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Calculating inflation using a simple price index.

Consider a frictional price index, the College student price index (CSPI), based on a survey of annual purchases of a typical college student. Suppose the following table show information on the market basket for the CSPI and the prices for each good in 2012, 2013, and 2014.

Quantity in Basket

2012

Price cost

2013

Price cost

2014

Price cost

Notebooks

10

2 20

1

3

Calculators

1

50 50

54

75

Large coffees

200

1 200

1

1

Energy drinks

100

2 200

3

4

Textbooks

10

100 1000

120

150

Total cost

1470

Price index

100

The cost of each item in the basket and total cost of the basket are shown for 2012. Perform these same calculations for 2013 and 2014 and enter the results into the table.

Suppose the base year for this price index is 2012. Calculate and enter the value of the CSPI for the remaining years in the last row of the table.

Between 2012 and 2013, the CSPI increased by (120%, 20%, 25%, or 150%).

Between 2013 and 2014, the CSPI increased by (120%, 150%, 30%, or 25%).

Which of the following, if true, would illustrate why price indexes such as CSPI might overstate inflation in the cost of going to college?

A. As the price of energy drinks increased relative to the price of coffee 2012 and 2014, students decreased their consumption of energy drinks and increased their consumption of coffee.

B. Professors required each student to buy 10 textbooks, regardless of the price.

C. The quality of textbooks increased dramatically from 2012 to 2014, with textbook companies bundling new online study aids with their books.

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Nusrat Fatima
Nusrat FatimaLv10
29 Sep 2019

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Related questions

Base Year (2006) 2013

Product

Quantity

Price

Price

Cokes

100

$0.50

$0.75

Hamburgers

200

2.00

2.50

CDs

10

20.00

21.00

1) Refer to the table above. Assume the market basket for the consumer price index has three products: Cokes, hamburgers, and CDs.

The consumer price index for 2013 equals ______.

Product

Quantity

Base Year Price (2001)

Price (2012)

Price (2013)

Burritos

10

$1.00

$1.50

$1.75

Flashlights

15

5.00

7.00

6.75

Golf balls

8

2.00

3.00

3.50

2) Refer to the table above. Consider a simple economy that produces only three products: burritos, flashlights, and golf balls. Use the information in the table to calculate the inflation rate for 2013 (vs. 2012), as measured by the consumer price index.

Year

Nominal Average

Hourly Earnings

CPI

2011

$10

100

2012

10

105

2013

12

110

3) Refer to the table above. Real average hourly earnings were equal to ________ in 2012.

4) Looking at the table above, real average hourly earnings between 2012 and 2013 changed by ______%.

5) Matt's real wage in 2014 is $26.80. If the price level is 104, what is Matt's nominal wage?

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 basket’s cost was $80; in 2014, the basket’s cost was $86; and in 2015, the basket’s 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 basket’s cost was $80; in 2008, the basket’s cost was $92; and in 2010, the basket’s 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 basket’s cost was $80.00; in 2013, the basket’s cost was $84; and in 2014, the basket’s 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.

1.Since the minimum wage rate began it has typically stayed at about what percentage of the average manufacturing wage?

Select one: a. 75-80 % b. 40-50 % c. 20-30 % d. 10-20 %

2.Suppose there are 100 million in the labor force, and 6 million unemployed people.

During the next month, 200,000 people lose their jobs and 300,000 find jobs. The new total of employed is ________ and the new unemployment rate is ________.

Select one:

a. 100.1 million; 5.8 percent.

b. 93.9 million; 6.1 percent.

c. 94.1 million; 5.9 percent.

d. 100 million; 6.1 percent.

3.In a small country, the adult population equals 10,000. There are 3,000 people unemployed and 4,000 people are employed. The labor force participation rate equals

Select one:

a. 70 percent.

b. 40 percent.

c. 57 percent.

d. an undetermined amount given the lack of information.

4.The population of individuals at least 16 years of age can be broken into 3 groups. They are

Select one:

a. those working in the for-profit sector, those working in the nonprofit sector, and unemployed individuals.

b. the unemployed, discouraged workers, and retirees.

c. those employed full-time, those employed only part-time, and the unemployed.

d. None of these.

5.During the Great Depression,

Select one:

An a. most people who couldn't find work left the labor force, so the official unemployment rate remained low.

b. the U.S. unemployment rate reached its historical highest.

c. unemployment statistics were not collected.

d. the unemployment rate was not unusually high, but wage levels were low.

6.The term "market basket" means a

Select one:

a. collection of goods that changes every year and is defined by Congress.

b. collection of goods that can fit into an average shopping cart.

c. collection of goods that is used by a typical family.

d. collection of goods that are purchased during the holiday season.

7.A price index is the

Select one:

a. cost of a market basket of goods today.

b. cost of a market basket of goods and services a year ago is expressed as a percentage of the cost of the same market basket today.

c. year that is chosen as the point of reference for comparison of prices in other years.

d. cost of a market basket of goods and services today expressed as a percentage of the cost of the same market basket during a base year.

8.Which of the following does NOT cause a rightward shift in the supply curve?

Select one:

a. a reduction in resource costs

b. an increase in technology

c. a reduction in the expected future price of the good

d. a reduction in the price of the good

9.Which of the following is a possible outcome of setting a legal maximum rental rate below the market-clearing rental rate?

Select one:

a. a decrease in the quantity of rental housing demanded

b. an increase in the quantity of rental housing supply

c. a black market in rental housing

d. a surplus of rental housing

10.Rent controls primarily benefit

Select one:

a. people looking for rental units.

b. builders.

c. property owners.

d. people who already occupy rental units.

11.Of the following groups, which benefits most from a government price support program that establishes a floor price for an agricultural product that is higher than the product's market-clearing price?

Select one:

a. Consumers, who purchase more units of the product than they did before the price support program was implemented

b. Taxpayers, who no longer must provide funds to purchase surplus units of the product once the price support program is in place

c. The government, which receives subsidy payments from producers that are required to sell more of the product at a higher price under the government's program

d. Producers, who earn a higher price on the sale of each unit and also sell more units, thereby unambiguously earning higher revenues

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