Question

11. Problems and Applications Q5

A small nation of 10 people idolizes the TV show The Voice. All they produce and consume are karaoke machines and CDs, in the following amounts:

	Karaoke Machines		CDs
	Quantity	Price	Quantity	Price
		(Dollars)		(Dollars)
2017	10	40	30	10
2018	12	60	50	12

Using a method similar to that used to calculate the consumer price index, the percentage change in the overall price level is . (Note: Use 2017 as the base year, and fix the basket at 1 karaoke machine and 3 CDs.)

Using a method similar to that used to calculate the GDP deflator, the percentage change of the overall price level is . (Note: Again, use 2017 as the base year.)

The inflation rate in 2018 is not the same using the two methods because the holds the basket of goods and services constant, while the allows it to change.

Answer 1