Question

Inflation Question
Use the following consumer data for housing, energy, and food purchased in the year(s) 2017, 2018, and
2019 in Macroland. Show your work. The base year 2018.

Price in 2017 Price in 2018 Price 2019
Housing $22,000.00 $22,500.00 $28,000.00
Energy $20,000.00 $21,000.00 $21,200.00
Food $12,000.00 $12,600.00 $13,000.00

g. Comparing housing and food, which is relatively more expensive, 2017 or 2018? Why?

Answer 1

Ans

Formula for consumer price index

CPI = ( basket amounts in current year / basket amount in base year ) × 100

So in this base year is 2018.

We clearly see both price of housing and food rises from 2017 to 2018 . Thus 2018 year expensive because CPI and inflation rises. In 2018 inflation rate in 3.24%..

Clacution below of both housing and food.

Now basket amounts of housing and food

Basket amount 2017 = 22000 + 12000 = 34000

Basket amount 2018 = 22500 + 12600 = 35100

Now CPI

CPI₂₀₁₇ = (34000/35100) × 100 = 96.86

CPI₂₀₁₈ = (35100/35100) × 100 = 100

Inflation rate in 2018

= [ (100 / 96.86) - 1] × 100 = 3.24%.