Bundle: Essentials Of Economics, 8th + Mindtap Economics, 1 Term (6 Months) Printed Access Card
8th Edition
ISBN: 9781337378833
Author: N. Gregory Mankiw
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 16, Problem 4CQQ
To determine
Thesubstitution effect with
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Because consumers can sometimes substitutecheaper goods for those that have risen in price,a. the CPI overstates inflation.b. the CPI understates inflation.c. the GDP deflator overstates inflation.d. the GDP deflator understates inflation.
What is the relationship between the CPI and the inflation rate?
When the CPI _______.
A.
is constant, the inflation rate is negative
B.
falls, the inflation rate is positive and low
C.
rises slowly, the inflation rate is low
D.
rises slowly, the inflation rate is negative
The table shows the quantities of the goods Suzie bought and the prices she paid during
two consecutive weeks.
Suzie's CPI market basket contains the goods she bought in Week 1.
Calculate the cost of Suzie's CPI market basket in Week 1 and in Week 2.
What percentage of the CPI market basket is gasoline?
Calculate the value of Suzie's CPI in Week 2 and her inflation rate in week 2.
The cost of Suzie's CPI market basket in Week 1 is $
>>> Answer to 2 decimal places.
m
Week 1
Item
Coffee
Books
Gasoline
Week 2
Item
Coffee
Books
Gasoline
Concert
Quantity
8 cups
1
25 gallons
Quantity
8 cups
4
15 gallons
1 ticket
Price
$4.00 a cup
$25.00 each
$2.00 a gallon
Price
$4.00 a cup
$12.50 each
$2.50 a gallon
$95 each
Chapter 16 Solutions
Bundle: Essentials Of Economics, 8th + Mindtap Economics, 1 Term (6 Months) Printed Access Card
Knowledge Booster
Similar questions
- Which of the following are signs of inflation? A.The price of a house in a high-demand market increased by 6% last year. B. CPI in the European Union was 101 in 2017 and 104 in 2018. c.The price of lithium-ion batteries falls as new production technologies make manufacturing cheaper.arrow_forwardThe table shows the quantities of the goods Suzie bought and the prices she paid during two consecutive weeks. Suzie's CPI market basket contains the goods she bought in Week 1. Calculate the cost of Suzie's CPI market basket in Week 1 and in Week 2. What percentage of the CPI market basket is gasoline? Calculate the value of Suzie's CPI in Week 2 and her inflation rate in week 2. The cost of her CPI market basket in Week 2 is $ 95.75. >>> Answer to 2 decimal places. Gasoline is 36.3 percent of the CPI market basket. >>> Answer to 1 decimal place. Week 1 Item The cost of Suzie's CPI market basket in Week 1 is $ 103.25. >>> Answer to 2 decimal places. The value of Suzie's CPI in Week 2 is >>> Answer to 1 decimal place. Coffee Books Gasoline Week 2 Item Coffee Books Gasoline Concert Quantity 13 cups 1 15 gallons Quantity 13 cups 2 5 gallons 1 ticket Price $2.75 a cup $30.00 each $2.50 a gallon Price $2.75 a cup $15.00 each $3.00 a gallon $95 eacharrow_forward7) In 2010, a bottle of Coke cost $1. In 2020, it would cost $1.50. The CPI for 2020 was 260 and the CPI for 2010 was 220. Which of the following statements is correct? A) The real price of Coke stayed the same. B) The real price of Coke decreased. C) The real price of Coke increased. D) The nominal price of Coke stayed the same.arrow_forward
- If inflation is expected to increase, A. the nominal interest rate will increase. B. the nominal interest rate will decrease. C. the real interest rate will increase. D. the nominal interest rate will remain the samearrow_forwardIn a country where apples are produced and exported but not consumed, a change in the price of apples will affect A. the CPI but not the GDP deflator. B. the GDP deflator but not the CPI. C. both the CPI and the GDP deflator. D. neither the CPI nor the GDP deflator. PROVIDE A BRIEF WRITTEN EXPLANATION JUSTIFYING YOUR CHOICE.arrow_forwardWhat is a consequence that arises from the CPI bias? A. A wage contract linked to the CPI gives workers less income than the firm intended. B. The bias in the CPI decreases government outlays. C. Tax adjustments based on the CPI decrease the amount paid in taxes. D. The bias in the CPI eliminates the need for people to shop in discount stores.arrow_forward
- 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.arrow_forwardWhat information is given by the CPI? The CPI tells us _______. A. the price level in a given period expressed as a percentage of the price level in the base period, which equals zero B. the price level in a given period expressed as a percentage of the price level in the base period, which equals 100 C. the inflation rate in a given period compared to the inflation rate in the base period, which equals 100 D. the inflation rate in a given period compared to the inflation rate in the base period, which equals zeroarrow_forwardIn a simple economy, people consume only two goods: food and clothing. The market basket of goods used to compute the CPI has 50 units of food and 10 units of clothing. Food Clothing Last year's price $4 $8 This year's price $6 $16 a. What are the percentage increases in the price of food and in the price of clothing? b. What is the percentage increase in the CPI? c. Do these price changes affect all consumers to the same extent? Explainarrow_forward
- What does it mean when the CPI is higher this year than last? Select one: a. The rate of inflation has increased. b. There has been inflation since last year. c. Real prices have increased. d. Real prices have decreased.arrow_forwardWhat type of bias might be introduced if the CPI only represents the change in the price of a gallon of gas? A. new goods bias B. quality change bias C. commodity substitution bias D. outlet substitution biasarrow_forwardPlease dont answer Question 1. Just the scenario for Question 2. Computing the CPI: 1. The table below shows a hypothetical typical consumer’s market basket that consists of 10 units of beef and 20 units of chicken. Year Price of Beef Price of Chicken 2018 $4 $4 2019 $5 $5 2020 $9 $6 A. Compute the CPI in 2019. B. What is the CPI inflation rate from 2019-2020? CPI vs. GDP deflator: 2. In each scenario, determine the effects on the CPI and the GDP deflator: A. Starbucks raises the price of Frappuccino (assuming Frappuccino is in the CPI basket). B. Caterpillar raises the price of the industrial tractors it manufactures at its Illinois factory. C. Armani raises the price of the Italian jeans it sells in the U.S. (assuming this good is included…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Essentials of Economics (MindTap Course List)EconomicsISBN:9781337091992Author:N. Gregory MankiwPublisher:Cengage Learning
Brief Principles of Macroeconomics (MindTap Cours...EconomicsISBN:9781337091985Author:N. Gregory MankiwPublisher:Cengage Learning
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Essentials of Economics (MindTap Course List)
Economics
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Brief Principles of Macroeconomics (MindTap Cours...
Economics
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning