Use the following to answer question 39: The table below relates to the of baske

Question

Use the following to answer question 39: The table below relates to the of basket consistsof2iPhonesand 3 hamburgers economy of Mainland, where the typical consumer's market ! iceo f a hamburger Year 2007 2008 Price of an iPhone $300 $400 Pr $2 $6 39. Refer to table 11-7. If the base year is 2007, then the consumer price indices for 2007 and 2008 (rounded to the nearest whole number) are A) 302 in 2007 and 406 in 2008. B) 100 in 2007 and 74 in 2008. C) 606 in 2007 and 818 in 2008. D) 100 in 2007 and 135 in 2008. 40. When a currency becomes more valuable in terms of other currencies, we say that it: A) has appreciated. B) is no longer in equilibrium. C) has depreciated. D) is overvalued.

Explanation / Answer

39.

The formula for CPI is

CPI = (Cost of market basket at current year price / Cost of market basket at base year price) * 100

Cost of market basket at current year price for 2007 = (2 * $300) + (3 * $2) = $606.

Cost of market basket at base year price for 2007 = (2 * $300) + (3 * $2) = $606.

So, CPI for 2007 = ($606 / $606) * 100 = 100.

Now,

Cost of market basket at current year price for 2008 = (2 * $400) + (3 * $6) = $818.

Cost of market basket at base year price for 2007 = (2 * $300) + (3 * $2) = $606.

So, CPI for 2008 = ($818 / $606) * 100 = 134.9 or 135.

So, the correct option is

D) 100 in 2007 and 135 in 2008.

40.

When a currency becomes more valuable in terms of other currencies, we say that it:

A) has appreciated.

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