Question

S40 Question 1: Complete Wonderland's Market Basket consisting of only two items in the following: Table using Yr 2019 as the base year: Yr 2019 Oty Price Yr2020 Qty Price Oranges 10 S20 10 Hair Cuts 5 580 5 S100 A) Calculate Wonderland's CPI for Yr2019 B) Calculate Wonderland's CPI for Yr2020 C) Calculate the Inflation Rate. Answer 1: b) Question 2: Calculating the CPI CPI basket: (10 lbs beet of beef chicken 20 lbs chicken) 2014 54 The CPI basket 2015 $5 $ cost $120 in 2014 2016 59 the base year A Compute the CPI in 2015, B. What was the CPI inflation rate from 2015- 20167 Answer 2: a) b) Page 1 of 2

Answer 1

Q1. Given,

2019 is the base year

Qty of Oranges in 2019, Q(O, 2019) = 10

Qty of hair Cuts in 2019, Q(H, 2019) = 5

Price of Oranges in 2019, P(O, 2019) = $20

Price of Hair Cuts in 2019, P(H, 2019) = $80

Cost of the CPI basket in 2019 = Q(O, 2019) * P(O, 2019) + Q(H, 2019) * P(H, 2019) = 10 * $20 + 5 * $80 = $200 + $400 = $600

Price of Oranges in 2020, P(O, 2020) = $40

Price of Hair Cuts in 2020, P(H, 2020) = $100

Cost of the CPI basket in 2020 = Q(O, 2019) * P(O, 2020) + Q(H, 2019) * P(H, 2020) = 10 * $40 + 5 * $100 = $400 + $500 = $900

a. Wonderland's CPI in 2019 = 100(as 2019 is the base year)

b. Wonderland's CPI in 2020 = (Cost of CPI basket in 2020/Cost of CPI basket in 2019) * 100 = ($900/$600) * 100 = 150

c. Inflation rate between 2019-20 = [(CPI in 2020-CPI in 2019)/CPI in 2019] * 100 = [(150-100)/100] * 100 = 50%

Q2.

CPI basket consists of 10 lbs of beef and 20 lbs of chicken

Cost of CPI basket in 2014 = $120

Cost of CPI basket in 2015 = 10 * Price of beef in 2015 + 20 * Price of chicken in 2015 = 10 * $5 + 20 * $5 = $50 + $100 = $150

Cost of CPI basket in 2016 = 10 * Price of beef in 2016 + 20 * Price of chicken in 2016 = 10 * $9 + 20 * $6 = $90 + $120 = $210

a. CPI in 2015 = (Cost of CPI basket in 2015/Cost of CPI basket in 2014) * 100 = ($150/$120) * 100 = 125

b. CPI in 2016 = (Cost of CPI basket in 2016/Cost of CPI basket in 2014) * 100 = ($210/$120) * 100 = 175

Inflation rate between 2015-16 = [(CPI in 2016 - CPI in 2015)/CPI in 2015] * 100 = [(175-125)/125] * 100 = [50/125] * 100 = 40%