The BBS reported the following CPI data:

June 2016- 201.9 June 2017- 207.2 June 2018- 217.4

a) Calculate the inflation rates for the years ended June 2017 and June 2018. How did the

inflation rate change in 2018?

b) If the cost of a market basket in 2016 is 2,000, t what is the cost of the same basket of

goods and services in 2017? In 2018?

c) Why might these CPI numbers be biased? Explain all the reasons with appropriate

examples in each case

d) How do alternative price indexes help to avoid the bias in the CPI numbers? (Hint: GDP

deflator, PPI are some of the prominent alternative price indexed).

e) Give example of the pros and cons of each index including CPI?