Answer to Question #103381 in Macroeconomics for Stephanie

Question

CPI and Inflation
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, P​F,​ P​M​ and P​C​ (in dollars) are given below:
​​​Year
Price of Food (P​F)
Price of Movies (P​M)
Price of Clothing (P​C)
1991 15 14 25
1992 16 15 26
1993 17 16 30
1994 20 17 32
Assume that 1992 is the base year.
(i) Calculate the Consumer Price Index for each of the four years
(ii) Calculate the annual inflation rate over the period, starting with 1992, compared to the year before
(iii) If a person were paid 100 000 in 1991, how would she be paid in order to achieve the same level of purchasing power in 1993?

Answer 1

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