Suppose the Bureau of Labor Statistics uses Ballpark Franks as the hot dogs used when calculating the consumer price index. During 2023, Oscar Mayer aggressively reduces prices. Consumers respond by purchasing more Oscar Mayer and less Ballpark Franks. The 2023 CPI is likely to Group of answer choices overstate the average prices paid by consumers. understate the average prices paid by consumers. understate the average prices paid by businesses. overstate the average prices paid by businesses.
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1. Calculating inflation using a simple price index Consider an imaginary price index, the Undergraduate Price Index (UPI), created to represent the annual purchases made by a typical undergradute. The following table contains information on the market basket for the UPI and the price of each good in 2020, 2021, and 2022. The cost of each good in the basket as well as the basket's total cost are given for 2020. Perform these same calculations for 2021 and 2022, and enter the results in the following table. 2020 Price Cost Quantity in Basket (Dollars) (Dollars) 2021 Price Cost (Dollars) (Dollars) 2022 Price Cost (Dollars) (Dollars) Streaming services 1 64 64 300 104 134 Iced coffees 150 2 2 2 Textbooks Notebooks 10 8 80 2 800 85 2 105 16 4 Energy drinks 40 3 120 4 5S Total cost 1,300 Price index 100 Suppose this price index uses 2020 as the base year In the last row of the table, calculate and enter the value of the UPI for the remaining years Between 2020 and 2021, the UPI increased by % Between 2021 and 2022, the UPI increased by % Which of the following, if true, would illustrate why price indexes such as the UPI might overstate inflation in the cost of going to college? Check all that apply. Professors required each student to buy eight notebooks, regardless of the price As the price of premium streaming services rose, fewer students decided to buy them, opting instead to borrow log-in information from friends and relatives. A new, cheaper internet option rolled out services nationwide Energy drinks became increasingly popular on college campuses between 2020 and 2022 due to significant improvements in flavor, but this quality change is hard to measure.
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To ensure that a nominal payment represents a constant level of purchasing power over time, one should: add a price index to it. subtract a price index from it. divide it by a price index. increase it by a percentage equal to the rate of inflation for that year. Suppose that the CPI does indeed overstate the rate of inflation. When the CPI increases by 5% and household incomes increase by 5%, we should conclude that the real incomes of households: increased. stayed constant. decreased. increased more slowly than inflation. Making more frequent, but smaller cash withdrawals from banks ____ the inflation losses from holding cash and ____ the shoe leather costs of inflation. The "true" costs of inflation to an economy include all of the following EXCEPT: shoe-leather costs. higher relative prices. noise in the price system. unexpected redistribution of wealth. If the real interest rate is 6% and the inflation rate is 12%, then the nominal interest rate equals 2%. 0.5%. 6%. 36%.
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