Hello! Lots of help needed. I am very lost this chapter, especially when it comes to calculating CPI. I really am not sure how to even start... which of the data do I use and when? I'd love it if this could be broken down into steps if possible, that way I can try and walk myself through it. Thank you in advance!

We want to construct the Ordinary Price Index, known as OPI for short.To do so, consider the following market basket of goods and their corresponding prices in year zero, which will be the base year for our problem:

Good/Service (and quantity) Price per unit

5 ears of corn 20

2 DVD rentals $3

2 Big Mac $2

Health insurance $10

6 bus trips $1.50

Here are the prices for these goods in years 1, 2 and 3:

Good/Service Year 1 Year 2 Year 3

corn $.50 $.25 .50

DVD rentals $ 4.00 $ 4.50 $ 5.00

Big Mac $ 2.50 $ 2.50 $ 2.75

Health insurance $ 9.50 $ 9.00 $9.75

bus trips $ 1.00 $ 1.25 $ 1.50

Calculate the value of the market basket in each of these 4 years.Using that, calculate the value of the OPI for each of these years.

Consider someone that has the following nominal incomes in each of these four years.Using the OPI values from above, calculate this person's real income for each of these four years.Also, calculate the annual rate of inflation from year 0 to year 1, from year 1 to year 2, and from year 2 to year 3.

Year Nominal Income Real Income Annual Inflation

0 $10,000

1 $10,500

2 $11,000

3 $11,500

Finally, what is the average annual rate of inflation from year 0 to year 3? [Note that this is over a three year period!!]

a.The value of the market basket in year 0 is: _____

b.The value of the market basket in year 1 is: _____

c.The value of the market basket in year 2 is: _____

d.The value of the market basket in year 3 is: _____

e.The value of the OPI in year 0 is: _____

f.The value of the OPI in year 1 is: _____

h.The value of the OPI in year 2 is: _____

i.The value of the OPI in year 3 is: _____

j.The value of the person's real income in year 0 is: _____

k.The value of the person's real income in year 1 is: _____

l.The value of the person's real income in year 2 is: _____

m.The value of the person's real income in year 3 is: _____

n.The annual rate of inflation from year 0 to year 1 is: _____

o.The annual rate of inflation from year 1 to year 2 is: _____

p.The annual rate of inflation from year 2 to year 3 is: _____

q.The average annual rate of inflation from year 0 to year 3 is: _____

Use this protocol for your answers:

Market basket values - use a $ sign; express fully in dollars and cents.

OPI values - round off and express to one decimal place.

Real income values - use a $ sign, use a comma, round off to nearest whole dollar.

Inflation rates - use a % sign, round off fully to two decimal places.