If the price of industrial plastic injection molding machines rose by 20% and the price of oranges fell by 20%, then a) all else equal, the consumer price index (CPI) would fall, because oranges are a consumer good and injection molding machines are not. O b) the CPI would rise because plastic injection molding machines weigh more physically per unit. the CPI would fall because people buy more oranges than plastic injection molding machines. d) the CPI would rise if oranges had a greater weight. e) the consumer price index (CPI) would remain unchanged.
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- Suppose that over time, households used flash sale online retailers at an increasing rate. As a result the CPI is likely to be Select the correct answer below: O underestimated because households would buy products at lower prices than those collected by the U.S. Bureau of Labor Statistics underestimated because households would buy products at higher prices than those collected by the U.S. Bureau of Labor Statistics overestimated because households would buy products at lower prices than those collected by the U.S. Bureau of Labor Statistics overestimated because households would buy products at higher prices than those collected by the U.S. Bureau of Labor StatisticsHow to Measure Changes in the Cost of Living introduced a number of different price indices. Which price index would be best to use to adjust your paycheck for inflation?Suppose that in the year 2010, Celestial Electronics planned toproduce 950,000 units of its portable GPS devices. Of the950,000 it planned to produce, a total of 25,000 units wouldbe added to the inventory at its new plant in Florida. Alsoassume that these units have been selling at a price of $100each and that the price has been constant over time. Supposefurther that this year the firm built a new plant for $5 millionand acquired $2.5 million worth of equipment. It had noother investment projects, and to avoid complications,assume no depreciation.Now suppose that at the end of the year, Celestial had produced950,000 units but had only sold 900,000 units and that invento-ries now contained 50,000 units more than they had at thebeginning of the year. At $100 each, that means that the firmadded $5,000,000 in new inventory.a. How much did Celestial actually invest this year?b. How much did it plan to invest?c. Would Celestial produce more or fewer units next year? Why
- Roberto is a senior citizen who consumes food and health care. When he retired in 2002, he consumed 90 meals and 3 medical checkups per month. Suppose in 2002 that the price of a meal was $10 and the price of a medical checkup was $64. However, in 2012, the price of a meal is $11 and the price of a medical checkup is $278. As a result, Roberto consumes 100 meals and 2 medical checkups per month. Calculate a Laspeyres cost-of-living index for Roberto using 100 as the base in 2002. In particular, the Laspeyres index for 2012 is nothing. (Enter your response rounded to two decimal places.)The table below gives the CPI and the price of gasoline per gallon in the fictitious country "Alpha" between 2010 and 2015. For each year find the percent change in the price of gasoline from the previous year's price, the CPI inflation rate, and the change in the relative price of gasoline. Instructions: Enter your responses rounded to two decimal places for change in gasoline price and inflation, and one decimal place for percent values in the relative price change. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. Year Gasoline price ($/gallon) Percent change in gasoline price CPI Inflation Change in relative price of gasoline 2010 $0.80 — 1.60 — — 2011 $1.00 % 1.80 % % 2012 $1.25 % 2.00 % % 2013 $1.65 % 2.04 % % 2014 $1.70 % 2.21 % % 2015 $1.87 % 2.25 % %The CPI index is calculated for consumers with the Cobb-Douglas utility function u(x,y)= xy2 over goods food (x) and clothing (y), where the reference basket is A = (10,20) , that is 10 units of food and 20 units of clothing. The initial prices are px = py = 1 and the final prices are px = 2, py = 16. (a) Calculate the CPI (consumer price index) which is the ratio of the cost of the basket A under the final prices divided by its cost under the initial prices. (b) Naturally, given the prices increase disproportionately, we can expect the consumer not to stick with the basket A but choose another basket B where she achieves the same utility level as in A, but which costs much cheaper, under the final prices. Calculate the basket B which is the cheapest bundle under the final prices to achieve the utility level of A. Calculate the effective CPI, which is the cost of basket B under the final prices divided by the cost of A under the initial prices. This reflects the real increase in…
- 1. According to part A of Table 5-1, what education level loses most (i.e., has the greatest decrease in wage) from immigration to the United States? Does this result depend on keeping the rental on capital constant? Explain why or why not. 2. Suppose that computers use 2 units of capital for each worker, so that KC = 2 • LC, whereas shoes use 0.5 unit of capital for each worker, so that KS = 0.5 • LS. There are 100 workers and 100 units of capital in the economy. a. Solve for the amount of labor and capital used in each industry. Hint: The box diagram shown in Figure 5-7 means that the amount of labor and capital used in each industry must add up to the total for the economy, so that Use these two equations to solve for LC and LS, and then calculate the amount of capital used in each industry using KC = 2 • LC and KS = 0.5 • LS. b. Suppose that the number of workers increases to 125 due to immigration, keeping total capital fixed at 100. Again, solve…1.Using 2016 as the base year, calculate the Laspeyre’s Quantity Index for 2021.A 138.60B 207.47C 72.15D 149.862.In general, consumers are price-takers; thus, they are expected to react to price changes by substituting ice-creamflavours that have become relatively cheaper for those that have become relatively more expensive. This phenomenon isconsistent with the substitution effect. Substitution tends to cause a negative correlation between the price and quantityrelatives.With regard to the observation above, and the indices calculated above, which of the following is false?A The transaction data on the ice-cream sales is not indicative of substitution effect.B The Paasche’s indices are relatively greater than the Laspeyre’s indices.C The price and quantity relatives of the ice-cream data are positively correlated.D The price and quantity relatives of the ice-cream data are negatively correlated.The table below gives the CPI and the price of gasoline per gallon in the fictitious country "Alpha" between 2010 and 2015. For each year find the percent change in the price of gasoline from the previous year's price, the CPI inflation rate, and the change in the relative price of gasoline. Instructions: Enter your responses rounded to one decimal place. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. Year Gasoline price ($/gallon) Percent change in gasoline price CPI Inflation Change in relative price of gasoline 2010 $0.80 — 1.60 — — 2011 $1.00 % 1.80 % % 2012 $1.25 % 2.00 % % 2013 $1.65 % 2.04 % % 2014 $1.70 % 2.21 % % 2015 $1.87 % 2.25 % %
- Suppose that the consumption basket consists of gasoline, mugs, and movies. In the base month, consumers buy 20 litres of gasoline at $2 per litre, 2 mugs for $13 each, and 4 movie tickets for $7 each. In the next month, the price of gasoline is $2.25 per litre, mugs cost $12.50 each, and the price of a movie ticket is $7.50. The change in the consumer price level from the first to the second month is ______. a. –6%b. 6.4%c. 94%d. 1.1%What is the effect of the sources of bias on the CPI calculation? A. Changes in relative prices lead consumers to change the items they buy, and the CPI reflects this substitution. B. The new goods bias injects a downward bias into the CPI. C. When faced with higher prices, people use discount stores more frequently and convenience stores less frequently, but the CPI doesn't include this outlet substitution. D. When the quality of a good improves over time, the CPI doesn't include the portion of the price rise attributable to the higher quality in its calculation.Interest, inflation, and purchasing power Suppose Diamond is a fashionista and buys only denim jackets. Diamond deposits $4,000 into a savings account that pays an annual nominal interest rate of 5%. Assume this interest rate is fixed, and so it will not change over time. On the day she makes her deposit, suppose that a denim jacket has a price of $20.00. Initially, Diamond's $4,000 deposit has a purchasing power of #________ denim jackets. For each of the annual inflation rates given in the following table, first determine the new price of a denim jacket, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Diamond's deposit after one year in the first row of the table for each inflation rate. Finally, enter the value for the real interest rate at each of the given inflation rates. Hint: Round your answers in the first row down to the nearest denim jacket. For example, if you find that the deposit will cover 20.7 denim jackets, you…