List the three largest categories that make up the market basket that is used to
ID: 1218764 • Letter: L
Question
List the three largest categories that make up the market basket that is used to compute CPI
2. Suppose the market basket of goods and services purchased by an average urban household consists of only X, Y, Z, three consumer products. Calculate the CPIs for each year and the inflation rate for the Year
Price of X
Quantity of X
Price of Y
Quantity of Y
Price of Z
Quantity of Z
Year 1
$1.00
2 units
$3
1 unit
$2
3units
Year 2
$ 2.00
2 units
$6
1 unit
$1
3units
3. If the CPI was 130.7 in 1990 and was 136.2 in 1991, compute the rate of inflation for 1991.
4. GDP in 1997 was $8,318 billion. GDP in 1998 was $8,719 billion. What was Real GDP in 1997, adjusted to the 1998 price level? CPI in 1997 was 160.5. CPI in 1998 was 163.0.
5. Sylvia had income of $25,000 in 1973, when the CPI was 44.4. Sylvia had income of $100,000 in 2001, when the CPI was 177.1. What was Sylvia’s real income for 2001, adjusted to the 1973 price level?
Price of X
Quantity of X
Price of Y
Quantity of Y
Price of Z
Quantity of Z
Year 1
$1.00
2 units
$3
1 unit
$2
3units
Year 2
$ 2.00
2 units
$6
1 unit
$1
3units
Explanation / Answer
Ans(1): Year 1 (multiply the price and quantity and add them )
Px * Qx = 1*2= 2
Py * Qy = 3*1= 3
Pz*Qz = 2*3 =6
Total Expenditure = 11
Year 2
Px * Qx = 2*2 = 4
Py * Qy = 6*1 = 6
Pz * Qz = 1*3 = 3
toatl expenditure = 13
Let first year as base year, now multiply the price and base year quantity in the next year and add them up
X = 2*2 = 4
Y = 1*6 = 6
Z = 1*3 = 3
Total = 13
CPI = current expenditure/ base year expenditure * 100 = 13/11 * 100 = 118
(3) : Rate of inflation ((136.2-130.7)/130.7)*100 = 4.20
(4) : To find real GDP firstly we need to find inflation rate
Inflation rate = ((CPI1998 - CPI1997)/CPI1997)*100 = By putting all the values we get 1.55
Real GDP = ((8719 - 8318/1.55)*100) = 25870.96
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.