PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
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Question
Chapter 6, Problem 1RQ
To determine
Explain why the changes in the cost-of-living index of an individual are different from the official cost-of-living index.
Expert Solution & Answer
Explanation of Solution
The individual’s cost of living index will be related to their consumption of goods and services. Since the official cost of living index is calculated using the same method, to calculate the official cost of living index, the government will set a base year price to calculate the inflation. However, the individual may reduce or increase their consumption than the previous period, which would not directly reflect on the official cost of living index. If the price of wheat increases than the previous period, the cost of living for an individual who purchases more wheat than a typical household will increase more than the
Economics Concept Introduction
Consumer price index (CPI): The consumer price index refers to the relative value of the goods and services to the value of the same basket in the base year. The consumer price index measures the price level of goods and services.
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Students have asked these similar questions
The CPI’s basket of goods includes potato chips, over half of which are made from potatoes grown in Idaho. Wildfires this summer destroyed acres of potato crops in Idaho, causing a spike in the price of potatoes, and there was a 30% increase in the price of potato chips. As a result, the CPI calculation showed an increase of 2% in the Fall of this year versus last year. Please explain if this 2% increase is reflective of the overall price level, and if not, why?
You are now required to compute the consumer price index (CPI) and the inflation in one village. To do this task, you go to that village to collect data of households’ consumption in that village. After collecting data, you find that households in this village consume a standard basket of 3kg of rice, 1.5kg of meat and 3kg of vegetable and the prices of these products are given below:
a) CPI in Jan 2017, in Feb 2017, and in Mar 2017 by taking Jan 2017 as the base month.b) Inflation rate from Feb to Mar 2017
Two countries, Country N in North America and Country S in South America, have the same
CPI basket. Year 2000 is the CPI base year for both countries. In that year, the cost of CPI
basket in Country N is $N100, and in country S is $s1000, where $N and $s are their respective
currencies. Twenty years later, in 2020, the CPI in Country N rose to 240, and in Country S to
360.
a) In the ideal world in which the purchasing power parity (PPP) holds true, what should be
the nominal exchange between $s and $N in Year 2000 and in Year 2020. Show
calculations and explain the change in nominal exchange rate.
b) Suppose in reality, the nominal exchange rage between the two currencies is 18 $s per $N
in Year 2020. First, explain why the nominal exchange rate differs from your calculation
above. Second, calculate the real exchange rate between the two countries, and explain
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c) During Year 2021, the growth of the real GDP in the two countries are, 0% in country…
Chapter 6 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
Ch. 6 - Prob. 1RQCh. 6 - Prob. 2RQCh. 6 - Prob. 3RQCh. 6 - Prob. 4RQCh. 6 - Prob. 5RQCh. 6 - Prob. 6RQCh. 6 - Prob. 7RQCh. 6 - Prob. 8RQCh. 6 - Prob. 1PCh. 6 - Prob. 2P
Ch. 6 - Prob. 3PCh. 6 - Prob. 4PCh. 6 - Prob. 5PCh. 6 - Prob. 6PCh. 6 - Prob. 7PCh. 6 - Prob. 8PCh. 6 - Prob. 9PCh. 6 - Prob. 10PCh. 6 - Prob. 6.1CCCh. 6 - Prob. 6.2CCCh. 6 - Prob. 6.3CCCh. 6 - Prob. 6.4CCCh. 6 - Prob. 6.5CCCh. 6 - Prob. 6.6CCCh. 6 - Prob. 6.7CCCh. 6 - Prob. 6.8CCCh. 6 - Prob. 6.9CC
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