Three goods are consumed in an economy during years 1 and 2. The table shows pri
ID: 1166494 • Letter: T
Question
Three goods are consumed in an economy during years 1 and 2. The table shows prices (P1 and P2) for each good, and it shows the market basket that is used to calculate the consumer price index. The base year is year 1 Good P1 P2 Basket Milk $4 $4.24 8 (gallons) Chicken pounds) $2 $2.20 12 Onions s3 2.85 4 bags) Enter numbers in each blank, rounded to two decimal places as necessary. Do not enter commas or percent signs - enter 3.000 as 3000 and enter 5% as 5. The cost of the basket in year 1 is $ and the cost of the basket in year 2 is $ The percentage change in the price of milk was %, the percentage change in the price of chicken was %, and the percentage change in the price of onions was The value of the CPl in year 1 is and the value of the CPl in year 2 is The overall inflation rate (measured in percentage terms) isExplanation / Answer
Basket cost Basket cost Good P1 P2 Basket at P1 at P2 Milk 4 4.24 8 32 33.92 Chicken 2 2.2 12 24 26.4 Onions 3 2.85 4 12 11.4 Total cost 68 71.72 Cost of Basket at P1 is $68 Cost of Basket at P2 is $ 71.72 The Percentage change in price: Milk: (4.24-4) /4 *100 = 6% Increase Chicken: (2.20-2) /2 *100 = 10% Increase Onion: (2.85-3)/3 *100 = 5% Decrease CPI of Year1: Total cost of basket in P1/ Total cost of basket at P1 *100 = 100 CPI of Year2: Total cost of basket at P2 / Total cost of basket at P1 *100 =71.72/ 68 *100 = 105.47 Rate of inflation is 5.47% (i.e. 105.47-100)