EC102_-_Ch_6_CPI_Questions_S11_-_Answers

EC102_-_Ch_6_CPI_Questions_S11_-_Answers - 1 1...

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6fa33798437b92959293d525cd413186769fcf48.doc 1 1. The data in Table 1 above refer to a small country that produces CDs, wheat and kiwi fruit.  The data in Table 1 provide the quantities of these goods produced in 1990 and 1991 as well  as the prices of these goods in those years.  Suppose the average household as defined by  Statistics Canada purchases a bundle of goods consisting of: o 8 CDs o 5 bushels of wheat o 3 pounds of kiwi fruit Table 1 1990 Base year 1991 P Q P Q CDs $20 8 $17 12 Wheat $5 5 $5.50 10 Kiwi Fruit $0.75 3 $1 7 a) Use this information and the prices from Table 1 to construct a Consumer Price Index for  1991 when the value of the Consumer Price Index in 1990 is 100 Cost of the Basket in 1990: $20 x 8  $5 x 5  +  $0.75 x 3 $160 + $25 + $2.25 $187.25 Cost of the Basket in 1991: $17 x 8  $5.50 x 5  $1 x 3
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6fa33798437b92959293d525cd413186769fcf48.doc 2 $136 + $27.50 + $3 $166.50
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6fa33798437b92959293d525cd413186769fcf48.doc 3 Consumer Price Index in 1991: Cost of the Basket in 1991 100 Cost of the Basket in 1990 $166.50 x 100 $187.25 = 88.92% b) What is the inflation rate between 1990 and 1991? [CPI this year - CPI last year]/ [CPI last year] x 100 = [88.92 – 100]/[100] x 100 = -11.08 percent 2. If the CPI this year is 175.2 and next year the CPI is 176.1, what was the inflation rate over  the year? Inflation rate: = [CPI this year - CPI last year]/ [CPI last year] x 100 = [176.1 – 175.2]/[175.2] x 100= 0.5 percent 3. A ham and cheese sandwich at the local deli cost $3.79 in 1991.  If the CPI in 1991 was 90.0  and the CPI today is 110.0, what is the equivalent price for a ham and cheese sandwich 
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EC102_-_Ch_6_CPI_Questions_S11_-_Answers - 1 1...

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