Question
https://www.nytimes.com/2020/09/02/business/inflation-worse-pandemic- coronavirus.html Note I have reformatted that article and placed it at the end of this homework if you don't have a subscription to the
https://www.nytimes.com/2020/09/02/business/inflation-worse-pandemic- coronavirus.html Note I have reformatted that article and placed it at the end of this homework if you don't have a subscription to the New York Times. In my notes and Mankiw's chapter, we discuss three problems with the CPI statistic. Normally, each of these problems overstates inflation. For each of these problems, describe how the CORONA economy actually caused the CPI measure to understate inflation. Let me give you a model for what I want in each of the next three answers. For question 6, a good answer will start out something like"Normally substitution bias means consumers can avoid some inflation by substituting away from goods whose price has risen. But in the COVID economy. . .then explain how this bias has actually reversed now and causes the CPI to understate inflation.
7. How has the substitution bias changed in the COVID economy? 8. How has unmeasured quality change bias been affected by the COVID economy? 9. How as the introduction of new goods, which Wolfers calls a decrease in variety, been affected by the COVID economy. (8 points) Here is a table that shows the price index for the United States back to 1913.
http://www.inflationdata.com/inflation/Consumer_Price_Index/HistoricalCPI.aspx?reloa ded=true
10. Look up the price index for the month you were born and state the year, month and price index here:
11. Now assume that your parents purchased a $1,000 savings bond for you at birth. If that savings bond had risen at the same rate as inflation, what would it be worth in May 2022 dollars? Hint: pp. 7-8 of my notes will help you here.
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