Question
Suppose that the residents of Vegopia spend all of their income on cauliflower, broccoli, and carrots. In 2014 they buy 100 heads of cauliflower for
Suppose that the residents of Vegopia spend all of their income on cauliflower, broccoli, and carrots. In 2014 they buy 100 heads of cauliflower for $200, 50 bunches of broccoli for $75, and 500 carrots for $50. In 2015 they buy 75 heads of cauliflower for $225, 80 bunches of broccoli for $120, and 500 carrots for $100. If the base year is 2014, what is the CPI in both years? What is the inflation rate in 2015? /5
a)Determine the fixed basket of goods: 100 heads of cauliflower, 50 bunches of broccoli, 500 carrots.
b)Find the price of each good in each year:
c)Compute the cost of the basket of goods in each year:
d)Choose one year as a base year (2014) and compute the CPI in each year:
e)Use the CPI to compute the inflation rate from the previous year:
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