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a) Explain why fixed-weighted measures lead to substitution bias. Your answer b) What does the CPI in the base year equal to? c) Look at the following table. What is the base year? Nominal Nominal Year CPI Year CPI Income Income 1990 31.8 400 2003 96.5 45000 1991 34.4 650 2004 99.6 50000 1992 39.8 800 2005 103.9 55000 1993 40.2 2000 2006 107.6 65000 1994 41.8 5000 2007 109.6 70000 9000 12000 1995 44.4 2008 113.6 85000 1996 53.8 2009 118.3 90000 1997 56.9 15000 2010 124 105000 1998 60.6 19000 2011 130.7 115000 1999 65.2 22000 2012 136.2 125000 2000 72.6 28000 2013 140.3 132000 2001 82.7 32000 2014 144.5 137000 2002 90.9 35000 2015 148.2 150000

a) Explain why fixed-weighted measures lead to substitution bias. Your answer b) What does the CPI in the base year equal to? c) Look at the following table. What is the base year? Nominal Nominal Year CPI Year CPI Income Income 1990 31.8 400 2003 96.5 45000 1991 34.4 650 2004 99.6 50000 1992 39.8 800 2005 103.9 55000 1993 40.2 2000 2006 107.6 65000 1994 41.8 5000 2007 109.6 70000 9000 12000 1995 44.4 2008 113.6 85000 1996 53.8 2009 118.3 90000 1997 56.9 15000 2010 124 105000 1998 60.6 19000 2011 130.7 115000 1999 65.2 22000 2012 136.2 125000 2000 72.6 28000 2013 140.3 132000 2001 82.7 32000 2014 144.5 137000 2002 90.9 35000 2015 148.2 150000

ECON MACRO
ECON MACRO
5th Edition
ISBN:9781337000529
Author:William A. McEachern
Publisher:William A. McEachern
Chapter7: Unemployment And Inflation
Section: Chapter Questions
Problem 3.7P
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The question is in the attached image. Answer all three

a) Explain why fixed-weighted measures lead to substitution bias. Your answer b) What does the CPI in the base year equal to? c) Look at the following table. What is the base year? Nominal Nominal Year CPI Year CPI Income Income 1990 31.8 400 2003 96.5 45000 1991 34.4 650 2004 99.6 50000 1992 39.8 800 2005 103.9 55000 1993 40.2 2000 2006 107.6 65000 1994 41.8 5000 2007 109.6 70000 1995 44.4 9000 2008 113.6 85000 1996 53.8 12000 2009 118.3 90000 1997 56.9 15000 2010 124 105000 1998 60.6 19000 2011 130.7 115000 1999 65.2 22000 2012 136.2 125000 2000 72.6 28000 2013 140.3 132000 2001 82.7 32000 2014 144.5 137000 2002 90.9 35000 2015 148.2 150000 Your answer
Transcribed Image Text:a) Explain why fixed-weighted measures lead to substitution bias. Your answer b) What does the CPI in the base year equal to? c) Look at the following table. What is the base year? Nominal Nominal Year CPI Year CPI Income Income 1990 31.8 400 2003 96.5 45000 1991 34.4 650 2004 99.6 50000 1992 39.8 800 2005 103.9 55000 1993 40.2 2000 2006 107.6 65000 1994 41.8 5000 2007 109.6 70000 1995 44.4 9000 2008 113.6 85000 1996 53.8 12000 2009 118.3 90000 1997 56.9 15000 2010 124 105000 1998 60.6 19000 2011 130.7 115000 1999 65.2 22000 2012 136.2 125000 2000 72.6 28000 2013 140.3 132000 2001 82.7 32000 2014 144.5 137000 2002 90.9 35000 2015 148.2 150000 Your answer
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