Score: 4 of 7 pts 6 of 7 Question 6: Measuring Inflation 14 The monthly market b

Question

Score: 4 of 7 pts 6 of 7 Question 6: Measuring Inflation 14 The monthly market basket for consumers consists of pizza, t-shirts, and rent The table below shows market basket quantities and prices for the base year (Year 1) and in the following year Question Help Settings Base Year (Year 1) Quantity 10 Price in the Base Year Price in Year 2 Product Pizza T-Shirts Rent $2.50 $15.00 S500.00 $3.13 $13.50 $550.00 In Year 1, the CPI for the economy isRound both answers to one decimal place.) In Year 2, the CPI for this economy is

Explanation / Answer

The basket of goods for calculation of CPI contains 10 pizza, 2 t-shirts, and 1 rent. Thus the total cost of goods stand to be = 10 x 2.5 + 2 x 15 + 1 x 500 = $555.

The formula for CPI = cost of basket of goods in year / cost of basket of goods in base year

Since the year is a base year, CPI = (555/555) x 100 = 100

Cost of basket in Year 2 = 10 x 3.13 + 2 x 13.5 + 1 x 550 = 608.3

Therefore CPI for year 2 will be, CPI = (608.3/555) x 100 = 109.6

ANS : CPI for Year 1 = 100

   CPI for Year 2 = 109.6

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