The Consumer Price Index represents the average price of goods that households consume. Here consumers are represented as buying only food (pizza) and gas as their basket of goods. In the base year, 2008, both the prices of goods purchased and the number of goods purchased are collected. In subsequent years, only prices are collected. Let’s assume that in an average week in 2008, the Bureau of Economic Analysis surveys many consumers and determines the average consumer.

 

a. purchases 2 pizzas and 6 gallons of gas in a week. The price per pizza and per gallon in subsequent years are found below. What is the cost of the consumer price basket in the years 2008 to 2013? Represent your answers in table form. b. C. Year Price of Pizzas (in $) Price of Gas (in $) 2008 10 3 2009 11 3.30 2010 11.55 3.47 2011 11.55 3.50 2012 11.55 2.50 2013 11.55 3.47 Represent the cost of the consumer price basket as an index number in the year 2008 to 2013. Set the value of the index number equal to 100 in 2008. Represent your answers in table form. d. Calculate the annual rate of inflation using the percent change in the value of the index for each year from 2009 to 2013. Represent your answers in table form. What is the source of inflation in the year 2011? How is that different that inflation in the years 2009 and 2010? I have $100 in 2008 - how many baskets of goods can I buy with $100 in 2008? If I have $100 in 2013 how many baskets can I buy with that money in 2013? How does my purchasing power change over time?