Which rate of inflation accounts for the substitution bias A the inflation rate

Which rate of inflation accounts for the substitution

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22. Which rate of inflation accounts for the substitution bias? A) the inflation rate from #20 (using 2012 as the base year) B) the inflation rate from #21 (using 2013 as the base year) Feedback: The answer in #21 (using base year 2013) accounts for the substitution bias. Note that the price of sporting events increased in 2013, so the student rationally substituted away from sporting events. The inflation rate from #20 (2012 base year) includes lots of substitution bias. Table for Individual Question Feedback
Points Earned: 3.0/3.0 Correct Answer(s):B 23. The ‘Chain Weighted’ rate of inflation is ___%.Table for Individual Question Feedback Points Earned: 3.0/3.0 Correct Answer(s):E 24. Use the table below to answer questions 24 - 27Nominal Interest Rate Price index (CPI) Expected Inflation June 1, 2008 2.42 217.463 5.1 June 1, 2009 214.791 Notes: -June 2009 is the last month of the Great recession - the official recovery, began in July of 2009 -expected inflation data is one year hence, so expected inflation for the period from June 1, 2008 to June 1, 2009 is given in June 2008. So the data in the table indicates that in June of 2008, inflation was expected to be 5.1% over the next 12 monthsUse the provided CPI data to calculate the actual inflation rate that occurred between June 2008 and June 2009 (hint: just calculate the % change in the CPI).
C) -1.23% D) 3.65% Table for Individual Question Feedback Points Earned: 3.0/3.0 Correct Answer(s):C 25. The ex-ante real rate of interest between June 2008 and June 2009 is: Table for Individual Question Feedback Points Earned: 3.0/3.0 Correct Answer(s):B 26. The ex-post real rate of interest between June 2008 and June 2009 is: A) 1.19% B) -2.68% C) -1.23% D) 3.65% Feedback: 2.42-(-1.23) = +3.65. NOTE: The ex-ante and ex-post rates are very different since expected inflation was so much different than actual inflation. Table for Individual Question Feedback Points Earned: 3.0/3.0 Correct Answer(s):D 27. We know that most decisions are in part, based on expectations of the future. Suppose we have two people who are trying to decide whether to consume today (assume it is currently June 2008) or save for the future and consume one year later, in June 2009. One person, let's call him Joe, is basing his decision on the ex-ante
real rate of interest like most of us do. The other person who has a crystal ball, we'll call her Crystal, can see exactly what the actual rate of inflation is going to be and thus, has perfect foresight and bases her decision on the ex-post real rate. Look at the difference in the ex-ante and ex-post real rates you calculated in #25 and #26 above. Who would be more likely to save and who would be more likely to spend?

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