Question

1. Calculating inflation using a simple price index 

Consider a fictional price index, the College Student Price Index (CSPI), based on a typical college student's annual purchases. Suppose the following table shows information on the market basket for the CSPI and the prices of each of the goods in 2017, 2018, and 2019. 

The cost of each item in the basket and the total cost of the basket are shown for 2017. 

Perform these same calculations for 2018 and 2019, and enter the results in the following table. 

 Suppose the base year for this price index is 2017.

 In the last row of the table, calculate and enter the value of the CSPI for the remaining years.

 Between 2017 and 2018, the CSPI increased by _______ %. Between 2018 and 2019, the CSPI increased by _______ 

 Which of the following, if true, would illustrate why price indexes such as the CSPI might overstate inflation in the cost of going to college? Check all that apply.

•  As the price of energy drinks increased relative to the price of coffee between 2017 and 2019, students decreased their consumption of energy drinks and increased their consumption of coffee.

•  A new type of personal transporter, which made it easier to get around places like university campuses, became available for purchase. The quality of textbooks increased dramatically from 2017 to 2019, with textbook companies bundling new online study aids with their books, but this quality change is hard to measure.

•  Professors required each student to buy 10 notebooks, regardless of the price.

Answer 1