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CC2105 (Introduction to Macroeconomics) tutorial 3 CC2105 (Introduction to Macroeconomics) Ch.11 i . In a simple economy, people consume only 2 goods, food and clothing. The market basket of goods used to  compute the CPI has 50 units of food and 10 units of clothing. food clothing 2002 price \$4 \$10 2003 price \$6 \$20 a. What are the percentage increases in the price of food and in the price of clothing? b. What is the percentage increase in the CPI? c. Do these price changes affect all consumers to the same extent? Explain. ii . Which is likely to have the larger effect on the CPI, a 2 percent increase in food or a 3 percent increase in  diamond rings? Explain. iii . List the three major problems in using the CPI as a measure of the cost of living. iv . Why does the GDP deflator give a different rate of inflation than does the CPI? v . Compute how much each of the following is worth in terms of today’s dollars using 177 as the price index for  today.

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