|
Item
|
Quantity
(2012)
|
Price
(2012)
|
|
Loaves of bread
|
20
|
$3.00
|
|
Jugs of soda
|
20
|
$2.00
|
|
Item
|
Quantity
(2013)
|
Price
(2013)
|
|
Loaves of bread
|
22
|
$4.00
|
|
Jugs of soda
|
30
|
$1.50
|
The tables above give the purchases of an average consumer
in a small economy. (These consumers purchase only loaves of bread and jugs of
soda.) Suppose 2012 is the reference base period.
a) What
quantities are in the CPI basket?
b) What
is the cost of the CPI basket using 2012 prices?
c) What
is the cost of the CPI basket using 2013 prices?
d) What
is the CPI in 2013?
#Parkin #11edition #Unemployment #CPI
#Inflation #Chapter22
Answer:
ReplyDeletea) The quantities in the CPI basket are the 2012 quantities because 2012 is the reference base period. So, the quantities are 20 loaves of bread and 20 jugs of soda.
b) The cost of the CPI basket using 2012 prices is (20 loaves) × ($3) + (20 jugs) × ($2) = $100.
c) The cost of the CPI basket using 2013 prices is (20 loaves) × ($4) + (20 jugs) × ($1.50) = $110. Note that the quantities used in this calculation are the quantities in the CPI basket.
d) The CPI in 2013 equals 100 times the cost of the CPI basket at 2013 prices divided by the cost of the CPI basket at 2012 (base period) prices. The CPI equals 100 × ($110) ÷ ($100) = 110.