Ch9 Tracking Inflation and Measuring Changes in the Cost of Living by the CPI

Section 9.1 and 9.2

The consumer price index (CPI) compares the price of a fixed basket of goods (CPI basket) in certain year with the price of the same basket of goods in the base year.

The table below keeps track of the prices of a basket of 100 units of good X, 150 units of good Y, and 25 units of good Z in three different years.

Basket of Goods Consumed in units

Year 2000Base Year

Unit price $

Year 2001

Unit Price $

Year 2002

Unit Price $

X = 100

1.00

1.50

1.75

Y = 150

1.50

2.00

2.00

Z = 25

3.00

3.25

3.00

1. (2 points) Calculate the cost of total spending of the basket of goods in years 2000, 2001, and 2002. (Refer to 9.1 The Price of a Basket of Goods)

1. (2 points) Assuming year 2000 is the base year. Based on the amount of 1., calculate the CPI of the year 2000, 2001, and 2002, by using this formula:

CPI = (Cost of goods in certain year/Cost of goods in base year) x 100

1. (2 points) Calculate the inflation rate between 2000 and 2001, and between 2001 and 2002. (Refer to 9.1 The Price of a Basket of Goods)

Inflation rate = ((This year CPI - Previous year CPI)/Previous year CPI) x 100