QUESTION 3: INFLATION AND CPI Suppose the following data applies typical monthly to expenditures of an average household Quantity Food Base Year Price Current Year Price 10 Clothes $20 $25 5 Housing $50 $60 1 $1000 $1200 a. Calculate total cost of living in each year: i. Base year (1 pt) ii. Current year (1 pt) b. Given your answer to part a, what is the rate of inflation between the base year and current year? (1 pt) c. If the price index in the base year = 100, what is the value of the price index in the CURRENT year? (1 pt) d. Given your answer to part b, if nominal wages increased by 10% between the base year and the current year, what has happened to real wages? (1 pt) e. Assume that a lender charged a nominal interest rate of 5% and the annual inflation rate is 4%. What is the real interest rate received by the lender? (1 pt) f. Assume there is higher than expected inflation. For each of the following IDENTIFY whether the group described is experiences benefit or harm from the unexpected inflation and EXPLAIN your reasoning. i . A lender whose outstanding loans have fixed interest rates: ii. An employer whose staff have a 3 year contract without of COLA: ifi. A retiree who relies on a fixed payments from their pension plan as a significant part of their monthly income