06. Commodity Baskets, Price Indices, and Purchasing Power Parity (PPP) Suppose that you share an apartment with a roommate and in order to succeed at university you pay monthly for tutoring, and also rent a laptop. You live far away from the university and you commute every day, consuming 30 gallons of gas per month. The prices of renting an apartment, tutoring, the laptop and gas in the U.S. and India are given below for years 2021 and 2022. US Dollars Indian Rupees 2021 2022 2021 2022 Monthly apartment rent $1,300 $1,450 Rs 4,000 RS 4,200 Monthly Tutoring $240 $240 R5 1,200 As 1,300 Annual laptop rental cost $1,100 $1,155 A$ 55,000 Rs 58,850 Gas per gallon $4.00 $4.49 As 240 Rs 270 a) Using 2021 and 2022 data on prices above, calculate the rates of inflation in the U.S. and India. Hint: Clearly identify the reference "basket" of goods first using the information above (note the different time units for costs above, and first construct an annual basket), and then calculate how much it would cost to buy that basket of goods in 2021 and 2022. b) Suppose you only have access to a local tutor. State which of the above goods (rent, tutoring, laptop, and gas) are likely to be tradable and which are not. Calculate market exchange rate in Rs/S using these criteria of tradable and non-tradable and the 2021 data. c) Calculate PPP-adjusted exchange rate in 2021 and 2022. Did this rate change between 2021 and 2022? Why or why not? d) Suppose that in 2021, GDP per capita was roughly $60,000 in the U.S. and Rs 180,000 in India. Calculate Indian GDP in dollars first using market exchange rate and then using PPP- adjusted rate. Does the use of market exchange rate overstate or understate the social welfare in India? Why is that the case? e) Now suppose that your friend told you about online tutoring services offered by an Indian company. Given that your tutoring options are no longer limited to local tutors, calculate the 2021 market exchange rate using information for above goods. Is the new exchange rate higher or lower the one you calculated in part (b)? How do you explain the difference between the new exchange rate and the one in part (b)