There are three goods in the consumer basket. The fixed quantities are these goo
ID: 1253173 • Letter: T
Question
There are three goods in the consumer basket. The fixed quantities are these goods, which the consumer buys, are as follows: Food=60 units, Movies=40 units, and Clothing=90 units. Over a four-year period, the prices of these goods, PF, PM and PC (in dollars) are given below:
Year Price of Food (PF) Price of Movies (PM) Price of Clothing (PC)
1991 15 14 25
1992 16 15 26
1993 17 16 30
1994 20 17 32
Assume that 1992 is the base year.
1) Calculate the Consumer Price Index for each of the four years.
2) Calculate the annual inflation rate over the period, starting with 1992, compared to the year before.
Explanation / Answer
1) 95.12820513 100 111.7948718 122.0512821 Just sum the products of the amounts of the goods and their prices in order to get the total cost of the basket in each year. Then, divide each of the total costs by the total cost in 1992 because 1992 is the base. 2) Annual inflation rates are just the current CPI minus the previous CPI. - 4.871794872 11.79487179 10.25641026