Question

Suppose that the typical consumer in the economy consumed only 50 apples and 100 hamburgers in the year 2010. Below you will find information on the market prices for these goods for the years 2010 to 2015:

Market Price ($ per unit)

Year Apples Hamburgers

2010 0.3 0.8

2011 0.4 0.8

2012 0.4 1.0

2013 0.6 1.1

2014 0.6 1.1

2015 0.7 1.5

    

Use this information to answer the following questions:

a) Compute the cost of living (cost of basket in $) of a typical consumer for the years 2010, 2011, 2012, 2013, 2014, and 2015, using the year 2010 as a base.

b) Using the results that you obtained in (a), compute the CPI (using 2010 as the base year).

c) Compute the rate of inflation for each year (against the previous year).

d) Now suppose that the typical consumer in the economy still consumed 50 apples and 100 hamburgers in the year 2015. Compute the CPI using 2015 as the base year and also compute the rate of inflation (again, using 2015 as the base year). Compare these results with the results you obtained in (c) and explain.

Answer 1