A typical family in an island economy consumes only apples, bananas, and cloth.

Question

A typical family in an island economy consumes only apples, bananas, and cloth. The base period is year 1. Prices in the base period are $2 per pound for apples, $3 per pound for bananas, and $5 per yard for cloth. The typical family spends $40 on apples, $45 on bananas, and $25 on cloth. In year 2, apples cost $3 per pound, bananas cost $3 per pound, and cloth cost $8 per yard. Calculate the economy's consumer price index  for year 2 and the inflation rate between year 1 and year 2.

Please show each step to recieve full credit. Thank you!

Explanation / Answer

CPI =

Cost of CPI market basket at current period prices

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