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Author Question: The table above gives the purchases of a typical consumer in a country comprised of one large city. ... (Read 32 times)

chads108

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on: Jun 29, 2018
The table above gives the purchases of a typical consumer in a country comprised of one large city. These consumers purchase only restaurant meals and parking. The year 2010 is the reference base period.
 
  a. Find the total cost of the CPI market basket for 2010 and 2011.
  b. What is the CPI in 2010 and in 2011?
  c. What is the inflation rate between 2010 and 2011?

Question 2

Referring to Figure 19.1, the peso is likely to appreciate if the exchange rate is either ________ or ________ pesos to the dollar.
 
  A) 10; 11 B) 11; 12 C) 12; 13 D) 13; 14


amcvicar

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Reply #1 on: Jun 29, 2018
Answer to Question 1

a. The total cost of the CPI market basket in 2010 equals (100 meals  10 ) + (50 parking  100 ) = 6,000. The total cost of the CPI market basket in 2011 equals (100 meals  12 ) + (50 parking  97.50 ) = 6,075. The quantities are the same in 2010 and 2011. If the quantities differed, the 2010 quantities would be used because 2010 is the base year.
b. The CPI in 2010 is 100 because 2010 is the base period. (Alternatively, the CPI in 2010 equals (6,000)/6,000 )  100 = 100.) The CPI in 2011 equals (6075)/(6,000 )  100 = 101.25.
c. The inflation rate between 2010 and 2011 equals (101.25 - 100)/(100 )  100 = 1.25 percent.

Answer to Question 2

D


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