1) Based on what you know about how the price index is constructed, which of the following price (5pts) increases will lead to the largest increase in the price index? A housing shortage causes rent prices to increase by 10% in a single year. A semiconductor shortage causes the price of a new car increases by 30% in a single year. A sugar shortage causes the price of halloween candy to double in a single year. A housing shortage causes rent prices to increase by 10% in a single year. 2) Over the past ten years the cost of subscription cable service has substantially increased while (5pts) the cost of internet services has fallen. At the same time new TV streaming services have been introduced which allow consumers to watch premium cable channels over the internet. How will this cause the CPI to overstate the cost of living? Quality improvement bias Substitution bias New product bias Outlet bias 3) Entering January 2000, the price index for a basket of consumer goods was standardized at (5pts) 100. This price index increased to 108.5 in 2003, and 110.2 in 2004. Calculate the inflation rates in 2003. 3.24% 5.40% 1.78% 1.57% 4) Two analysts at the Bureau of Labor statistics are having an argument about the accurate (Spts) measure of inflation over the past year. The first economist recalculated this year's GDP in the past year's prices and then took the ratio of nominal and real GDP. Using this method they calculated an inflation rate of 2.5%. The second economist used a survey of household goods to estimate an inflation rate of 2.3%. You are asked to adjudicate their dispute. Which is correct? The second economist using the CPI. Both of them provide the accurate measure of inflation. Neither index provides the most accurate measure of inflation. The first economist using the GDP deflator. 5) Examine a basket of retail goods with the corresponding prices below. What is the price index (5pts) in year 4 if year 1 is the base year? Good Amount Year 1 Price Year 2 Price Year 3 Price Year 4 Price Tuna 30 $2.50 $2.70 $2.95 $3.20 Onions6 $0.70 $0.80 $0.92 $1.05 Sugar 1 $12 $14.50 $16.70 $19 110.72 109.56 0 91.9 0 121.30 0 133