How does commodity subsitution bias influence the CPI? The CPI ____ consumer subisuttions between goods, so when the price of carrots rises and consumers switch to broccoi, the CPI ____ the rise in the price of vegetables. A. ignores; overstates B. incorporates; correctly measures C. ignores; correctly measures D. incorporates; overstates

How does commodity subsitution bias influence the CPI? The CPI consumer subisuttions between goods, so when the price of carrots rises and consumers switch to broccoi, the CPI the rise in the price of vegetables. A. ignores; overstates B. incorporates; correctly measures C. ignores; correctly measures D. incorporates; overstates

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter16: Measuring The Cost Of Living

Section: Chapter Questions

Problem 3CQQ

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How does commodity subsitution bias influence the CPI? The CPI ____ consumer subsitutions between goods, so when the price of carrots rises and consumers switch to broccoli, the CPI ____ the rise in the price of vegetables. A. ignores; overstates B. incorporates; correctly measures C. ignores; correctly measures D. incorporates; overstates
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.
Indicate which one of the following events will affect CPI ONLY. Oa Saudi Arabia successfully developing a vaccine for Covid-19 which is used locally as well as exported to other countries. Ob. There is a decrease in the price of meat imported from Australia. Oc.There is an increase in the price of eggs produced in Saudi Arabia Od. People buying more imported goods without any change in prices O Saudi Arabia changes its base year to 2020
What 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.
1) Which of the following is FALSE regarding PPI?a. Stands for Producer Price Indexb. In manufacturing, measures the rate of change in prices of products sold as they leave the producerc. Measures the cost of the goods and services bought by firmsd. Measures the cost of the goods and services bought by a typical consumer2) CPI is measured using the ----------------- :a. overall productsb. overall cost of the goods and servicesc. overall cost of oild. none of the above
What 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 bias
Question 17 One problem with the CPI is the "substitution bias," which refers to consumers buying more of a good that has become cheaper and less of a good that has become more expensive. Assume that consumers consider Pepsi and Coke to be substitutes, so that when the price of Coke increases, consumers purchase less Coke and more Pepsi. When the CPI is calculated following the increase in the price of Coke, the substitution bias causes the CPI to O understate inflation since both the increase in the price of Coke and the increase in the amount of Pepsi purchased enter the CPI calculation O understate inflation since only the decrease in the price of Pepsi enters the CPI calculation O overstate inflation since both the increase in the price of Coke and the decrease in amount of Coke purchased enter the CPI calculation overstate inflation since only the increase in the price of Coke enters the CPI calculation
Commodity substitution bias _______ when the CPI is calculated in 2021 using the 2020 market basket because _______. A. exists; over time preferences change and people prefer to eat pizza rather than pasta B. does not exist; pizza and pasta are not substitutes C. exists; people switch from the relatively more expensive pasta to the relatively less expensive pizza D. does not exist; the CPI market basket is updated frequently to eliminate substitution bias
The difference between the CPI and the PCE is that the PCE index measures prices while the CPI measures spending the PCE is not a fixed basket of goods O the PCE includes food and energy prices while the CPI does not O the CPI includes food and energy prices while the PCE does not
The goods included in the CPI change as spending habits change. Select one: O True O False
Why is the PCE deflator a preferred measure of consumer prices over the CPI? O the PCE data is released monthly while the CPI data are quarterly the PCE also is subject to substitution bias, but it does not include new goods O It is not a fixed basket, so it does not have the substitution bias present in the CPI O It is a fixed basket of goods whereas the CPI is not a fixed basket
Please calculate CPI and inflation using the following basket of goods (round outlays [for calculations] and all other answers to the second decimal place when necessary) Goods Average Qty Avg. Price 2021 Clothing 15 $200 Cell Phone Plan 11 $75 Housing 10 $1,250 Milk 30 $3 Streaming Services 22 $19 Vehicle Payments 10 $450 BASE YEAR OUTLAY = $14,000.00 2020 CPI = 147 What is the 2021 CPI? What was the inflation rate from 2020 to 2021?