T-Mobile LTE 8:22 PM * 63% Back Consumer Price Index GDP Deflator and Inflation

Question

T-Mobile LTE 8:22 PM * 63% Back Consumer Price Index GDP Deflator and Inflation Quiz- Requires Respondus LockDowrn Browser The city of Flowertown (pop: 135) produces and consumes two goods: cereal and milk. It produced these goods in the following amounts during 2015, 2016, and 2017. Assume the BLS consumption basket has been determined as 190 units of cereal and 160 units of milk Cereal 2015 2016 2017 QuarnityPrice 200 225 235 $1.25 $1.40 $1.45 QuantityPrice $1.20 $1.25 $1.45 160 160 Dashboard Calendar ToDo Notifications Inbox

Explanation / Answer

Ans:

Consumer price index(CPI) = (cost of market basket in a given year / cost of market basket in a base year) * 100

Market basket includes 190 units of cereal and 160 units of milk.

1) Consumer price index for 2016 = ((190 * $1.4)+(160 * $1.25)) / ((190 * $1.25)+(160 * $1.2))

= ($266 + $200) / ($237.5 + $192)

= $466 / $429.5 * 100

= 108.58

2) Consumer price index for 2017 = ((190 * $1.45)+(160 * $1.45)) / ((190 * $1.25)+(160 * $1.2))

= ($275.5 + $232) / ($237.5 + $192)

= $507.5 / $429.5 * 100

= 118.16

3) Inflation between 2016 and 2017 = (118.16 - 105.58) / 105.58

= 0.1191 or 11.91%  

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