Question 1

If nominal wages rise slower than the price level, then real wages have ________ and the purchasing power of income has ________.

Accepted Answer

Real wages decrease when nominal wages increase at a slower rate than the price level, leading to a reduction in purchasing power.

Question 2

The 'PPI' is the:

Accepted Answer

PPI stands for Producer Price Index, which measures the average changes in prices received by domestic producers for their output.

Question 3

The 'producer price index' tracks the prices firms receive for goods and services at all stages of production.

Accepted Answer

The statement is true. The producer price index (PPI) measures the average change over time in the selling prices received by domestic producers for their output. It includes the prices of goods and services at all stages of production, from raw materials to finished products.

Question 4

Consider a simple economy that produces only three products: hot dogs, torches and golf balls. Use the information in the following table to calculate the inflation rate for 2017, as measured by the consumer price index.
  
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Accepted Answer

The answer of Consider a simple economy that produces only...

Question 5

What does the producer price index (PPI)measure?

Accepted Answer

The producer price index (PPI) measures the average of the prices received by producers of goods and services at all stages of the production process. It is used as an indicator of inflation and can provide insights into the level of input costs for businesses.

Question 6

If the CPI falls from 142 to 140 between two consecutive years, this implies that prices fell by 2% between those two years.

Accepted Answer

The percentage change in the CPI cannot be determined without knowing the base year and the weights assigned to the different items in the basket. It is not safe to assume that a two-point decrease in the CPI automatically means a 2% decrease in prices.

Question 7

Looking at the following table, real wages ________ from 2016 to 2017 and real wages ________ from 2017 to 2018.

Accepted Answer

The answer of Looking at the following table, real wages...

Question 8

Explain how the CPI is constructed, and discuss any weaknesses with this measurement technique.
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Accepted Answer

The answer of Explain how the CPI is constructed, and...

Question 9

List three different price indices and explain how they differ in terms of the market basket on which they are based.
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Accepted Answer

The answer of List three different price indices and explain...

Question 10

Looking at the following table, real average hourly earnings equals ________ in 2016.

Accepted Answer

The answer of Looking at the following table, real average...

Question 11

How many broad categories of goods and services are in the CPI market basket, and which three largest groups comprise almost half of the market basket?
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Accepted Answer

The answer of How many broad categories of goods and...

Question 12

Assume that the base period for CPI calculations is 1980. In Australia in 2016, around 30% of people accessed the Internet through a broadband connection that did not exist in the 1980s. This potential for bias in the CPI is referred to as ________ bias and results in ________.

Accepted Answer

This is an example of new product bias. When new products like broadband internet are introduced after the base period, they are not included in the CPI basket of goods and services. This can lead to the CPI overestimating the true change in the cost of living because it does not account for the utility or value that consumers derive from new products.

Question 13

Explain the difference between the 'price level', 'inflation' and the 'inflation rate'.
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Accepted Answer

The answer of Explain the difference between the 'price level',...

Question 14

The 'GDP deflator includes the price changes of all newly produced goods and services while the 'consumer price index' only includes the price changes of some newly produced goods and services.

Accepted Answer

The GDP deflator measures the average change in prices of all goods and services produced in an economy, including those used for investment and government spending. In contrast, the consumer price index only measures the price changes of a fixed basket of goods and services consumed by households. Therefore, the GDP deflator provides a broader measure of inflation that takes into account price changes across the entire economy.

Question 15

In 1986, an Apple IIe computer with 65 kilobytes of memory cost around $1 500. Today, a $1 500 iMac computer (also made by Apple)comes with 8 gigabytes of memory. This illustrates the potential for what kind of bias in CPI calculations?

Accepted Answer

This illustrates an increase in quality bias, as the price of a computer has not increased significantly over time, but the amount of memory and other features have greatly improved, resulting in a higher quality product for the same price.

Question 16

If a disease affected apple trees in Australia and significantly reduced the availability of apples for a year, what affect would this have on the CPI and would using the CPI to calculate the rate of inflation produce an accurate representation of the rate of inflation in that year?
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Accepted Answer

The answer of If a disease affected apple trees in...

Question 17

The 'inflation rate' measures the percentage increase in the price level from one year to the next.

Accepted Answer

The statement is true. The inflation rate is a measure of how much the price levels have increased from one year to the next, and it is usually expressed as a percentage.

Question 18

Assume that between 2017 and 2018, the CPI of a country rose from 182 to 185. If household incomes rose by 3% during that period of time, then which of the following is true?

Accepted Answer

The CPI increased by approximately 1.65% (from 182 to 185), while household incomes rose by 3%. Since income growth outpaced inflation, purchasing power increased.

Question 19

If nominal wages rise faster than the price level, then real wages have ________ and the purchasing power of income has ________.

Accepted Answer

Real wages increase when nominal wages rise faster than the price level, enhancing the purchasing power of income.

Question 20

What is 'outlet bias'?

Accepted Answer

Outlet bias refers to the tendency for households to shift their shopping habits to discount stores or outlets as prices for goods and services rise. This is because the Consumer Price Index (CPI), which is used to measure inflation, is calculated based on a fixed basket of goods and services, and does not always take into account changes in consumer behavior. As prices rise, consumers may choose to purchase lower-priced alternatives or shop at discount stores, leading to a potential distortion in the CPI.

Quiz 8: Inflation

If nominal wages rise slower than the price level, then real wages have and the purchasing power of income has .

The 'PPI' is the:

The 'producer price index' tracks the prices firms receive for goods and services at all stages of production.

Consider a simple economy that produces only three products: hot dogs, torches and golf balls. Use the information in the following table to calculate the inflation rate for 2017, as measured by the consumer price index. _ _

What does the producer price index (PPI) measure?

If the CPI falls from 142 to 140 between two consecutive years, this implies that prices fell by 2% between those two years.

Looking at the following table, real wages from 2016 to 2017 and real wages from 2017 to 2018.

Explain how the CPI is constructed, and discuss any weaknesses with this measurement technique. _ _

List three different price indices and explain how they differ in terms of the market basket on which they are based. _ _

Looking at the following table, real average hourly earnings equals ________ in 2016.

How many broad categories of goods and services are in the CPI market basket, and which three largest groups comprise almost half of the market basket? _ _

Assume that the base period for CPI calculations is 1980. In Australia in 2016, around 30% of people accessed the Internet through a broadband connection that did not exist in the 1980s. This potential for bias in the CPI is referred to as bias and results in .

Explain the difference between the 'price level', 'inflation' and the 'inflation rate'. _ _

The 'GDP deflator includes the price changes of all newly produced goods and services while the 'consumer price index' only includes the price changes of some newly produced goods and services.

In 1986, an Apple IIe computer with 65 kilobytes of memory cost around $1 500. Today, a $1 500 iMac computer (also made by Apple) comes with 8 gigabytes of memory. This illustrates the potential for what kind of bias in CPI calculations?

If a disease affected apple trees in Australia and significantly reduced the availability of apples for a year, what affect would this have on the CPI and would using the CPI to calculate the rate of inflation produce an accurate representation of the rate of inflation in that year? _ _

The 'inflation rate' measures the percentage increase in the price level from one year to the next.

Assume that between 2017 and 2018, the CPI of a country rose from 182 to 185. If household incomes rose by 3% during that period of time, then which of the following is true?

If nominal wages rise faster than the price level, then real wages have and the purchasing power of income has .

What is 'outlet bias'?

Quiz 8: Inflation

If nominal wages rise slower than the price level, then real wages have ________ and the purchasing power of income has ________.

The 'PPI' is the:

The 'producer price index' tracks the prices firms receive for goods and services at all stages of production.

What does the producer price index (PPI) measure?

If the CPI falls from 142 to 140 between two consecutive years, this implies that prices fell by 2% between those two years.

Looking at the following table, real wages ________ from 2016 to 2017 and real wages ________ from 2017 to 2018.

Explain how the CPI is constructed, and discuss any weaknesses with this measurement technique. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Looking at the following table, real average hourly earnings equals ________ in 2016.

Assume that the base period for CPI calculations is 1980. In Australia in 2016, around 30% of people accessed the Internet through a broadband connection that did not exist in the 1980s. This potential for bias in the CPI is referred to as ________ bias and results in ________.

Explain the difference between the 'price level', 'inflation' and the 'inflation rate'. _____________________________________________________________________________________________ _____________________________________________________________________________________________

The 'GDP deflator includes the price changes of all newly produced goods and services while the 'consumer price index' only includes the price changes of some newly produced goods and services.

In 1986, an Apple IIe computer with 65 kilobytes of memory cost around $1 500. Today, a $1 500 iMac computer (also made by Apple) comes with 8 gigabytes of memory. This illustrates the potential for what kind of bias in CPI calculations?

The 'inflation rate' measures the percentage increase in the price level from one year to the next.

Assume that between 2017 and 2018, the CPI of a country rose from 182 to 185. If household incomes rose by 3% during that period of time, then which of the following is true?

If nominal wages rise faster than the price level, then real wages have ________ and the purchasing power of income has ________.

What is 'outlet bias'?

If nominal wages rise slower than the price level, then real wages have and the purchasing power of income has .

Looking at the following table, real wages from 2016 to 2017 and real wages from 2017 to 2018.

Explain how the CPI is constructed, and discuss any weaknesses with this measurement technique. _ _

Assume that the base period for CPI calculations is 1980. In Australia in 2016, around 30% of people accessed the Internet through a broadband connection that did not exist in the 1980s. This potential for bias in the CPI is referred to as bias and results in .

Explain the difference between the 'price level', 'inflation' and the 'inflation rate'. _ _

If nominal wages rise faster than the price level, then real wages have and the purchasing power of income has .