1. Suppose a market basket of goods and services includes the goods below for tw
ID: 1135495 • Letter: 1
Question
1. Suppose a market basket of goods and services includes the goods below for two successive years. What is the consumer price index for 2013? Explain.
2. Conduct an Internet search on the "national debt to the penny." How much is the current national debt? Once you find out the size of the debt, determine if the federal government is helped or hurt by unanticipated inflation if the interest rate on the debt and its payments are fixed. Explain.
3. Maddie's nominal income was $33,000 in 2012. In 2013, because of her excellent work ethic, she received a raise that increased her nominal income to $35,000. Maddie knew a lot about inflation so she decided to see how much of a raise she really received. After researching the consumer price index at the Bureau of Labor Statistics web site, she found that the CPI for 2012 was 110 and that it jumped to 125 in 2013. Calculate the percent change in Maddie's real income after she was given a raise. Was she hurt or helped by this unanticipated inflation? Explain.
4.Suppose a market basket of goods and services includes the goods for two successive years. According to the table, between the years 2012 and 2013, what was the percentage change in the consumer price index? Explain. (Remember to include the total cost of all goods purchased from each year.)
(Base Year) 2013 Unit Price
(Current Year) Tea 8 $1.25 $1.50 Blue Jeans 2 $36.00 $42.00 Bagels 24 $.50 $.75 Total
Explanation / Answer
Answer 1
CPI = (Value of basket at current prices *100) / (Value of basket at base prices )
Here, CPI = [(8 * 1.50) + (2 * 42) + (24 * 0.75)] * 100 / [(8 * 1.25) + (2 * 36) + (24 * 0.5)]
CPI = ( 114 * 100) / 94
CPI = 121.28
Answer 4
CPI = (Value of basket at current prices *100) / (Value of basket at base prices )
Here, CPI = [(20 * 1.50) + (3 * 42) + (14 * 2.50)] * 100 / [(20 * 0.75) + (3 * 36) + (14 * 1)]
CPI = (191 * 100) / 137
CPI = 139.41
For the base year CPI is 100.
So the percentage change = 139.41 - 100 = 39.41%
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