Item Clementines Burritos Bags of trail mix Quantity (1977) Price (1977) 90 $0.10 $0.15 30 $2.00 $2.25 10 $1.00 $2.00 Find the total cost of the market basket for 1977 and 1978. Price (1978) What is the CPI in 1977 and 1978? Use the CPIs calculated in part b to find the inflation rate between 1977 and 1978.

Item Clementines Burritos Bags of trail mix Quantity (1977) Price (1977) 90 $0.10 $0.15 30 $2.00 $2.25 10 $1.00 $2.00 Find the total cost of the market basket for 1977 and 1978. Price (1978) What is the CPI in 1977 and 1978? Use the CPIs calculated in part b to find the inflation rate between 1977 and 1978.

Macroeconomics: Principles and Policy (MindTap Course List)

13th Edition

ISBN:9781305280601

Author:William J. Baumol, Alan S. Blinder

Publisher:William J. Baumol, Alan S. Blinder

Chapter6: How Statisticians Measure Inflation

Section6.A: How Statisticians Measure Inflation

Problem 5TY

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Question

This table gives the monthly purchases of an average consumer in a small economy. Suppose 1977 is
the reference base period unless stated otherwise.
Item
Quantity (1977)
Clementines
Burritos
Bags of trail mix
90
Price (1977)
30
$0.10
$2.00
10
$1.00
$2.00
Find the total cost of the market basket for 1977 and 1978.
Price (1978)
What is the CPI in 1977 and 1978?
$0.15
$2.25
Use the CPIs calculated in part b to find the inflation rate between 1977 and 1978.
Recalculate the CPIs using 1978 as the base year. How does the inflation rate change?

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Step 1: Define CPI, base year, and inflation rate

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Step 2: Compute the total cost in the two years

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Step 3: Calculate the CPI for 1977 and 1978

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Step 4: Compute the inflation rate between 1977 and 1978

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Step 5: Compute the CPI with 1978 as the base year

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