(Problems with the CPI)The importance of the bias in the U.S. consumer price index is reviewed in an article in the June 1997 issue of Finance and Development from the International Monetary Fund
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(Problems with the CPI)The importance of the bias in the U.S.
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- Some politicians have suggested tying the minimum wage to the consumer price index (CPI). Using the AD/AS diagram, what effects would this policy most likely have on output, the price level, and employment?What is the current inflation rate as measured by the Consumer Price Index? You can use either the February or March 2022 figure. Describe the pattern of the Consumer Price Index since the beginning of 2020. Describe the pattern of the CPI since 2010. (Hint: Utilize Trading Economics (Links to an external site.) or FRED (Links to an external site.) to get the data. Please note that the inflation rate is not the same thing as the level of the CPI. The inflation rate is measured as the percentage change in the level of the CPI during a period of time.The following table gives the average nominal interest rates on six-month Treasury bills spanning the years 1971 and 1975, which determined the nominal interest rate paid by the U.S. government when it issued debt in that time period. The table also gives the inflation rate for the years 1971 to 1975. (All rates rounded to the nearest 0.1 percent.) Year 1971 1972 1973 INTEREST RATE (Percent) 1974 1975 8.0 Source: "FRED Economic Data," Federal Reserve Bank of St. Louis, last modified September 23, 2019, accessed September 24, 2019, https://fred.stlouisfed.org. 7.0 On the following graph, use the orange points (square symbol) to plot the nominal interest rates for the years 1971 to 1975. Next, use the green points (triangle symbol) to plot the real interest rates for those years. 6.0 5.0 4.0 3.0 2.0 1.0 0 -1.0 + -2.0 -3.0 Nominal Interest Rate (Percent) 4.5 4.5 7.2 1970 OOOO O 1971 O 1972 O 1973 8.0 O 1974 6.1 1971 O 1975 Inflation Rate (Percent) 4.2 3.3 6.3 11.0 9.1 1972 1973 YEAR 1974…
- The following table shows the average nominal interest rates on six-month Treasury bills between 2004 and 2008, which determined the nominal interest rate that the U.S. government paid when it issued debt in those years. The table also shows the inflation rate for the years 2004 to 2008. (All rates are rounded to the nearest tenth of a percent.) Year 2004 INTEREST RATE (Percent) 2006 2007 2008 5.0 3.0 Source: "FRED Economic Data," Federal Reserve Bank of St. Louis, last modified September 23, 2019, accessed September 24, 2019, https://fred.stlouisfed.org. On the following graph, use the orange points (square symbol) to plot the nominal interest rates for the years 2004 to 2008. Next, use the green points (triangle symbol) to plot the real interest rates for those years. 28 1.0 2005 -16 -40 -40 Nominal Interest Rate Inflation Rate (Percent) 1.6 2003 3.4 4.8 4.4 1.6 2004 2005 2006 2007 2008 (Percent) 27 3.4 3.2 2.9 3.8 2006 YEAR Nominal Interest Rate Real Interest Rate (?) According to…Calculating inflation using a simple price index Consider a fictional price index, the College Student Price Index (CSPI), based on a typical college student’s annual purchases. Suppose the following table shows the information on the market basket for the CSPI and the prices of each of the goods in 2017, 2018, and 2019. The cost of each item in the basket and the total cost of the basket are shown for 2017. Question1 In the last row of the table, calculate and enter the value of the CSPI for the remaining years. Between 2017 and 2018, the CSPI increased by_________% Between 2018 and 2019, the CSPI increased by__________% Question2 Which of the following, if true, would illustrate why price indexes such as the CSPI might overstate inflation in the cost of going to college? Check all that apply. A. Professors required each student to buy 10 textbooks, regardless of the price. B. The quality and design of calculators improved dramatically from 2017 to 2019. For…decisions ? The nominal salary paid to the president of the United States along with data for the consumer price index (CPI) are given for various years below. YEAR PRESIDENTIAL SALARY CPI (2000 = 100) 1920 $75,000 11.6 1940 75,000 8.1 1960 100,000 17.2 1980 200,000 47.9 2000 400,000 100.0 a. Calculate the president's real salary measured in the purchasing power of the dollar in 2000. b. In which year was the real presidential salary the highest? c. The president's nominal salary was constant between 1920 and 1940. What happened to the real salary? Can you explain why?
- This table indicates the historical level of the Consumer Price Index (CPI) for the United States for 1921, 1922, and 1923. Complete the table by (1) selecting the inflation rates for 1922 and 1923, and (2) indicating for each year whether there has been inflation, deflation, or hyperinflation. Year CPI Inflation Rate Change in Price Level 1921 17.9 — — 1922 16.8 1923 17.1 What rates of inflation for 1924 would be consistent with disinflation between 1923 and 1924? Check all that apply. 1.7% 11.8% 51.8% 1.8% What rates of inflation for 1924 would be consistent with hyperinflation? Check all that apply. 15.0% -1.8% 100.0% 120.0%Q2. Go to the Statistics Canada website https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1810000501 to view the annual average Consumer Price Index for Canada. Change the Reference period years from 1999 to 2021 and click Apply to see the updated data table. Answer the following questions and provide data and calculations where necessary In which ways might the CPI data on food not accurately reflect what is really happening to prices in this product category?Briefly state two reasons why inflation may be considered to be an economic problem.
- The following table shows the average nominal interest rates on six-month Treasury bills between 1971 and 1975, which determined the nominal interest rate that the U.S. government paid when it issued debt in those years. The table also shows the inflation rate for the years 1971 to 1975. (All rates are rounded to the nearest tenth of a percent.) Year 1971 1972 1973 1974 1975 INTEREST RATE (Percent) Source: "Economic Report of the President (2007)," United States Government Printing Office, last modified February 1, 2007, accessed March 11, 2013, http://www.gpo.gov/fdsys/pkg/ERP-2007/pdf/ERP-2007.pdf. On the following graph, use the orange points (square symbol) to plot the nominal interest rates for the years 1971 to 1975. Next, use the green points (triangle symbol) to plot the real interest rates for those years. 8.0 7.0 6.0 5.0 4.0 1.0 -1.0 -2.0 -3.0 Nominal Interest Rate (Percent) 4.5 4.5 7.2 7.9 6.1 -4.0 1970 1971 1972 1973 1974 1971 1975 Inflation Rate (Percent) 4.4 3.2 6.2 11.0…Calculating inflation using a simple price index Consider a fictional price index, the college student Price index (CSPI), based on a typical college students annual purchases. Suppose the following table shows information on the market basket for the CSPI and the prices of each of the goods in 2010, 2011, and 2012. the cost of each item in the basket and the total cost of the basket are shown for 2010. Perform these same calculations for 2011 and 2012, and enter the results in the following table. 2010 2011. 2012 Quantity in baskets Notebooks 10 Calculators 1 Large coffees 150 Energy drinks 50 Textbooks. 10 Total cost. 5 Price index 5 2010. 2011. 2012 Price. Cost. Price Cost. Price Cost 5 50 7 11 100 100 110 140 1 150 1 1 2 100 3 4 100 1,000 120 150 5 1,400 5 5 5 100 5 5 Suppose the base year for this price index is 2010. In the last row of the table, calculate and enter the value of the CSPI for the remaining years. Between 2010 and 2011, CSPI increased by what percent? Between…Explain what is the relationship between the consumer price index and the inflation rate.
