Practice Questions to accompany Mankiw & Taylor:
Economics
1
Chapter 24
1.
The following table shows the prices and the quantities consumed in
the country known as the University States. Suppose the base year is
2003. This is the year the typical consumption basket was determined
so the quantities consumed during 2003 are the only quantities needed
to calculate the CPI in every year.
a.
What is the value of the CPI in 2003?
Answer:
(€1100/€1100) x 100 = 100
b.
What is the value of the CPI in 2004?
Answer:
(€1600/€1100) x 100 = 145.5
c.
What is the value of the CPI in 2005?
Answer:
(€2750/€1100) x 100 = 250
d.
What is the inflation rate in 2004?
Answer:
[(145.5 – 100)/100] x 100 = 45.5 percent
e.
What is the inflation rate in 2005?
Answer:
[(250 – 145.5)/145.5] x 100 = 71.8 percent
f.
What type of bias do you observe in the CPI and corresponding
inflation rates you generated above? Explain.
Answer:
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 Spring '09
 NA
 Business, Inflation, Inflation rates

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