Suppose wages rise in China, leading to an increase in the price of toys importe
ID: 1149022 • Letter: S
Question
Suppose wages rise in China, leading to an increase in the price of toys imported trom China. This change would cause Canadian CPI to O stay the same, because Chinese toys are not part of the basket of goods and services an average household might consume O rise, because Chinese toys are part of the basket of goods and sevices an average household might consume Chinese toys are part of the basket of goods and services an average household might consume and they would consume less This change would cause O a fall in Canadian GOP price deflator O a rise in Canadian GDP price deflator Ono change in Canadian GDP price deflator This change would cause O a tal in Canadian PPL O no change in Canadian PPI O a rise in Canadian PPIExplanation / Answer
Suppose wages rise in China, leading to an increase in the price of toys imported from China.
Answer:- This change would cause the Canadian CPI to:
Correct Answer:- rise, because Chinese toys are part of the basket of goods and services an average household might consume.
Answer:- This change would cause:
Correct Answer:- no change in Canadain GDP price deflator.
Answer:- This change would cause:
Correct Answer:- no change in the Canadian PPI.
Explanation:
In Canada, imported Chinese toys are part of the CPI (since Chinese toys are part of the basket of goods and services an average household might consume), but are not part of the GDP deflator (since Chinese toys are not part of the Canadian GDP). Typically, toys are not used as inputs for producers, so they would not be part of the PPI, either. Thus, Canadian CPI would rise, but the PPI and GDP deflator would be unchanged. In China, if all of these toys are exported, the CPI (and PPI) would not change, but the GDP deflator would rise. Of course, an increase in wages would likely affect other industries outside of exporting sectors, leading to increases in the CPI and PPI of China as well.
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