The table below pertains to an economy in which the typical consumer’s basket co
ID: 1127174 • Letter: T
Question
The table below pertains to an economy in which the typical consumer’s basket consists of 10 bushels of apples and 15 bushels of oranges.
Note: Show all the steps (formula, calculations, etc ). You will not receive full credit, if you do not do so and just provide me with the answer.
Year
Price of Apples
Price of Oranges
2011
$11 per bushel
$8 per bushel
2012
$9 per bushel
$12 per bushel
Answer the following questions:
Cost of the basket in 2011?
Cost of the basket in 2012?
If 2011 is the base year, then what is the CPI for 2011?
If 2011 is the base year, then what is the CPI for 2012?
Calculate the inflation rate between 2011- 2012.
Year
Price of Apples
Price of Oranges
2011
$11 per bushel
$8 per bushel
2012
$9 per bushel
$12 per bushel
Explanation / Answer
1. Cost of basket in 2011 = 10 bushels of apples X $ 11 + 15 bushels of oranges X $ 8 = 110 + 120 = $ 230
2. Cost of basket in 2012 = 10 x 9 + 15 x 12 = 90 + 180 = $ 270
3. CPI in 2011 = Cost of basket in current year/Cost of basket in base year x 100 = 230/230 x 100 = 100
4. CPI in 2012 = 270/230 x 100 = 117.39
5. Inflation = (CPI in 2012 - CPI in 2011)/CPI in 2011 x 100 = (117.39 - 100)/100 x 100 = 17.39
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