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Answer: True False Diff: 1 A-Head 13.5: Measuring Inflation AACSB: Application of knowledge 147) The producer price index tracks the prices firms receive for goods and services at all stages of production. Answer: TrueFalse Diff: 1 A-Head 13.5: Measuring Inflation AACSB: Analytic thinking ESSAY. Write your answer in the space provided or on a separate sheet of paper. 148) Explain the difference between the price level, inflation and the inflation rate. Answer: The price level is a measure of the average prices of goods and services in the economy. A sustained increase in the general price level of the economy is called inflation. The inflation rate is the percentage increase in the general price level of the economy from one period of time to the next, usually expressed annually. Diff: 2 A-Head 13.5: Measuring Inflation AACSB: Analytic thinking 149) How many broad categories of goods and services are in the CPI market basket, and which three largest groups comprise almost half of the market basket? 150) List three different price indices and explain how they differ in terms of the market basket on which they are based.
Answer: Three examples of price indices are the GDP deflator, the consumer price index, and the producer price index. All three differ by the kinds of goods that are contained in the market basket that is used to calculate the average level of prices. The GDP deflator is based on the average price of all final goods and services produced in the economy. The consumer price index is based on the average price of consumer goods and services purchased by households. The producer price index is based on the prices received by producers of goods and services at all stages of the production process.