What is the difference between the consumer price index (CPI) and the producer price index (PPI)? a. The producer price index tracks prices of a market basket of goods and services representative of consumption expenditure by typical Australian households in capital cities, whereas the consumer price index tracks prices received by producers of goods and services at all stages of the production process, including intermediate goods and raw materials. b. The consumer price index tracks prices of a market basket of goods and services representative of consumption expenditure by typical Australian households in capital cities, whereas the producer price index tracks prices received by producers of goods and services at all stages of the production process, including intermediate goods and raw materials. c. The consumer price index tracks prices paid by households for a market basket of goods and services representative of consumption expenditure by typical Australian households in capital cities, whereas the producer price tracks the prices received by firms for that market basket of goods and services. d. The consumer price index is an average price level equal to nominal GDP divided by real GDP, whereas the producer price index is an average of the prices received by wholesale producers.
Question
What is the difference between the consumer price index (CPI) and the producer price index (PPI)?
a. The producer price index tracks prices of a market basket of goods and services representative of consumption expenditure by typical Australian households in capital cities, whereas the consumer price index tracks prices received by producers of goods and services at all stages of the production process, including intermediate goods and raw materials.
b. The consumer price index tracks prices of a market basket of goods and services representative of consumption expenditure by typical Australian households in capital cities, whereas the producer price index tracks prices received by producers of goods and services at all stages of the production process, including intermediate goods and raw materials.
c. The consumer price index tracks prices paid by households for a market basket of goods and services representative of consumption expenditure by typical Australian households in capital cities, whereas the producer price tracks the prices received by firms for that market basket of goods and services.
d. The consumer price index is an average price level equal to nominal GDP divided by real GDP, whereas the producer price index is an average of the prices received by wholesale producers.
Solution
The correct answer is:
b. The consumer price index tracks prices of a market basket of goods and services representative of consumption expenditure by typical Australian households in capital cities, whereas the producer price index tracks prices received by producers of goods and services at all stages of the production process, including intermediate goods and raw materials.
The Consumer Price Index (CPI) measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services, including food, transportation, medical care, etc. It is a key measure of inflation.
The Producer Price Index (PPI) measures the average change over time in the selling prices received by domestic producers for their output. It includes all stages of production, including raw materials, intermediate goods, and finished goods.
Options a, c, and d are incorrect because they either misstate what the CPI or PPI measures, or they confuse the two measures.
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