Question

In: Economics

Measuring the changes in the cost of living

The Consumer price Index is subject to substitution bias and quality/new goods bias. Are the Producer Price Index and the GDP Deflator also subject to these biases? Why or why not?

Solutions

Expert Solution

The PPI is subject to the substitution and quality/new goods biases for significantly the same reasons the CPI is. The GDP defltor picks up prices of what is actually purchased annually, so there exists no biases. Hence, that is an advantage of using the GDP deflator over the CPI.


The PPI is subject to substitution bias and quality/new goods bias.

Related Solutions

Measuring the cost of living.
Imagine that the government statisticians who calculate the inflation rate have been updating the basic basket of goods once every 10 years, but now they decide to update it every five years. How will this change affect the amount of substitution bias and quality/new goods bias?
Measuring the cost of living
Which of the price indices would be most useful for adjusting a paycheck for inflation?
Measuring The Cost of Living Discussion Question: How to measure the cost of living? What are...
Measuring The Cost of Living Discussion Question: How to measure the cost of living? What are the issues of measuring the cost of living by using CPI? 1) A brief summary of your ideas of how to measure the cost of living. 2) What are the issues of measuring the cost of living by using CPI?
Measuring The Cost of Living Discussion Question: How to measure the cost of living? What are...
Measuring The Cost of Living Discussion Question: How to measure the cost of living? What are the issues of measuring the cost of living by using CPI? 1) A brief summary of your ideas of how to measure the cost of living. 2) What are the issues of measuring the cost of living by using CPI?
Body fat and lean body mass can be estimated in living animals by measuring the total...
Body fat and lean body mass can be estimated in living animals by measuring the total body electrical conductivity (TOBEC). This technique is useful when attempting to determine if "diet drugs" are working on laboratory rats over time – the researchers need not sacrifice the animals to measure the amount of adipose body fat after periods of drug usage. However, the procedure requires that the animal be totally inside the measurement chamber, which is fairly small. Some, but not all...
A device called an interferometer is able to measure small changes in distance by measuring the...
A device called an interferometer is able to measure small changes in distance by measuring the degree of interference between two beams of light. Two coherent beams of light are split off a laser with a frequency of 272500 GHz and travel slightly different paths through space. When you start your experiment the beams from the different paths of the interferometer interfere constructively when combined.   You place piece of a transparent 0.250 micron thick slice of an unknown material so...
Significant problems with measuring real GDP and the price level include a) changes in standards of...
Significant problems with measuring real GDP and the price level include a) changes in standards of living. b) changes in the number of consumers. c) changes in relative price levels. d) purchases of used goods.
A cost that changes in total as output changes is a variable cost. True False Managerial...
A cost that changes in total as output changes is a variable cost. True False Managerial judgment is critically important in determining cost behavior. True False The predetermined overhead rate is calculated at the beginning of the year by dividing the total estimated annual overhead by the total estimated level of cost driver True False If actual overhead is greater than applied overhead, the variance is called underapplied overhead. True False   The direct method of allocation recognizes all interactions among...
Measuring Cost Behavior Month                         Setup Hours (X)          
Measuring Cost Behavior Month                         Setup Hours (X)                    Setup Costs (Y) January                                100                                        $1,000 February                              200                                         1,250    March                                  300                                          2,250            April                                    400                                          2,500            May                                     500                                          3,750 What is the variable cost per unit using least-squares regression? A. $4.50 B. $6.75 C. $7.25 D. $8.95 What is the fixed cost using least-squares regression? A. $100 B. $105 C. $125 D. $135 What is the total cost at a level of 800...
The following sets of data represent the cost of living index for utilities and the cost...
The following sets of data represent the cost of living index for utilities and the cost of living index for transportation for 46 randomly chosen metropolitan areas in the United States. utilities=c(90,84,85,106,83,101,89,125,105, 118,133,104,84,80,77,90,92,90, 106,95,110,112,105,93,119,99,109, 109,113,90,121,120,85,91,91,97, 95,115,99,86,88,106,80,108,90,87) transportation=c(100,91,103,103,109,109,94,114,113, 120,130,117,109,107,104,104,113,101, 96,109,103,107,103,102,101,86,94, 88,100,104,119,116,104,121,108,86, 100,83,88,103,94,125,115,100,96,127) Include your R commands and output for each part of the problem Create a single table summarizing the mean, median, mode, standard deviation, variance and 5-number summary for each data set. Create a boxplot for cost of living index...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT