2. In each scenario determine the effects (up/down/no change) on the CPI and the

Question

2. In each scenario determine the effects (up/down/no change) on the CPI and the GDI Impact on CPI | Impact on GDP Deflator A. Starbucks raises the price of Frappuccinos B. Caterpillar raises the price of the industrial tractors it manufactures at its Ilinois factory 3. Classify cach of the situations into the different types of unemployment. A. A computer programmer laid off due to recession B. A literary editor leaves his job in New York to look for a new job in Chicago. C. The use of automated teller machines (ATMs) has caused some bank tellers to lose their jobs.

Explanation / Answer

CPI=(Weighted price index of all items/Total weights)*100.

GDP deflator=(Nominal GDP/Real GDP)*100

2.a) When Starbucks raises the price of Frappuccinos weighted price index will be increased. So CPI will be increased.

Nominal GDP includes current price so nominal GDP will be increased. By this effect GDP deflator will be increased

b)Caterpillar raises the price of the industrial tractors it manufactures. CPI will be increased as the price of one item is increased so weighted price index will be increased.

Nominal GDP will be increased as it includes current price of each item. So GDP deflator will be increased.

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