Econ 2101 Chapter 11 and 12
(questions and answers)
Consumer price index (CPI) - answer Measures the overall costs of goods and
services purchases by consumers
Core CPI - answer - A measure of the overall cost of consumer goods and
services excluding food and energy
Producer price index (PPI) - answer A measure of the cost of a basket of
goods and services sold by domestic firms
How CPI is calculated - answer 1. Fix the basket
2. Find the prices
3. Compute the basket's cost
4. Choose a base year and compute the index
5. Compute the inflation rate
4. choose a base year and compute the index - answer Choose a base year,
then CPI = (baskets cost in current year / baskets cost in base year) x 100
5. Compute the inflation rate - answer Inflation rate = CPI THIS YEAR - CPI
last year divided by CPI last year x 100
Substitution Bias - answer - Consumers substitute toward goods that become
relatively cheaper, mitigating the effects of price increases
Intro to new goods - answer - The introduction of new goods increase variety,
allows consumers to find products that more closely meet their needs
, Unmeasured quality change - answer - Improvements in the quality of goods
in the basket increase the value of each dollar
- The BLS tries to account for quality changes but probably misses some, as
quality is hard to measure
Imported consumer goods - answer Included in CPI but excluded from GDP
deflator
What does the CPI fixed basket represent? - answer Prices of all goods and
services bought by consumers
What does the GDP deflator measure? - answer Prices of all goods and
services currently produced domestically
Capital goods - answer excluded from CPI but included in GDP deflator (If
produced Domestically)
Dollar figures from diffrent times - answer Amount in today's dollars =
amount in year T dollars x Price level today divided by price level in year T
Indexation - answer - The automatic correction by law or contract of a dollar
amount for the effects of inflation
Real intrest rate - answer = (Nominal interest rate) - (inflation rate)
Variations in Standard Of Living - answer Differences are reflected in large
differences in the quality of life, nutrition, housing, healthcare life
expectancy, and so on
A countries standard of living depends on - answer its ability to produce
goods and services
(questions and answers)
Consumer price index (CPI) - answer Measures the overall costs of goods and
services purchases by consumers
Core CPI - answer - A measure of the overall cost of consumer goods and
services excluding food and energy
Producer price index (PPI) - answer A measure of the cost of a basket of
goods and services sold by domestic firms
How CPI is calculated - answer 1. Fix the basket
2. Find the prices
3. Compute the basket's cost
4. Choose a base year and compute the index
5. Compute the inflation rate
4. choose a base year and compute the index - answer Choose a base year,
then CPI = (baskets cost in current year / baskets cost in base year) x 100
5. Compute the inflation rate - answer Inflation rate = CPI THIS YEAR - CPI
last year divided by CPI last year x 100
Substitution Bias - answer - Consumers substitute toward goods that become
relatively cheaper, mitigating the effects of price increases
Intro to new goods - answer - The introduction of new goods increase variety,
allows consumers to find products that more closely meet their needs
, Unmeasured quality change - answer - Improvements in the quality of goods
in the basket increase the value of each dollar
- The BLS tries to account for quality changes but probably misses some, as
quality is hard to measure
Imported consumer goods - answer Included in CPI but excluded from GDP
deflator
What does the CPI fixed basket represent? - answer Prices of all goods and
services bought by consumers
What does the GDP deflator measure? - answer Prices of all goods and
services currently produced domestically
Capital goods - answer excluded from CPI but included in GDP deflator (If
produced Domestically)
Dollar figures from diffrent times - answer Amount in today's dollars =
amount in year T dollars x Price level today divided by price level in year T
Indexation - answer - The automatic correction by law or contract of a dollar
amount for the effects of inflation
Real intrest rate - answer = (Nominal interest rate) - (inflation rate)
Variations in Standard Of Living - answer Differences are reflected in large
differences in the quality of life, nutrition, housing, healthcare life
expectancy, and so on
A countries standard of living depends on - answer its ability to produce
goods and services
