1. Suppose that people in Slotsky country produce and consume pizza and pop as follows. (Total marks = 15)

Year	Pizza	Pop
Quantity	Price	Quantity	Price
Year0	30	5	50	10
Year1	50	10	60	15
Year2	60	12	65	25

IS THIS CORRECT, IF NOT WHY? thanks

1. Calculate the consumer price index (CPI) in each year using Year0 as the base year. Show your work. (3 marks)

Year 0 and 1

CPI = (50*10+60*15)/(30*5+50*10) *100

=1400/650*100

=215.38

Year 1 and 2

CPI= (60*12+65*25)/(30*5+50*10)

=2345/650*100

=360.77

1. Using your CPI in (a), what is the inflation rate in Year1 and Year2? Show your work. (3 marks)

Inflation rate is the rate of change in the percent in price index.

=360.76-215.38/215.38 * 100 = 67.50%

1. Calculate the GDP deflator in each year using Year0 as the base year. Show your work. (3 marks)

=GDP deflator - NGDP/RGDP*100

=(50*10+60*15)/(50*5+60*10)*100

=1400/850*100

=164.7%

Year 2

=(60*12+65*25)/(60*5+65*10)*100

=246.84%

1. Using your GDP deflator in (c), what is the inflation rate in Year1 and Year2? Show your work. (3 marks)

Inflation rate of year 1&2

(246.84-164.7)/164.7*100

=49.87%

1. Is the inflation rate in Year2 the same in (b) and (d)? Explain why or why not. (3 marks)

The inflation rate is not the same between year 1 and 2 because the goods purchased by consumers do not consist of all similar goods and services produced in the country. The GDP considers all those goods and services. CPI includes price of goods consumed by a representative consumer. It includes imported goods that are not included in the GDP deflator. Weights are constant in CPI but differ according to production of each good in the GDP deflater.