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Suppose an economy consumes only two goods: food and entertainment. The following table shows quantities consumed and prices for three years: Year 0 (the base
Suppose an economy consumes only two goods: food and entertainment. The following table shows quantities consumed and prices for three years: Year 0 (the base year), Year 1, and Year 2.
Item | Year 0 | Year 1 | Year 2 | |||
Quantity (units) | Price ($ / unit) | Quantity (units) | Price ($ / unit) | Quantity (units) | Price ($ / unit) | |
Food | 50 | 5 | 75 | 6 | 80 | 4 |
Entertainment | 100 | 12 | 110 | 11 | 115 | 14 |
a) Compute the CPI in years 1 and 2.
b) For Year 0, compute the shares in expenditure of each of the two goods.
c) compute inflation rates (from year 0 to year 1 and from year 1 to year 2) based on GDP deflator.
Present answer with 2 decimals.
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