ECON 200 Lecture 27: Econ 200,University of Arizona,Lecture(p27)

24 views1 pages

ivorysea-lion839

30 Aug 2018

School

University of Arizona

Department

Economics

Course

ECON 200

Professor

ALL

For unlimited access to Class Notes, a Class+ subscription is required.

azurerhinoceros284 and 2 others unlocked

ECON 200 Full Course Notes

Verified Note

27 documents

Document Summary

Calculating cpi: 1. identify market basket 2. choose base year and the market prices 3. find prices of market basket in current year 4. calculate cpi 5. calculate inflation rate. Cpi is a fixed basket of goods, but gdp uses fixed prices. Cpi includes only consumption goods, but gdp deflator uses all final goods and services. Cpi includes prices of imports while gdp deflator excludes prices of imports. Real wages: adjusted for inflation; better measure of purchasing power; used to compare wages over time (better measure of purchasing power) Interest: represents a payment in the future for a transfer of money in the past. Nominal interest rates: interest not adjusted for inflation, quoted on loans and paid on savings. Real interest rates: interest rates that have been adjusted for inflation, a better measure of the cost of borrowing/lending, measures changes in purchasing power. Fisher effect: relationship between nominal and real interest rates.

Related Questions

The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year.

Year	Consumer Price Index	Inflation Rate
2005	100
2006	115	B
2007	125	C
2008	140	D
2009	A	10%
2010	160	E

8.7%

120

25%

12%

The price index was 170 in the first year, 180 in the second year, and 195 in the third year. The inflation rate was about

5.9 percent between the first and second years, and 8.3 percent between the second and third years.

5.6 percent between the first and second years, and 7.7 percent between the second and third years.

10 percent between the first and second years, and 15 percent between the second and third years.

80 percent between the first and second years, and 95 percent between the second and third years.

0.1 points

QUESTION 17

The price index was 150 in the first year, 142.5 in the second year, and 138.2 in the third year. The economy experienced

		5.0 percent deflation between the first and second years, and 3.0 percent deflation between the second and third years.
		7.5 percent deflation between the first and second years, and 4.3 percent deflation between the second and third years.
		5.3 percent inflation between the first and second years, and 4.1 percent inflation between the second and third years.
		7.5 percent inflation between the first and second years, and 4.3 percent inflation between the second and third years

0.1 points

QUESTION 18

Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?

The real interest rate is the nominal interest rate minus the rate of inflation.

The real interest rate is the nominal interest rate times the rate of inflation.

The real interest rate is the nominal interest rate plus the rate of inflation.

The real interest rate is the nominal interest rate divided by the rate of inflation.

0.1 points

QUESTION 19

If the nominal interest rate is 6 percent and the rate of inflation is 2 percent, then the real interest rate is

4 percent.

-4 percent.

3 percent.

8 percent.

0.1 points

QUESTION 20

If the nominal interest rate is 7 percent and the real interest rate is -2.5 percent, then the inflation rate is

9.5 percent.

4.5 percent.

-4.5 percent.

-9.5 percent.

. From 2009 to 2010, the CPI for education increased from 279.3 to 281.8. What was the inflation rate for education between 2009 and 2010?

0.9%

9.0%

2.5%

90%

If the consumer price index changes from 125 in September to 150 in October, what is the rate of inflation?

20.0%

45.5%

16.7%

9.1%

. Suppose a basket of goods and services has been selected to calculate the CPI and 2014 has been selected as the base year. In 2013, the basketâs cost was $80; in 2014, the basketâs cost was $86; and in 2015, the basketâs cost was $90. The value of the CPI in 2015 was

104.6 and the inflation rate was 4.6%.

112.5 and the inflation rate was 4.6%.

112.5 and the inflation rate was 12.5%.

104.6 and the inflation rate was 12.5%.

Suppose a basket of goods and services has been selected to calculate the CPI. In 2002, the basketâs cost was $80; in 2008, the basketâs cost was $92; and in 2010, the basketâs cost was $108. The base year must be

The base year cannot be determined from the given information.

2002

2008

one of the years between 2008 and 2010.

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been chosen as the base year. In 2012, the basketâs cost was $80.00; in 2013, the basketâs cost was $84; and in 2014, the basketâs cost was $87.60. The value of the CPI was

All of the above are correct.

109.5 in 2014.

105 in 2013.

100 in 2012.

Which of the following is correct?

The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers.

The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers.

The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers.

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

The inflation rate is defined as the

percentage change in the price level from the previous period.

price level in an economy.

change in the price level from one period to the next.

price level minus the price level from the previous period.

Economists use the term inflation to describe a situation in which

the economy's overall price level is rising.

some prices are rising faster than others.

the economy's overall price level is high, but not necessarily rising.

the economy's overall output of goods and services is rising faster than the economy's overall price level.

4. Suppose the economy of Stockton produces four goods: strawberries, ice cream, sushi, andcoolers. However, consumers only purchase strawberries, ice cream, and sushi. Coolers are a final good, but are only used by ice cream trucks to store ice cream. The total production of all final goods is given in the table below: Year Strawberries Ice Cream Quantity Price ($ per unit) Quantity Price ($ per unit) 2010 8 $4 10 $2 2011 9 $5 14 $2 2012 10 $6 18 $3 Year Quantity Sushi Price ($ per unit) Coolers Quantity Price ($ per unit) 2010 12 $3 1 $12 2011 12 $3 2 $8 2012 15 $4 8 $2 (a) Using 2010 as the base year, calculate the value of the CPI in each year, and thencalculate the rate of inflation based on the CPI for all years (i.e., inflation rate from 2010 to 2011 and from 2011 to 2012). (b) Keeping in mind that the GDP deflator is a fixed-prices measure (fixed in the base year),calculate nominal GDP and real GDP for each year using 2010 as the base year. Using the expression for the GDP deflator, calculate the value of the GDP deflator in each year, then calculate the rate of inflation based on the GDP deflator for all years (i.e., inflation rate from 2010 to 2011 and from 2011 to 2012). (c) The following table gives the average nominal wage (in thousands) of workers in Stockton. In which year did they have the highest real wage?

sangriadolphin669

Suppose that the are two goods in the economy, Xylophones (X) and Yams (Y). In year t, consumers in the economy purchase 20 Xylophones at a price of $20 each and 100 Yams at a price of $2 each. In year t + 1, consumers in the economy purchase 18 Xylophones at a price of $30 each and 150 Yams at a price of $2.50 each.

1. Calculate the GDP deflator in years t and t + 1 with base year t. What is inflation according to this deflator? Show each step. (Hint: it will be helpful for you to first calculate nominal and real GDP in years t and t + 1. When you calculate real GDP, make sure that you use the appropriate base year).

2. Calculate the GDP deflator in years t and t + 1 with base year t + 1. What is inflation according to this deflator? Show each step. (Hint: you will need to calculate real GDP in years t and t + 1 using a different base year than you used in part 1. Once you calculate real GDP with the appropriate base year, you will follow the same steps that you did in part 1.)

3. Compare your answers to a and b above. Are they the same? If not, why not? How does chain-weighting address any potential difference?

4. Calculate the CPI in years t and t + 1, using year t as the base year.

5. Describe two ways in which the CPI differs from the GDP deflator.

6. There are several problems with using the CPI to calculate real GDP and measure growth. One of these problems is that the CPI does not account for changes in the quality of goods sold over time. A computer today is significantly more efficient than it was even just ten years ago, so even if the price of computers rise with inflation, you are getting significantly more computing power per dollar. How would this bias estimates of GDP growth and inflation?

ECON 200 Lecture 27: Econ 200,University of Arizona,Lecture(p27)

ECON 200 Full Course Notes

Document Summary

Get access

Related Documents

ECON 200 Lecture Notes - Lecture 10: Producer Price Index, Market Basket, Price Level

ECON 200 Lecture Notes - Lecture 22: Aggregate Demand, Aggregate Supply, Government Spending

ECON 200 Lecture Notes - Lecture 17: Aggregate Demand, Aggregate Supply, Gdp Deflator

Related Questions