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Author Question: The tables above give the purchases of an average consumer in a small economy. (These consumers ... (Read 102 times)

nevelica

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on: Jun 29, 2018
The tables above give the purchases of an average consumer in a small economy. (These consumers purchase only shampoo and pizza.) Suppose 2015 is the reference base period.
 
  a) What is the cost of the CPI basket in 2015 and 2016?
  b) What is the CPI in 2015 and in 2016?
  c) What is the inflation rate between 2015 and 2016?

Question 2

If the base year CPI basket costs 250 and next year the CPI basket costs 275, what is next year's CPI?
 
  What will be an ideal response?


choc0chan

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

a) For 2015 the CPI basket costs 171.25. For 2016 the CPI basket costs 178.75.
b) For 2015, the base period, the CPI is 100.0. For 2016 the CPI is (178.75/171.25 )  100, which is 104.4.
c) Between the two years the inflation rate is equal to (104.4 - 100.0 )/100  100, which is 4.4 percent.

Answer to Question 2

The CPI equals 100  (275/250 ) = 110.


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