Answer to Question #303225 in Macroeconomics for john

Question

. Which of the problems in the construction of the CPI

might be illustrated by each of the following situations?

Explain.

a. the invention of the cell phone

b. the introduction of air bags in cars

c. increased personal computer purchases in response

to a decline in their price

d. more scoops of raisins in each package of Raisin Bran

e. greater use of fuel-efficient cars after gasoline

prices increase

Answer 1

a. The invention of cell phone:

Cell phone does not included in the CPI calculation because it could only enhance the standard of living ,as it ignores new products.

b. The introduction of air bags in cars:

Air bags does also enhance the standard of living.

c. Increased personal computer purchases in response:

CPI of this increased personal computer purchases in response does not include old goods as a substitute with cheaper products.

d. More scoops of raisin in each package of raisin bran:

More scoops of raisin in a raisin bran does not listed in the calculation of CPI as it is very much hard to measure the improvement results.

e. Greater use of fuel -efficient cars after gasoline price increase:

In calculation of CPI it is not included to Substitute a normal car with afuel efficent car as we know that CPI is a basket of nature.