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Year Quantity Goods Quantity Services Price Goods Price Services 2010 2000 6200 2 1.5 2011 2200 6400 2.11 1.65 2012 2500 6750 2.15 1.65 2013

Year Quantity Goods Quantity Services Price Goods Price Services
2010 2000 6200 2 1.5
2011 2200 6400 2.11 1.65
2012 2500 6750 2.15 1.65
2013 2505 7100 2.3 1.9
2014 2700 7300 2.35 2
2015 3050 8000 2.5 2
2016 3100 8450 2.65 2.1
2017 3500 8650 2.7 2.15

Assume that consumers’ typical consumption basket of goods and services is exactly represented by the (relative) quantities of goods and services produced in 2015.

a. Calculate the implied CPI in each year, based on 2015 consumption quantities.

b. Calculate the CPI inflation rate for each year and the annual average inflation rate. How do these compare to the annual and annual average inflation rate of the GDP deflator? What is the correlation between the two inflation rates? Why do the two inflation rates in this example differ, if they do? What are the sources of differences in the two inflation rates in reality

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a To calculate the implied CPI Consumer Price Index in each year based on 2015 consumption quantities we can use the following formula Implied CPI Quantity Goods in the Current Year Quantity Goods in ... blur-text-image

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