Interactive Exercise 2.2A Graph Instructions: - Use the mouse to click on any of the boldfaced price or quantity cells. Change the number in the highlighted gray area to a new value.
- Quantities range between 0 and 2.0 units for housing and between 0.0 and 999.99 for all other goods.
- Prices range between $0.00 and $999.99 for housing and between $0.00 and $10.00 for all other goods.
- Press the CPI / GDP Deflator button to toggle between the two measures of the price level.
- Press Reset to start over.
Questions: - Click the reset button to ensure that the quantities of each of the four budget items are the same in years one and two. Note that the prices of three of the items are higher in year two. Calculate the CPI and the GDP deflator and compare these two measures of inflation.
- Now change the quantity of food to be 30 in year two and calculate the CPI. What happens to the rate of inflation, as measured by the CPI, as a result of this change? Explain.
- Calculate the GDP deflator when the quantity of food is 30 by clicking on the CPI/GDP deflator button. What accounts for the difference in the two inflation measures?
- What drawbacks of these inflation measures do the above questions illustrate?
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Interactive Exercise 2.2B Graph Instructions: - Click on either of the boldfaced number boxes to change past or current prices.
- Use your mouse to drag the date slider to choose a particular past year.
- Click "Reset" to start over.
Questions: - Adjust the slide bar until 1990 appears in the as the price then year. What does the number in the CPI box tell you has happened to the price level since the 1982-1984 period?
- Click the reset button to return the price then year to 2000. On the top line, enter $10 in the price then box. What would the price of that item be in 2004? By what percentage has the price risen?
- Take note of the CPI level in the CPI box in 2000 and then adjust the slide bar until 2004 appears in the year box. What is the CPI level in 2004? Calculate the percentage change in the CPI level. (Your answer should be the same as that in question two.)
- Click the reset button and then move the slide bar to the left until 1970 appears as the price then year. (Note that the CPI level is below 100.) Use the table to find out how much an item costing $10 in 2004 would have cost in 1970.
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