MACROECONOMICS FOR TODAY
10th Edition
ISBN: 9781337613057
Author: Tucker
Publisher: CENGAGE L
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Chapter 7, Problem 6SQ
To determine
The statement accuracy.
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The consumer price index is subject to the substitution bias and the quality/new good bias. Are the producer price index and the GDP deflator also subject to these biases? Why or why not?
Which of the following statements is correct?
a.
The CPI can be used to compare dollar figures from different points in time.
b.
The percentage change in the CPI is a measure of the inflation rate, but the percentage change in the GDP deflator is not a measure of the inflation rate.
c.
Compared to the consumer price index (CPI), the GDP deflator is the more common gauge of inflation.
d.
The GDP deflator better reflects the goods and services bought by consumers than does the CPI.
A changing-basket price index (Passche index) like the GDP deflator tends to:a. underestimate the change in the cost of living because it does not take into account that people can substitute less-expensive goods for ones that become more expensive.b. overestimate the change in the cost of living because the continual introduction of new goods makes consumers better off even if prices do not fall.c. underestimate the change in the cost of living because it does not reflect the reduction in consumers’ welfare that may result from the substitutions of less expensive goods for more expensive ones.d. overestimate the change in the cost of living because it takes into account that people can substitute less expensive goods for more expensive ones.
Chapter 7 Solutions
MACROECONOMICS FOR TODAY
Ch. 7.2 - Prob. 1GECh. 7.2 - Prob. 2GECh. 7.2 - Prob. 1YTECh. 7.2 - Prob. 2YTECh. 7 - Prob. 1SQPCh. 7 - Prob. 2SQPCh. 7 - Prob. 3SQPCh. 7 - Prob. 4SQPCh. 7 - Prob. 5SQPCh. 7 - Prob. 6SQP
Ch. 7 - Prob. 7SQPCh. 7 - Prob. 8SQPCh. 7 - Prob. 9SQPCh. 7 - Prob. 10SQPCh. 7 - Prob. 11SQPCh. 7 - Prob. 1SQCh. 7 - Prob. 2SQCh. 7 - Prob. 3SQCh. 7 - Prob. 4SQCh. 7 - Prob. 5SQCh. 7 - Prob. 6SQCh. 7 - Prob. 7SQCh. 7 - Prob. 8SQCh. 7 - Prob. 9SQCh. 7 - Prob. 10SQCh. 7 - Prob. 11SQCh. 7 - Prob. 12SQCh. 7 - Prob. 13SQCh. 7 - Prob. 14SQCh. 7 - Prob. 15SQCh. 7 - Prob. 16SQCh. 7 - Prob. 17SQCh. 7 - Prob. 18SQCh. 7 - Prob. 19SQCh. 7 - Prob. 20SQ
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- Which of the following statements is true?a. Deflation is an increase in the general level ofprices.b. The consumer price index (CPI) measureschanges in the average prices of consumergoods and services.c. Disinflation is an increase in the rate ofinflation.d. Real income is the actual number of dollarsreceived over a period of time.arrow_forwardIdentify each of the following as nominal or real variables.a. the physical output of goods and servicesb. the overall price levelc. the dollar price of applesd. the price of apples relative to the price of orangese. the unemployment ratef. the amount that shows up on your paycheck after taxesg. the amount of goods you can purchase with the wage you get each hourh. the taxes that you pay the governmentarrow_forwardThree problems that make the consumer price index an imperfect measure of the cost of living arearrow_forward
- An economy has 100 people divided among the following groups: 25 have full-time jobs, 20 have one part-time job, 5 have two part-time jobs, 10 would like to work and are looking for jobs, 10 would like to work but are so discouraged they have given up looking, 10 are running their own businesses, 10 are retired, and 10 are small children. a) Calculate the size of the labor force and the labor-force participation rate. b) Calculate the number of unemployed and the unemployment rate. c) Calculate total employment in two ways: as measured by the household survey and as measured by the establishment survey.arrow_forwardurgent , no plagiarism The following statements refer to the CPI and the GDP deflator. Which one is CORRECT? The CPI rises when the price of intermediate goods purchased by firms increases. The inflation rate calculated using the CPI is always higher than that obtained with the GDP deflator. The CPI takes into account the prices of all goods and services produced in an economy. The GDP deflator does not reflect the rise in prices on imported final goodsarrow_forwardIf nominal GDP increases by 5 percent a year and the GDP price index rises by 2 percent a year, then real GDP increases by _______. A. 2.5 percent a year B. 3 percent a year C. 7 percent a year D. 10 percent a yeararrow_forward
- An economy produces two goods, x, and y. A year ago the price of x was $4 and the price of y was $6. Today the price of x is $8 and the price of y is $10. What happened to the nominal and the real value of good x? What happened to the nominal and real value of good y?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_forwardThe real wage rate measures: the ability to purchase necessities vs. luxury goods the ability to purchase "normal" vs. "inferior" goods how economic decisions are influenced by the government the quality of goods and services that can be bought with nominal wages the quantity of goods and services that can be bought with nominal wagesarrow_forward
- Which statement best describes the difference between Nominal and Real GDP? Group of answer choices Nominal GDP is Real GDP that has been adjusted to remove the distorting effects of inflation. Real GDP is calculated using current market prices, while Nominal GDP is calculated using the average prices of the last 5 years. Nominal GDP is calculated using current market prices, while Real GDP is calculated using the prices of the previous year. Real GDP is Nominal GDP which has been adjusted to remove the distorting effects of inflation.arrow_forwardIf the nominal rate of interest is 5 percent for a bond issued by the United States Government and the inflation rate is 2 percent, the real rate of interest is ___. The nominal rate of interest will _______ if the inflation rate rises or increases to 6 percent (that is, the inflation rate increases by 4 percent). A. unknown; rise by 4 percent B. 3 percent; rise by 4 percent C. 3 percent; fall by 4 percent D. 7 percent; fall by 4 percentarrow_forwardAn economy has 100 people divided among the following groups: 25 have full-time jobs, 20 have one part-time job, 5 have two part-time jobs, 10 would like to work and are looking for jobs, 10 would like to work but are so discouraged they have given up looking, 10 are running their own businesses, 10 are retired, and 10 are small children. Calculate the labor force and the labor-force participation rate. Calculate the number of unemployed and the unemployment rate. Calculate total employment in two ways: as measured by the household survey and as measured by the establishment survey.arrow_forward
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