ECON 2020U Chapter 6: Principles of Macro [Mankiw, Kneebone, McKenzie] - Chapter 6 Notes

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turquoisehorse253

15 Feb 2012

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Cpi and inflation rate are calculated in 5 steps: (1) determine the basket. In order to calculate the cpi, a "basket" has to be created "holding. " the most important and widely-purchased products by consumers in a given count ry. If the typical consumer purchases more "x" than "y", "x" the price o f "x" is more important than the price of "y" Data collected regarding the associated "weights" of each product va lue is significant in calculating cpi and inflation (2) find the prices. Cpi and inflation are only concerned with the cost of living and not so much the quantity produced or sold. Prices must be current or accurate to the time period being evaluate d due to the nature of the measurement (3) compute the basket"s cost. A base year must be chosen to compute the basket"s cost because infl ation changes with time.

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

Three goods are consumed in an economy during years 1 and 2. The table shows prices (P1 and P2) for each good, and it shows the market basket that is used to calculate the consumer price index. The base year is year 1.

Good	P1	P2	Basket
Milk (gallons)	$4	$4.20	4
Chicken (pounds)	$5	$5.50	10
Onions (bags)	$2	$2.32	1

Enter numbers in each blank, rounded to two decimal places as necessary. The cost of the basket in year 1 is $____ and the cost of the basket in year 2 is $_____. The value of the CPI in year 1 is _____ and the value of the CPI in year 2 is ______. The inflation rate is equal to ______%.

turquoisesardine982

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 2020U Chapter 6: Principles of Macro [Mankiw, Kneebone, McKenzie] - Chapter 6 Notes

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