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Assume that in an economy only 3 goods are produced and consumed: beans, fruit, and fish. Suppose that on January 1, beans sold for $2.50
- Assume that in an economy only 3 goods are produced and consumed: beans, fruit, and fish. Suppose that on January 1, beans sold for $2.50 per pound, fish was $3.00 per pound, and fruit was $1.50 per pound. At the end of the year, beans prices had increased to $5.00 per pound, but fruit prices stayed at $1.50 per pound, and fish prices had actually fallen to $2.00. What happened to the overall CPI? What happened to the inflation rate?
- Explain the relationship between new goods bias, CPI and GDP measures of inflation.
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