Government survey takers determine that typical family expenditure each month in
ID: 1201837 • Letter: G
Question
Government survey takers determine that typical family expenditure each month in the year designated as the base year are as follows: 20 pizzas,$10 each Rent of apartment,$600 per month Phone service (basic service plus 10 long-distance call),$50 per month In the year following the base year,the survey takers determine that pizzas have risen to $11 each, apartment rent is $640,gasoline and maintenance have risen to $120,and phone service has dropped in price to $40. a. Find the CPI in the subsequent year and the rate of inflation between the base year and the subsequent year. CPI:1.067 Rate of inflation: 6.7 b. The family's nominal income rose by 5 percent between the subsequent year.Are they worse of or better off in terms of what their income is able to buy? the family is worse offExplanation / Answer
Base year:
Pizza $10 + Rent $600 + Gas $100 + Phone $50 = $760
Next year:
Pizza $11 + Rent $640 + Gas $120 + $40 = $811
a. CPI in subsequent year = 811 / 760 = 1.067.
Rate of inflation: 6.71%
b. The family is worse off. (rate of increase in income is less than inflation rate)
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