Question

2.3 The CPI is a fixed-weight index. It compares the price of a fixed bundle of goods in one year with the price of the same bundle of goods in some base year. Calculate the price of a bundle containing 50 units of good X, 125 units of good Y, and 100 units of good Z in 2013, 2014, and 2015. Convert the results into an index by dividing each bundle price figure by the bundle price in 2013 and multiplying by 100. Calculate the percentage change in your index between 2013 and 2014 and again between 2014 and 2015. Was there inflation between 2014 and 2015? Quantity 2013 2015 Good Consumed Prices Prices 50 $2.00 $1.50 $2.00 125 3.00 3.00 2.50 100 0.75 1.25 1.50

Answer 1

(2.3)

Good	Quantity Consumed	2013 Prices	2014 Prices	2015 Prices
X	50	2	1.5	2
Y	125	3	3	2.5
Z	100	0.75	1.25	1.5

Price of bundle in 2013 = (50 * 2) + (125 * 3) + (100 * 0.75)

Price of bundle in 2013 = 100 + 375 + 75

Price of bundle in 2013 = 550

Price of bundle in 2014 = (50 * 1.5) + (125 * 3) + (100 * 1.25)

Price of bundle in 2014 = 75 + 375 + 125

Price of bundle in 2014 = 575

Price of bundle in 2015 = (50 * 2) + (125 * 2.5) + (100 * 1.5)

Price of bundle in 2015 = 100 + 312.5 + 150

Price of bundle in 2015 = 562.5

Index of 2013 = (Price of bundle in 2013 / Price of bundle in 2013) * 100

Index of 2013 = (550 / 550) * 100

Index of 2013 = 100

Index of 2014 = (Price of bundle in 2014 / Price of bundle in 2013) * 100

Index of 2014 = (575 / 550) * 100

Index of 2014 = 104.54.

Index of 2015 = (Price of bundle in 2015 / Price of bundle in 2013) * 100

Index of 2015 = (562.5 / 550) * 100

Index of 2015 = 102.27.

Percentage change in index between 2013 and 2014 = [(index of 2014 - index of 2013) / index of 2013] * 100

Percentage change in index between 2013 and 2014 = [(104.54 - 100) / 100] * 100

Percentage change in index between 2013 and 2014 = 4.54.

There was 4.54% change in index between 2013 and 2014.

Percentage change in index between 2014 and 2015 = [(Index of 2015 - index of 2014) / index of 2014] * 100

Percentage change in index between 2014 and 2015 = [(102.27 - 104.54) / 104.54] * 100

Percentage change in index between 2014 and 2015 = -2.17

There was -2.17% change in index between 2014 and 2015.

There was no inflation between 2014 and 2015 because the percentage change in index between 2014 and 2015 was in negative.

As per the HOMEWORKLIB POLICY, first question is answered.