the CPI arises because

a. big box stores that carry electronic goods routinely run sales to reduce their inventories before stocking new models.

b. consumers also shop at superstores or outlet stores

c. newer versions of a product might be more expensive but could also be better than the older version.

greydeer734

ECON 1BB3 Chapter 6: Chapter 6

ECON 1BB3 Full Course Notes

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