What are three alternative measures of the price level? Three alternative measures of the price level are ________. A. chained CPI, PCEPI, and the inflation rate
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- The Consumer Price Index (CPI) is the common measure of inflation in the United States and is a Laspeyeres index. The Chained CPI (or similarly PCE Inflation), which are Paasche indices are offered forth as what might be "better" alternatives. a. Explain how the CPI is calculated and describe the things that you perceive to be right and wrong with the measurement b. What is the difference between CPI and Chained CPI? How would a move to Chained CPI likely affect inflation estimates? c. There have been proposals to move cost of living adjustments for social security and inflation adjustments for the federal poverty level (FPL) from CPI to the Chained CPI. What would be the long term effects of such a move for each? d. Changing the way inflation is calculated would also affect Real GDP estimates over time as well as the Real Wage. How would the estimates be affected over time and why? Be explicit.Provide examples and explain your answer. If inflation rises unexpectedly by 5% indicate for each of the following wether the economic actor is helped, hurt, or unaffected. a. A union member with a COLA wage contract b. Someone with a large stash of cash in a safe deposit box c. A bank lending money at a fixed rate of interest d. A person who is not due to receive a pay raise for another 11 monthsQuestion 1 1.a) When inflation occurs, all prices rise together at the same rate. True False 1.b) To calculate the consumer price index, the basket price in the current year is divided by the a.GDP deflator b.inflation rate c.basket price in the base year 1.c) Milton Friedman said that inflation is always and everywhere caused by a.printing money b.minimum wages c.too much government spending
- Assume that in Azerbaijan, Alyana deposits $5,000 in the bank for a single year. Given the following cases, answer the questions. CASE 1: inflation = 0%, nominal interest rate = 5% CASE 2: inflation = 5%, nominal interest rate = 10% CASE 3: inflation = 10 %, nominal interest rate = 15% In which case does the real value of your deposit grow the most? Assume the tax rate is 30%. In which case do you pay the most taxes? Compute the after-tax nominal interest rate,then subtract inflation to get the after-tax real interest rate for both cases. Answer all partsQuestion: The electricity prices and the natural gas prices have increased drastically, 15 percent and 12 percent respectively. The direct effect of these increases on the inflation rate is 0.6 percent, and the indirect effect is more than 1 percent. Taking into consideration that the producer price index is over 38 percent. What are the policies that should be implemented to counterbalance the effects of these price increases on the economy?Give typing answer with explanation and conclusion Consider an economy where the average citizen consumes only two goods, 400 cups of coffee at $3 each and 200 brownies at $4 each in 2019. Assume this is the consumption basket used for calculating the CPI. In 2020, the price of one of the goods decreases by $1, while the price of the other good increases by $2. Assume 2019 is the base year. Based on this information, there are two possible inflation rates. What are these possible inflation rates?
- A typical consumer in Microtania has a market basket consisting of 5 Lemons and 4 Peaches. The data table below provides information on Microtania’s prices of Lemons and Peaches in 2011 and 2012. 2011 2012Price per unit of Lemons $0.5 $0.7Price per unit of Peaches $0.4 $1.2What was the cost of the market basket in 2011? What was the cost of the market basket in 2012? What was the inflation rate in Microtania between 2011 and 2012?Suppose that the nominal interest rate is 8% and that the expected rate of inflation is 9%. A)Calculate the real interest rate. Provide an economic interpretation. B)Is the real interest rate a better measure of the cost of a loan than is the nominal interest rate? Why or why not?(Problems with the CPI)The importance of the bias in the U.S. consumer price index is reviewed in an article in the June 1997 issue of Finance and Development from the International Monetary Fund at http://www.imf.org/external/ pubs/ft/fandd/1997/06/pdf/armknech.pdf.Tao Wu of the Federal Reserve Bank of San Francisco discusses current issues with the calculation of the consumer price index at http://www.frbsf.org/publications/economics/letter/ 2003/el2003-24.html.What are the criticisms of the CPI as it is now calculated?
- Year Price of T-Shirt Quantity of T-Shirt Price of Pajamas Quantity of Pajamas 2015 10 120 12 200 2016 12 300 15 200 2017 14 275 18 180 Calculate the inflation rate for 2015, 2016 and 2017. Given the following on a closed economy.C = 40 + 0.8Yd C= consumptionI = 55 – 200r I= InvestmentG = 20 G = government spendingT = 20 T = TaxesYe = 400 Ye = National Incomer = rate of interest 3. Determine the following: The equilibrium level of consumptionThe level of investmentThe level of interest rateThe level of Private savingsThe level of Public savingsThe level of national savingsCalculating inflation using a simple price index Consider a fictional price index, the College Student Price Index (CSPI), based on a typical college student’s annual purchases. Suppose the following table shows the information on the market basket for the CSPI and the prices of each of the goods in 2017, 2018, and 2019. The cost of each item in the basket and the total cost of the basket are shown for 2017. Question1 In the last row of the table, calculate and enter the value of the CSPI for the remaining years. Between 2017 and 2018, the CSPI increased by_________% Between 2018 and 2019, the CSPI increased by__________% Question2 Which of the following, if true, would illustrate why price indexes such as the CSPI might overstate inflation in the cost of going to college? Check all that apply. A. Professors required each student to buy 10 textbooks, regardless of the price. B. The quality and design of calculators improved dramatically from 2017 to 2019. For…Price indices Consider an economy producing only three commodities: jeans, haircuts, and textbooks. The quantities and prices of each good produced in 2018 and 2019 are given below.2018 2019 Commodity Quantity Price Quantity PriceJeans Haircuts Textbooks100 $25 1200 $30 5000 $5 4000 $5 3000 $50 3000 $55(a) Taking 2018 as the base year, compute the price index in 2019. How does the implied overall inflation rate compare to the price growth experienced by each commodity? Which item’s price growth is closest to the overall inflation rate and why? (b) Compute the 2019 GDP deflator. How does the implied rate of price growth compare with the inflation rate computed in (a)? Why do they di↵er?(c) What is the growth rate of real GDP in this simple economy that is implied by each of these price indices?
