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QUESTION 14 Table 24-1 The table below pertains to Pieway, an economy in which the typical...

QUESTION 14

Table 24-1

The table below pertains to Pieway, an economy in which the typical consumer’s basket consists of 10 bushels of peaches and 15 bushels of pecans.

Year

Price of
Peaches

Price of
Pecans

2005

$11 per bushel

$6 per bushel

2006

$9 per bushel

$10 per bushel

Refer to Table 24-1. If 2006 is the base year, then the CPI for 2006 was

a.
100.

b.
83.3.

c.
120.

d.
240.

QUESTION 15

Table 24-1

The table below pertains to Pieway, an economy in which the typical consumer’s basket consists of 10 bushels of peaches and 15 bushels of pecans.

Year

Price of
Peaches

Price of
Pecans

2005

$11 per bushel

$6 per bushel

2006

$9 per bushel

$10 per bushel

Refer to Table 24-1. If 2005 is the base year, then the inflation rate in 2006 was

a.
16.7 percent.

b.
40 percent.

c.
20 percent.

d.
44.1 percent.

QUESTION 16

Table 24-1

The table below pertains to Pieway, an economy in which the typical consumer’s basket consists of 10 bushels of peaches and 15 bushels of pecans.

Year

Price of
Peaches

Price of
Pecans

2005

$11 per bushel

$6 per bushel

2006

$9 per bushel

$10 per bushel

Refer to Table 24-1. If 2006 is the base year, then the inflation rate in 2006 was

a.
44.1 percent.

b.
16.7 percent.

c.
40 percent.

d.
20 percent

QUESTION 18

The substitution bias in the consumer price index refers to the

	a.	substitution by consumers toward a smaller number of high-quality goods and away from a larger number of low-quality goods.
	b.	substitution by consumers toward new goods and away from old goods.
	c.	substitution by consumers toward goods that have become relatively less expensive and away from goods that have become relatively more expensive.
	d.	substitution of new prices for old prices in the CPI basket of goods and services from one year to the next.

Expert Solution

Answer 14 : Option A is correct .

CPI of the base year = (price of the basket in 2006 / price of basket in 2006 )*100 = ( $19/$19)*100 =100

Answer 15 : CPI of 2005 =

CPI of the 2005 year = (price of the basket in 2005 / price of basket in 2005)*100 = ( $17/$17)*100 =100

CPI of the 2006 year = (price of the basket in 2006 / price of basket in 2005 )*100 = ( $19/$17)*100 =111.76

Inflation rate from 2005 to 2006 = ( CPI ₂₀₀₆ - CPI ₂₀₀₅/ CPI ₂₀₀₅)*100 = ( 111.76-100)*100 = 11.76%

Answer 16 :

CPI of the 2005 year = (price of the basket in 2005 / price of basket in 2006)*100 = ( $17/$19)*100 =89.47

CPI of the 2006 year = (price of the basket in 2006 / price of basket in 2006 )*100 = ( $19/$19)*100 =100

Inflation rate from 2005 to 2006 = ( CPI ₂₀₀₆ - CPI ₂₀₀₅/ CPI ₂₀₀₅)*100 = ( 100-89.47)*100 = 11.76%

Answer 18: Option C is correct .The substitution effect is that substitution the goods that have become relatively inexpensive and adopting that goods which are more expensive in substitution bias system.

Rahul Sunny answered 2 months ago

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