In year 1 and year 2, there are two products produced in a given economy, comput
ID: 1132698 • Letter: I
Question
In year 1 and year 2, there are two products produced in a given economy, computers and bread.
Suppose that there are no intermediate goods. In year one, 20 computers are produced and sold
at $1,000 each, and in year two, 25 computers are sold at $1,500 each. In year one, 10,000 loaves
of bread are sold for $1.00 each, and in year two, 12,000 loaves of bread are sold for $1.10 each.
(d) Using year one as the base year, calculate the CPI in years one and two, and calculate the
CPI rate of inflation.
Explanation / Answer
Ans
Cpi in year one is 100 since base year is year one. Cpi in second year =sum of prices in current year/sum of prices in base year whole multiplied by 100
=1500+1.10 /1000+1 (100)= 150
Cpi rate of inflation=150-100/100 (100)=50%
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