Subpart (a):
Measuring percentage change in
Subpart (a):
Explanation of Solution
The percentage change in price of the good is calculated by using the following formula:
Substitute respective values in equation (1) to calculate the percentage price change for the tennis ball.
The percentage change in price for Tennis ball is 0.
Substitute respective values in equation (1) to calculate the percentage price change for the golf ball.
The percentage change in price for golf ball is 0.
Substitute respective values in equation (1) to calculate the percentage price change for the galorade.
The percentage change in price of golf balls is 50%.
The percentage change in price of bottle of gatorade is 100%.
Concept Introduction:
Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services which includes food and energy prices.
Inflation rate: It is a measure of the percentage change in the price index from the preceding period.
Subpart (b):
Measuring percentage change in price, CPI and Inflation rate.
Subpart (b):
Explanation of Solution
Thebase year is 2017. The consumer price index (CPI) can be calculated by using the following formula.
Substitute the respective values in equation (1) to calculate the CPI for the year 2017.
CPI in the year 2017 is 100.
Substitute the respective values in equation (1) to calculate the CPI for the year 2018.
CPI in the year 2018 is 150.
The overall change in price using CPI is calculated as follows:
Thus, the overall change in price is 50%.
Concept Introduction:
Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services which includes food and energy prices.
Inflation rate: It is a measure of the percentage change in the price index from the preceding period.
Subpart (c):
Measuring percentage change in price, CPI and Inflation rate.
Subpart (c):
Explanation of Solution
When the bottle of Gatorade increased in size from 2017 to2018, its value would be greater than before. As a result, this would lower the estimation of inflation rate.
Concept Introduction:
Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services which includes food and energy prices.
Inflation rate: It is a measure of the percentage change in the price index from the preceding period.
Subpart (d):
Measuring percentage change in price, CPI and Inflation rate.
Subpart (d):
Explanation of Solution
More flavors enhance consumers’ well-being which would result in change in quality and thus would lower the estimate of the inflation rate.
Concept Introduction:
Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services which includes food and energy prices.
Inflation rate: It is a measure of the percentage change in the price index from the preceding period.
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Chapter 6 Solutions
Brief Principles of Macroeconomics (MindTap Course List)
- A) Inflation is the steady and widespread increase in prices. The inflation rate, measured by CPI, rose .1% in May (since April) and rose a total of 4% year-over-year (May 2022 to May 2023). Read the BLS report on the Consumer Price Index and identify an “item” or “all items” and begin to consider why the price increased. Do a news search or using (clear, logical, rational) reasoningexplain whether prices are increasing because demand increased or because supply decreased. Graph and explain your answerarrow_forwardIn the country of Solow, people buy only three things: food, rent, and luxury goods. Last year, the price of luxury goods went down, and the price of rent increased five percent. Overall CPI inflation increased 10%. What happened to the price of food? a) The price of food increased by exactly 10% b) The price of food increased by more than 10% c) The price of food increased by between 5% and 10% d) The price of food must have gone down e) None of these choices are correctarrow_forwardInflation and interest rates a) Define/explain the consumer price index. b) Suppose that the nominal interest rate is 6.5% per year and you borrow $200. How much money will you have to repay in a year? c) Suppose that the nominal interest rate is again 6.5% and inflation is 1%. What is the real interest rate? d) Now suppose that the nominal interest rate is 1% and the inflation rate is 1.5%. What is the real interest rate? Would you like to be a lender or a borrower in this case? Why? Please explain/show how to do the calculationsarrow_forward
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