# Attempts: Keep the Highest: 75 6. The exponential distribution An economist studied a large data set...

###### Question:

Attempts: Keep the Highest: 75 6. The exponential distribution An economist studied a large data set of Mexican consumer prices covering episodes of both high and low inflation. One of the goods in the study was toothpaste. When the inflation rate was low, an average of 1.9 changes in the price of toothpaste occurred each year. When the inflation rate was high, the price of toothpaste changed more frequently-an average of 8.4 times each year. (Source: E. Etienne Gagnon, Price setting during low and high inflation: Evidence from Mexico, International Finance Discussion Papers, No. 896 (City: Board of Governors of the Federal Reserve System, 2007)-1 The expected number of toothpaste-price changes in a 1-month period is when inflation is low and when inflation is high Assume that the number of price changes in any 1 month period, is described by a Poisson probability distribution with a mean equal to one of the values you just calculated (depending on whether the inflation rate is high or low). Then, the number of months between consecutive price changes is exponentially distributed with a mean of of when inflation is high when inflation is low and a mean How use the following Distributions tool to help you answer some of the questions that follow
Select a Distribution Exponential Poisson Distributions when inflation is low and when inflation The probability that the price of toothpaste remains fixed for more than 3 months is to high. If the probability that the price of toothpaste stays the same for 2 months or less is about 0.76, is Mexico's inflation rate high or low? LOW High M o nahoton epsode, the variance of is

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