Question

Question Help Economists in the Statistics Bureau decide to check the CPI substitution bias. To do so, they conduct a Consumer Expenditure Survey in both 2015 and 2016 The table shows the results of the survey. It shows the items that consumers buy and their city prices 2015 Item Quantity Price Shrimp 20 $5 Scallops 45 $3 2016 Quantity Price 25 $5 30 $5 sho year The Statistics Bureau fixes the reference base year as 2015. Calculate the CPI In 2016 if the CPI basket contains the 2016 quantities. The CPI in 2016 if the CPI basket contains the 2016 quantities is >>> Answer to 1 decimal place. sho eyes $6

Answer 1

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Economists in the Statistics Bureau decide to check the CPI substitution bias. To do so, they conduct a Consumer Expenditure Survey in both 2015 and 2016.

The table given in the question shows the results of the survey.

The cost of consumer basket in 2015

= (Quantity of shrimp in 2015 * Price of shrimp in 2015) + (Quantity of scallops in 2015 * Price of scallops in 2015)

= 20 * $5 + 45 * $3

= $100 + $135

= $235

The cost of consumer basket in 2016

= (Quantity of shrimp in 2016 * Price of shrimp in 2016) + (Quantity of scallops in 2016 * Price of scallops in 2016)

= 25 * $5 + 30 * $5

= $125 + $150

= $ 275

The CPI in 2016

= (Cost of consumer basket in 2016)/(Cost of consumer basket in 2015) * 100; [Assuming 2015 is the base year]

= $275/$235 * 100

= 117.02

A Consumer Expenditure Survey in the city of Firestorm shows that people buy only firecrackers and bandages. A Consumer Expenditure Survey in 2016 shows that the average household spent $180 on firecrackers and $12 on bandages.

In 2016, the reference base year, the price of a firecracker was $5 and the price of bandages was $2 a pack. In the current year, 2017, firecrackers are $4 each and bandages are $2 a pack.

So, number of firecrackers = $180/$5 = 36 and number of bandages = $12/$2 = 6.

The CPI market basket in base year is 36 firecrackers and 6 bandages.

Total expenditure in base year = Firecrackers * Price of firecrackers + Bandages * Price of bandages = 36 * $5 + 6 * $ 2 = $192.

So, the percentage of a household's budget spent on firecrackers in the base year = $180/$192 * 100 = 93.75%

In United States in 2008, the GDP price index = 102.9 and nominal GDP = $14,719 billion.

Now, GDP price index in 2008 = Nominal GDP in 2008/Real GDP in 2008 * 100;

Or, 102.9 = 14719/Real GDP in 2008 * 100;

Or, 1.029 = 14719/Real GDP in 2008;

Or, Real GDP in 2008 = $14,304.18 billion.

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