Inflateria" is a country with a constant annual basket of 1800 pounds of oranges, 500 cases of bottled water and 1200 T-shirts. In the base year (2004), T-shirts cost $15 each, a case of bottled water cost $2 each and oranges cost $1.50 per pound. Prices in the current year (2017) were $13 per T-shirt, $3 per case of bottled water and $1.60 per pound of oranges.

Questions:

(a) Calculate the Consumer Price Index (CPI) for this economy in the base year and current year. Show your work.

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(b) Calculate the inflation rate between 2004 and 2017. Please show your work.

(c) In class, we studied two ways of measuring inflation. What were they? How are they similar and how are they different?