ECO 1102 Chapter Notes - Chapter 6: Gdp Deflator, Interest Rate, Nominal Interest Rate

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Chapter 6 - measuring the cost of living. Nearly all goods and services have increased over time, so have people"s income. The consumer price index is used to monitor changes in the cost of living over time: when the cpi goes up families spend more to maintain the same standard of living. It"s the (cid:373)easure of the overall (cid:272)ost of the goods a(cid:374)d servi(cid:272)es (cid:271)ought (cid:271)(cid:455) a t(cid:455)pi(cid:272)al (cid:272)o(cid:374)su(cid:373)er. The goal of consumer price index is to measure changes in the cost of living. There are three problems with the index that are widely acknowledged but difficult to solve: the first problem is commodity substitution bias. When prices change from one year to another, and not change proportionately. Some prices rise more than others: the second problem is the introduction of new goods. When a new good is introduced, consumers have more variety to choose from. Variety makes each dollar more valuable: the third problem is unmeasured quality change.

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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

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

beigebee838

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

ECO 1102 Chapter Notes - Chapter 6: Gdp Deflator, Interest Rate, Nominal Interest Rate

ECO 1102 Full Course Notes

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