Need help with review multiple choice macroeconomic questions! The next five questions involve the following situation: Consider an economywith only three consumption goods: cocaine, silver, and Doge memes. The followingtable shows prices for 2017-2020. Use 2017 as the base year for any relevant calculations.Based on a 2017 survey, the typical consumer has an annual consumption of 20g ofcocaine, 10 oz of silver, and 1,000 memes.YearPrice of Cocaine (g) Price of Silver (oz) Price of a Meme2017$150$17$12018$150$16$52019$120$16$102020$200$28$10021. Suppose that the typical consumer has a salary of $30,000 in 2017. His salary growsby 2% per year. What can we say about his ability to pay for his consumption basketover time?(A) He can never pay for his consumption basket without going into debt.(B) In 2017 and 2018, he can pay for his own consumption, but will be unable to in2019 and 2020 without taking on debt.(C) From 2017-2019, he can pay for his own consumption, but will be unable to in2020 without taking on debt.(D) He can always pay for his own consumption basket without taking on debt.22. Suppose that the typical consumer's consumption basket changes in 2020, so thathe consumes 50g of cocaine, 20 oz of silver, and only 100 memes. What does this implyabout the official CPI statistics in 2020, which are based on the 2017 basket of goods?(A) Commodity substitution bias: the official CPI overstates the extent of inflation.(B) Unmeasured quality change: the official CPI overstates the extent of inflation.(C) Commodity substitution bias: the official CPI understates the extent of inflation.(D) Unmeasured quality change: the official CPI overstates the extent of inflation.

Consumer Price Index is the measure of overall cost of goods and services bought by a typical…

2. Suppose that the typical consumer's consumption basket changes in 2020, so that e consumes 50g of cocaine, 20 oz of silver, and only 100 memes. What does this imply bout the official CPI statistics in 2020, which are based on the 2017 basket of goods? (A) Commodity substitution bias: the official CPI overstates the extent of inflation. (B) Unmeasured quality change: the official CPI overstates the extent of inflation. (C) Commodity substitution bias: the official CPI understates the extent of inflation. (D) Unmeasured quality change: the official CPI overstates the extent of inflation.

2. Suppose that the typical consumer's consumption basket changes in 2020, so that e consumes 50g of cocaine, 20 oz of silver, and only 100 memes. What does this imply bout the official CPI statistics in 2020, which are based on the 2017 basket of goods? (A) Commodity substitution bias: the official CPI overstates the extent of inflation. (B) Unmeasured quality change: the official CPI overstates the extent of inflation. (C) Commodity substitution bias: the official CPI understates the extent of inflation. (D) Unmeasured quality change: the official CPI overstates the extent of inflation.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter22: Inflation

Section: Chapter Questions

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Suppose that the typical consumer’s consumption basket changes in 2020, so that he consumes 50g of cocaine, 20 oz of silver, and only 100 memes. What does this imply about the official CPI statistics in 2020, which are based on the 2017 basket of goods?

(A) Commodity substitution bias: the official CPI overstates the extent of inflation. (B) Unmeasured quality change: the official CPI overstates the extent of inflation. (C) Commodity substitution bias: the official CPI understates the extent of inflation. (D) Unmeasured quality change: the official CPI understates the extent of inflation.

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Follow-up Question

Suppose that the typical consumer has a salary of $30,000 in 2017. His salary grows by 2% per year. What can we say about his ability to pay for his consumption basket over time?

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