Question
a) Discuss the problems with the Consumer Price Index. b) Consider a nation obsessed with Coke Studio. All they produce and consume are DVDs and
a) Discuss the problems with the Consumer Price Index.
b) Consider a nation obsessed with Coke Studio. All they produce and consume are DVDs and karaoke mics, in the following amounts:
Karaoke Mics DVDs
Quantity Price Quantity Price
2020 10 Rs.4,000 30 Rs.1,000
2021 12 6,000 50 1,200
a. Using a method similar to the CPI, compute the percentage change in the overall price level. Use 2020 as the base year and fix the basket at 3 DVDs and 1 karaoke mic.
b. Using a method similar to the GDP deflator, compute the percentage change in the overall price level. Again, use 2020 as the base year.
c. Is the inflation rate in 2021 the same using the two methods? Explain why or why not.
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International Economics Theory and Policy
Authors: Paul R. Krugman, Maurice Obstfeld, Marc J. Melitz
9th Edition
978-0132146654, 0132146657, 9780273754091, 978-0273754206
