PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Question
Chapter 6, Problem 6.2CC
To determine
Identify the method of constructing a personal price index.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
The "pizza connection" refers to the observation that in a major city, the cost of a slice of pizza is always about the same as the subway fare. Using the CPI values from the table
shown below and the CPI table, determine what a slice of pizza should have cost in 2009 if it cost $1.00 in 1984 and prices had risen with the CPI. What does this tell you about how
actual pizza prices changed compared to the CPI?
Year
1984 1993 1997 2002 2008 2011 2015
1.00 1.25 1.50 2.00
2.50
2.75
2.80
1.00 1.15 1.40 2.00 2.60 2.85 3.05
103.9
Click to view the CPI Table.
Pizza Cost
Subway fare
CPI
144.5 160.5 179.9 215.3 224.9
237.0
←
A slice of pizza should have cost $ in 2009 if it cost $1.00 in 1984 and prices had risen with the CPI.
(Round to the nearest cent as needed.)
The table below shows some data I got from FRED on the CPI and PCE deflator. The PCE deflator is a price index similar to the GDP
deflator but only uses the consumption ("personal consumption expenditures") part of the GDP data.
Year
CPI
PCE deflator
1989
123.94
60.69
2001
177.04
79.74
2020
258.84
111.15
You were probably born around 2001 so calculate the annualized inflation rate based on the CPI between 2001 and 2020. Repeat to
find the annualized inflation using the PCE deflator between 2001 and 2020.
The
gives a higher inflation rate
O PCE, and its noticeably higher (over 0.5 percentage points)
PCE, but its not that different from the CPI inflation rate (difference is under 0.5 percentage points)
CPI, and its noticeably higher (over 0.5 percentage points)
CPI, but its not that different from the CPI inflation rate (difference is under 0.5 percentage points)
Based on surveys conducted by the BLS, the CPI basket assigns a weight of approximately 15% to transportation spending. Suppose you walk to your workplace every day and you do not use any other means of transportation.
With everything else the same, if the price of transportation services increases by 10%, by how much would the CPI increase?
Is the CPI measuring the true change in your cost of living?
Chapter 6 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
Ch. 6 - Prob. 1RQCh. 6 - Prob. 2RQCh. 6 - Prob. 3RQCh. 6 - Prob. 4RQCh. 6 - Prob. 5RQCh. 6 - Prob. 6RQCh. 6 - Prob. 7RQCh. 6 - Prob. 8RQCh. 6 - Prob. 1PCh. 6 - Prob. 2P
Ch. 6 - Prob. 3PCh. 6 - Prob. 4PCh. 6 - Prob. 5PCh. 6 - Prob. 6PCh. 6 - Prob. 7PCh. 6 - Prob. 8PCh. 6 - Prob. 9PCh. 6 - Prob. 10PCh. 6 - Prob. 6.1CCCh. 6 - Prob. 6.2CCCh. 6 - Prob. 6.3CCCh. 6 - Prob. 6.4CCCh. 6 - Prob. 6.5CCCh. 6 - Prob. 6.6CCCh. 6 - Prob. 6.7CCCh. 6 - Prob. 6.8CCCh. 6 - Prob. 6.9CC
Knowledge Booster
Similar questions
- The "pizza connection" refers to the observation that in a major city, the cost of a slice of pizza is always about the same as the subway fare. Using the CPI values from the table shown below and the CPI table, determine what a slice of pizza should have cost in 2009 if it cost $1.00 in 1984 and prices had risen with the CPI. What does this tell you about how actual pizza prices changed compared to the CPI? 1984 1993 1997 2002 Year Pizza Cost 2008 2011 2015 2.50 2.75 2.80 1.00 1.25 1.50 2.00 1.00 1.15 2.00 2.60 2.85 3.05 Subway fare CPI 1.40 144.5 160.5 179.9 215.3 224.9 103.9 237.0 Click to view the CPI Table. A slice of pizza should have cost $ in 2009 if it cost $1.00 in 1984 and prices had risen with the CPI. (Round to the nearest cent as needed.) Data table C Year 1976 56.9 1977 60.6 1978 65.2 1979 72.6 1980 82.4 1981 90.9 1982 96.5 1983 99.6 1984 103.9 1985 107.6 Average Annual Consumer Price Index (1982-1984=100) CPI CPI Year CPI 1996 156.9 Year 1986 109.6 1987 113.6 1988 118.3…arrow_forwardSuppose you are a senior public servant writing a bill to index Social Security and pensions. That is your bill will adjust these benefits to offset changes in the cost of living. Will you use the GDP deflator or the CPI? Explainarrow_forwardOver a long period of time the CPI rose from 100 to 150. What does a CPI of 150 mean? If the price of imported vegetables rises, between the CPI and the GDP deflator, which one of the two will be affected more? Explain.arrow_forward
- A consumer has two goods in his consumption bundle: bread and coffee. The current price of bread is $4.00 per loaf and the price of coffee is $20.00 per cup. This consumer currently buys 2 loaves of bread per week and 5 cups of coffee. Suppose that the price of bread increases by 5% and the price of coffee increases by 15% Using this current consumption bundle, calculate the value of the CPI for this consumer. CPI = response rounded to two decimal places). (enter yourarrow_forwardExplain why changes in the cost of living for any particular individual or family may differ from changes in the official cost-of-living-index, the CPI.arrow_forwardThe table shows the cost of a fixed basket of goods that a typical urban consumer would buy in the economy of Kindleberger. The base period for the consumer price index (CPI) is the year 2000. Please specify answers to two decimal places. Year Cost of a basket of goods 2000 $5,150.00 2011 $4,500.00 2012 $7,725.00 What is the CPI for 2000? CPI for 2000: What is the CPI for 2011? CPI for 2011: What is the CPI for 2012? CPI for 2012:arrow_forward
- What does the Consumer Price Index (CPI) measure? Be specific about what the categories of goods and services that the CPI tracks and measures.arrow_forwardThe market basket used to calculate the CPI in Aquilonia is 4 loaves of bread, 6 gallons of milk, 2 shirts, and 2 pairs of pants. In 2005, bread cost $1.00 per loaf, milk cost $1.50 per gallon, shirts cost $6.00 each, and pants cost $10.00 per pair. In 2006, bread cost $1.50 per loaf, milk cost $2.00 per gallon, shirts cost $7.00 each, and pants cost $12.00 per pair. Using 2005 as the base year, what was Aquilonia’s inflation rate in 2006? This question is stumping me. I thought that this answer was 124.4 but it seems that it is 24.4. I cant figure it outarrow_forwardHow does the CPI compare the cost of the typical market basket of goods and services?arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Economics Today and Tomorrow, Student EditionEconomicsISBN:9780078747663Author:McGraw-HillPublisher:Glencoe/McGraw-Hill School Pub Co
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning
Economics Today and Tomorrow, Student Edition
Economics
ISBN:9780078747663
Author:McGraw-Hill
Publisher:Glencoe/McGraw-Hill School Pub Co