Question

21. In 2012, newspapers reported that the annual Consumer Price Index in 2011 was 120.0. From this, we can conclude that a typical market basket in 2011 more than the same market would have cost basket purchased in a. 20%; the base year b. 120%; the base year c. 120%; 2010 d. 20%; 2010 22. The table below gives information on the the prices of three common school supplies in 2010 and 2011 and the quantities of each school supply that consumers bought in 2010, the base year., for a country The table has four columns depicting the Good, Prices in 2010 (base year), Quantity Brought (2010), and Prices in 2011. The data in the table are as follows. Row 1: Backpack, 40, 1000, 50. Row 2: Notebook, 10, 5000, 12. Row 3: Highlighter, 1, 2000, 1.25. The prices are in dollars. If the quantities of the goods gives the country's market basket, what is the country's Consumer Price Index in 2011? a. 81.8 b. 124 c. 122.2 d. 100

Answer 1

The Consumer price index in 2011 of 120% tells us that the prices of a typical market basket was 20% higher than the base year. Thus, option A is correct.

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Using the information above to form a table-

Goods	Prices in 2010	Quantity brought in 2010	Prices in 2011
Backpack	$40	1000	$50
Notebook	$10	5000	$12
Highlighter	$1	2000	$1.25

We will first calculate market base in the base year (2010)

Market basket in base year (2010) = quantity(2010)×prices(2010)= 1000×40 + 5000×10 + 2000×1= 40000 + 50000 + 2000 = $92000

Market basket in current year (2011) = quantity(2010)×price(2011) = 1000×50 + 5000×12 + 2000×1.25 = 50000 + 60000 + 2500 = $112500

Therefore,

CPI (2011) = [$112500/$92000]×100 = 122.28

Thus, option C is correct.

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A recessionary gap refers to a period of a downward trend in an economy's real output and as a result a decrease in income and employment. Thus, option D is correct.

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The chain-weight method of calculating GDP differs significantly as it takes the base year as the preceding year and not as a year fixed. Thus, option b is correct.

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When parents will quit their jobs for schooling their children, it will reduce their contribution in the GDP. This will lead to a fall in the potential GDP. Thus, option B is correct.