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2. Compute the cost of a basket that contains 5 units of Soda and 10 units of (large) Pizzas, for each year. Prices of Soda

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2. Compute the cost of a basket that contains 5 units of Soda and 10 units of (large) Pizzas, for each year. Prices of Soda and Pizza are as follows: Year Price Soda Price Pizza 2014 $1 $9 2015 1 10 2016 1.50 12 2017 1.50 12 2018 2 13 3. Use the cost of the basket computations from (2) to construct a price index with 2014 being=100. A. Compute the rate of inflation for each (possible) year. B. What is the real meaning of the inflation rate in 2018 (you are explaining this to someone who has very little knowledge of economics)? 4. A large Pizza was included in the basket in question (2). Suppose in 2017 pizza makers reduced the standard size to a medium size pizza. A. How should the change in size of the pizza affect the cost of the basket? Briefly explain. B. Can you come up with a plausible way to take this into account so that we can compute the "true' rate of inflation? 5. You are given the following information: CPI for 2020 is 165 and the CPI base year is 2011. Interpret the real meaning of the CPI being 165 in 2020

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