1.

LISTEN TO THE 4 MINUTE STORY AND ANSWER THE QUESTION:

LINK: https://www.npr.org/sections/money/2011/02/15/131934618/the-island-of-stone-money

What surprised you the most about this story?

2.

As we have learned the definitions to describe the behavior of prices in the economy, we are now going to figure out how to compute these famous price indices. Index numbers are statistical measures designed to show changes in a variable or group of related variables with respect to time, geographic location or other characteristics such as income, profession, etc. Using these indices we can quickly find out how much a variable grew. In this sense, indices make it easier to compare numbers over time. To create a price index number, we need a basket of goods and services so that we know the quantity consumed of these items. In addition, we need prices of these goods and services so that we can come up with the index to track the overall evolution of this basket. For simplicity, we will create a simple basket of goods, let's call it the "breakfast basket". Good Quantity March 2020 $ spent Coffee 2 $1.00 $2.00 Bagel $1.50 $1.50 Orange juice $2.50 $2.50 Total $6.00 Figure 5.2. Breakfast basket, March 2020 Our breakfast basket consists of 2 cups of coffee, one non-toasted bagel, and a cup of orange juice. In March 2020, this basket cost $6.00 (see Figure 5.2). Fast forward a year, and our basket cost $6.50 (see Figure 5.3). Good Quantity March 2021 $ spent Coffee 2 $1.25 $2.50 Bagel $1.50 $1.25 Orange juice $2.50 $2.75 Total $6.50 Figure 5.3. Breakfast basket, March 2021 Question 5.4 Question 5.4 Homework . Unanswered What was the inflation rate? (if your answer is 10.52%, write 10.52) Type your numeric answer and submitFor 2019, let's assume that the breakfast basket was $5.95. Now we can use this information to create a breakfast index number. To construct an index number, we choose a base year, that base year will take (by convention) the value of 100. We can choose which year would be our base year, we generally choose a somewhat "normal" year. For our example, 2019 looked more normal that 2020 or 2021. To convert the breakfast basket cost to an index number, we will use cross- multiplication. What is the value of the index number for 2020? $5.95 - 100 $6.00 - x $6.00 x 100 = 100.84 $5.95 Now you try! What is the value of the index number for 2021? Question 5.5 Question 5.5 Homework . Answered What is the value of the index number for 2021? Type your numeric answer and submit Cannot be empty