1. CPI basket is set at 431 units of good A and 218 units of good B. Compute the
ID: 1139970 • Letter: 1
Question
1. CPI basket is set at 431 units of good A and 218 units of good B. Compute the CPI and CPI inflation for each year, using 2012 as the base year. Do the same assuming the CPI basket is instead given by the 2013 consumption basket (425 units of good A and 225 units of good B), and using 2013 as the base year. Does measured CPI inflation depend on which basket you use? Why or why not?
2. Using the 2012 base-year figures, does the GDP deflator inflation you calculated change from the CPI inflation you calculated in part 3, why or why not?
Good A Good EB Year Price QuantityPantity 2082 2012 84 2013 88 2014 93 435 431 425 17 416 16 19 212 218 225 231 18Explanation / Answer
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Good A Good B Year Price (Pa) Quantity (Qa) Price (Pb) Quantity (Qb) Pa*Qa Pb*Qb Cost of basket CPI (Base 2012) Inflation(Base 2012) CPI( Base 2013) Inflation ( Base 2013) 2011 82 435 19 212 35670 4028 39698 98.37 94.78 2012 84 431 18 218 36204 3924 40128 100.00 1.63 96.38 1.60 2013 88 425 17 225 37400 3825 41225 103.71 3.71 100.00 3.62 2014 93 416 16 231 38688 3696 42384 108.39 4.68 104.56 4.56 CPI = Cost of basket atcurrent year prices/Cost of basket at base year prices Inflation = (CPI)n -(CPI)n-1 Yes, because with chane in the basket the weights changes. 2) Good A Good B Year Price (Pa) Quantity (Qa) Price (Pb) Quantity (Qb) Nominal GDP Real GDP GDP Deflator Inflation 2011 82 435 19 212 39698 40356 98.36951135 2012 84 431 18 218 40128 40128 100 1.630488651 2013 88 425 17 225 41225 39750 103.7106918 3.710691824 2014 93 416 16 231 42384 39102 108.3934326 4.682740737 No, the values for inflation does not change because the cost of basket at base year price is the real GDP which is used while calculating GDP deflator.Related Questions
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