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Inflation and price indices (like the CPI and GDP deflator) are major topics of our course. If inflation, as measured by the CPI, declined, then the CPI would be sure to decline as well.

Is this statement true or false?

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Related questions

Table 24-7. The table below applies to an economy with only two goods — 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

A. 17 percent.
B. 14 percent.
C. 19 percent.
D. 6 percent.

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.

Given nominal GDP of $4.2 trillion and a GDP Deflator is 120, we can conclude that real GDP is equal to:

A. $3 Trillion.
B. $3.5 Trillion.
C. $3.9 Trillion.
D. $5.2 Trillion.

2.

Say real GDP is $9.2 trillion. If personal consumption is $5.1 trillion, investment is 1.8 trillion, and government purchases are 2.5 trillion, then:

A. personal consumption is less than exports.
B. exports exceed imports by $0.2 trillion.
C. imports are equal to exports.
D. imports exceed exports by $0.2 trillion.

3. If nominal output is $4.2 trillion and the GDP Deflator is 5 percent higher than its base year, then real output is:

4. If the CPI in 1979 was 72.6 and it was 82.4 in 1980, then the inflation rate from 1979 to 1980 was?

5. Housing comprises roughly 40% of the market basket in the CPI. If the price of housing rises 15% in one year while the other components in the CPI rise by 10%, the CPI will rise by 12%. True or False?

Answer the following questions: Use these data to answer the associated questions. Be sure to answer the questions as completely as you can. If calculations are requested, show your work! 

Action Items 2000 2001 2002 2003 2004

Nominal GDP 9817 10128 10469.6 10971.2 11734.3

Real GDP 9817 10320.6 10755.7

GDP Deflator 100 102.4 104.2

Growth rate of nominal GDP 3.2% 4.8% 

Growth rate of real GDP  1.6%  4.2%

CPI 172.2 177.1 179.9 184 188.9

Inflation rate using GDP deflator 2.4%  2.0% 

Inflation rate using CPI  1.58%  2.7%

1. How is the real GDP calculated from the given data? Fill in the missing values of real GDP in the table.

2. How is the growth rate of GDP calculated from the given data? Fill in the missing values of the growth rate of nominal and real GDP in the table.

3. What's the difference between nominal GDP and real GDP? Which one is better for measuring economic well-being?

4. How is the GDP Deflator calculated from the data given? Fill in the missing values of GDP deflator in the table.

5. Explain how to calculate the annual inflation rate.

6. What's the key difference between these two measures of inflation?

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