Exam 6: Measuring the Cost of Living

-Refer to Table 6-5. Using 2017 as the base year, what is the inflation rate?

In sequence, what are the steps involved in calculating the consumer price index and the inflation rate?

If the cost of transportation and the cost of food both increase by 25 percent, then, other things the same, how much is the CPI likely to increase?

-Refer to Table 6-5. Using 2017 as the base year, what is the consumer price index?

Suppose that the real interest rate was 3 percent and the inflation rate was 1 percent. What happened with the value of savings?

Suppose the price of a carton of ice cream rises from $4 to $5 and the price of coffee rises from $2 to $2.50. If the CPI rises from 150 to 200, what will people likely buy?

-For the CPI, what is the base year?

Suppose that the CPI is currently 300 and was 50 in 1950. Then, according to the CPI, $1 in 1950 purchased the same amount of goods and services as what amount today?

How often is the CPI calculated?

Which is likely to have the larger effect on the CPI, a 2 percent increase in food or a 3 percent increase in diamond rings? Explain.

The following table shows the consumption categories used to compute the consumer price index in a hypothetical economy, their weights as percentages in a typical consumer's total expenditure, and the price ratios relative to the base year. a) Calculate the consumer price index in Year 1 and Year 2. b) Calculate the inflation rate in Year 1 and Year 2. c) Explain how the weights in column 2 were determined. Discuss the meaning of "Price of food."

For the average Canadian consumer, what percentage of spending does food make up?

Suppose that the prices of Canadian-made medical products cause the CPI to increase by 2 percent, while all other prices remain the same. How much will the GDP deflator most likely increase by?

Suppose an economy consumes only two goods: food and clothing. The following table shows quantities consumed and prices for three years: Year 0 (the base year), Year 1, and Year 2. ​ ​ a) If the CPI basket is the Year 0 one, compute the expenditure on the basket in years 0, 1, and 2. b) Compute the CPIs in years 1 and 2, with Year 0 being the base year. c) For Year 0, compute the shares in expenditure of each of the two goods. Check that the sum of the two shares equals 1. If you multiply those shares by 100, we call them weights. Using the weights, calculate the CPI for Year 0. It should be equal to 100. d) Using the weights, re-calculate the CPIs for the next two years and compare your result with that in part b.

What happened in the early 2010s?

Ethel purchased a bag of groceries in 1970 for $10. She purchased the same bag of groceries in 2019 for $25. If the price index was 38.8 in 1970 and 190 in 2019, what's the price of a 1970 bag of groceries in 2019 prices?

Suppose that Canadian mining companies purchase German-made ore trucks at a reduced price. By itself, what will this do to the GDP deflator and the consumer price index?

Food, health and personal care, and clothing and footwear account for over 50 percent of the goods and services in the CPI basket of goods.

Suppose an economy produces and consumes only two goods: houses and entertainment. The following table shows quantities consumed and prices for three years: Year 0 (the base year), Year 1, and Year 2. a) Using the base year basket, compute the CPI for Year 1 and Year 2. b) Compute the GDP deflator for Year 1 and Year 2. c) Compute inflation rates based on CPI and the GDP deflators.

Because the CPI is based on a fixed basket of goods, the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living. Why is this?