ECON 214 InQuizitive Assignment 3 solutions complete answers

ECON 214 InQuizitive Assignment 3 solutions complete answers 

 

Why might the prices of some products decrease while others increase?

 

Fill in the blanks to complete the explanation for why economists use the chained CPI.

The chained CPI is –  than the traditional CPI. The chained CPI is updated –  in an effort to compensate for the –  of new products. The traditional CPI has a strong –  bias.

 

Which of the following may be considered as part of the consumer price index?

 

Click on the year on the timeline when the U.S. Consumer Price Index dropped significantly from the year before.

 

All prices rise evenly during periods of inflation and deflation.

 

What could happen if the CPI were under-calculated?

 

Last year you paid $24 for a round of golf and $12 to rent a golf cart. This year it cost you $30 to golf and $15 to rent a cart. Based on this simple basket of goods, calculate a price index for this year using last year as the base year.

 

Fill in the blanks to complete the explanation of how inflation and deflation affect consumers differently.

 

Inflation occurs when the overall prices of goods –. This means that consumers have – purchasing power. Deflation occurs when the overall prices of goods –. When this happens, consumers have – purchasing power.

 

Suppose the consumer price index for one year was 120 and for the next year it was 132. What is the corresponding inflation rate?

 

Take 2014 as the price index base year. That year, you paid $80 for a day at a theme park. In 2015, the price was up to $84. Assuming that the increase reflects the inflation rate and that this rate continues in 2016, match each number to its description.

 

Thirty years ago Daniel bought a plot of land for $50,000 when the CPI was 50. Now the CPI is 180 and he sold the land for $180,000. What issue might inflation cause for Daniel?

 

The graphic shows the timeline of production, beginning with preparations and ending with the output being sold to customers.

 

Suppose there is uncertainty about the amount of inflation that will occur during the “Produce” period, between the signing of contracts and the collection of sales revenue. Label each item as being based, ultimately, on a worry that inflation will be higher than expected or that it will be lower than expected.

 

Click on the part of the graph that best illustrates the upward bias of traditional CPI.

 

If, in a given year, the money supply changes by +2%, the price level changes by +3.5%, and GPD changes by –1%, what is the change in the velocity of money?

 

What is the main advantage of the Billion Prices Project over the CPI?

 

The velocity of money is the frequency with which money –. The greater the money velocity, the – goods and services are being traded. By the equation of exchange, the money velocity times – equals the price level times –.

 

Suppose you're working in your hometown. You have an opportunity to take a new job in a different city, where the cost of living is different.

 

Mary’s costs will rise, and for revenue to keep pace she will have to – to keep her prices consistent with inflation. If Mary mistakenly believes the rising price of seafood is the result of increased –, she may misdirect restaurant resources. This would be an example of price –.

 

Suppose the current CPI is 240 and in 2002 it was 180. A pair of Levi’s jeans costs $54 today. Based on the CPIs, what would you expect the 2002 price to have been for the same style of Levis, in a similar retail outlet?

 

Which of the following scenarios could lead to inflation?

 

Max lives in Boston and earns $132,500 per year. If Max decides to move to San Francisco, what annual salary will he need to make in order to maintain the same real wage?

 

What best describes why inflation occurs?

 

Surprise inflation can help people who have borrowed money.

 

Apply the correct label to each inflation-related problem. Labels may be used more than once.

 

Suppose the inflation rate is 2% per year. If you currently think of $40,000 as an acceptable retirement income and are expecting to retire in 40 years, what will the equivalent annual income then be, adjusted for inflation? Round your answer to the nearest dollar.

 

Your parents bought their first car for $5,000. The price level in the year your parents bought their car was 50, while the price level today is 200. Calculate how much your parents’ car would have cost if they bought it today.

 

Gwyn owns a furniture store. She notices prices at other furniture stores have increased dramatically over the past two years. She decides she needs to expand her output because demand must be growing. However, in order to do so, she needs to find a loan. What problems could inflation cause for Gwyn?

 

Place the correct price in each blank, to reflect the effects of inflation. Use 230 as the price index for the current year.

 

Fill in the blanks to complete the passage about the CPI and the GDP deflator.

 

The Consumer Price Index (CPI) and the GDP deflator are both price indices, so they both serve as measures of inflation. However, the – uses a smaller basket of goods. The – aims to take into account all final goods and services, whereas the – only includes goods and services sold to –. So, for instance, prices on farm equipment are included in the – but not in the –.

 

Which of the following problems can inflation cause for suppliers?

 

Match the situation to the inflation-related problem it illustrates.

 

Match the situation to the factor that affects the accuracy of the CPI.

 

Fill in the blanks to complete the passage about the velocity of money.

 

In each of the following situations, would your real wage be higher or lower in the new job?

 

Mary owns a seafood restaurant. What problems might Mary face due to steady inflation?

 

Fill in the blanks to complete the passage about government actions that cause inflation.

 

Two things tempt governments to enact inflationary policies. The first is –, which can be paid off by –. The second is –economy, which in the short term can be jump-started by a –increase in the money supply.

 

What are the three reasons why the CPI is hard to measure accurately?

 

You live in Atlanta and earn $95,600 a year. Your boss offers you a $10,000 raise and the opportunity to move to another city and work remotely. If maintaining at least the same real wage is your only concern, select all the cities to which you could relocate.