1. Refer to the table below. A given basket of consumer goods costs as the following in each year. (5 points) Year Consumer Basket Cost $ CPI 2000 100 2001 150 2002 180 2003 198 A) Calculate the value of the CPI in each year, using year 2001 as your base-year. CPI in 2000 = CPI in 2001 = CPI in 2002= CPI in 2003 = ADT ann2B) Based on the CPI, what happened to the cost of living in year 2002, in year 2003 compared to the base year? The cost of living in 2002: The cost of living in 2003: ) Increased by ( ) Increased by ( ) Decreased by ( ) Decreased by ( ) Remained the same ( ) Remained the same a) Why was the cost of living in year 2000 lower or higher than in year 2001? Why? C) Based on the CPI in year 2002 and year 2003, was there a consumer price inflation in year 2002, in year 2003? Explain why yes, why? a) Calculate consumer price inflation in year 2003,) Remained the same ) Remained the same a) Why was the cost of living in year 2000 lower or higher than in year 2001? Why? C) Based on the CPI in year 2002 and year 2003, was there a consumer price inflation in year 2002, in year 2003? Explain why yes, why? a) Calculate consumer price inflation in year 2003, b) If your nominal income increased by 5% in year 2003, were you better off or worse off with inflation? Explain c) Refer to your answer in part a about consumer price inflation in 2003. Suppose that your friend borrowed from you $1,000 at the end of 2002 to be paid back at the end of 2003. If you expected inflation rate in year 2003 to be 2%, and you wished to earn 3% increase in the purchasing power of your money (real interest rate): . For how much in interest should you ask for? . What was your real rate of return on the loan, your real interest? . Who was better off with inflation, your friend or you? Why