ECON 1BB3 Lecture Notes - Lecture 6: Hot Dog, Core Inflation, Gdp Deflator

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blushhound796

12 Oct 2016

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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We need to develop a way of measuring purchasing power. Keep the weights constant for each year calculated: choose a base year and compute the index o designate one year as the base year, which is the benchmark against which other years are compared, use formula: Statistics canada uses data on the prices of over 600 different goods and services to calculate cpi. For simplification, consider how cpi is calculated using a basket of only two goods: hot dogs and. Hamburgers o hot dog is more important so has a higher weight. The goal of the cpi is to measure changes in the cost of living, and thus how much incomes must rise to (cid:373)ai(cid:374)tai(cid:374) a (cid:272)ertai(cid:374) sta(cid:374)dard of li(cid:448)i(cid:374)g, (cid:271)ut it is(cid:374)"t perfe(cid:272)t. Three main problems are widely acknowledged with cpi: substitution bias, introduction of new goods, and unmeasured quality change.

Related Questions

Which of the following statements is true about the consumer price index (cpi):

A.It measures cost of representative basket of goods at the level of first significant commercial transaction

B.It measure of the average prices paid by consumers for all goods and services

C.It is used to measure the standard of living in an economy

D.It measures the average prices paid by consumers for a fixed basket of goods services

E. None of the above

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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.

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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.