Question

1. List one problem of estimating consumer price index
2. What would you expect in an average family when the consumer price index increases?
3. From 2019 to 2020, the CPI for medical care increased from 173 to 185.8. What was the inflation rate for medical care?
4. Explain the statement “Between 2019 and 2020, Kuwait inflation rate was 2.8%.”
5. What is the logic or rational behind the Bureau of Labor Statistics decision to estimate the CPI every month?
6. If the CPI was 140 in 1942 and is 290 today, then how much value of good one can purchase today if the consumer spent $10 in 1942 to purchase certain amount of goods and services?

Table 1

The table below pertains to Zantana, an economy in which the typical consumer’s basket consists of 36 Pizza’s and 40 Cases’ of Soda.

Year	Price of Pizza	Price of Soda
2015	$14	$6 per case
2016	$12	$10 per case
2017	$15	$5 per case

7. Refer to Table 1. If 2015 is the base year, what is the cost of the basket in 2015?
8. Refer to Table 1. If 2015 is the base year, then what is the cost of the basket in 2017?

9.Refer to Table 1. If 2015 is the base year, what is the CPI in 2017?

Answer 1

Hi,

Hope you are doing well!

Question:

Answer:

What would you expect in an average family when the consumer price index increases?

consumer price index (CPI) is the most famous indicator of inflation that show the price change in the goods and services within the economy during the specific period. When prices increase then CPI increase. A increasing CPI indicates the higher inflation that decreased the purchasing power of money.

when the consumer price index increases the its negatively affect the purchasing power of their income and its reduce the consumption level. Its negatively affect their standard of living because now they have to pay more than earlier on buying goods and services to personal consumption.

From 2019 to 2020, the CPI for medical care increased from 173 to 185.8. What was the inflation rate for medical care?

Inflation show the price change in the goods and services within the economy during the specific period. When price increase inflation increase and vice-versa. CPI is the indicator of inflation.

Inflation Rate = [ (CPI in the the current year - CPI in the previous year)/CPI in the previous year]*100

= [(185.8 - 173)/173]*100

= [12.8/173]*100 = 0.0739884393*100 = 7.39%

Inflation Rate = 7.39%

Explain the statement “Between 2019 and 2020, Kuwait inflation rate was 2.8%.”

Inflation Rate: The inflation rate is the rate at which money loses it value compared with the group of products (goods and services).

it means the value of money decrease by 2.8 compared with the group of products. Or we can say that the price of group of products increased by 2.8 % Between 2019 and 2020.

What is the logic or rational behind the Bureau of Labor Statistics decision to estimate the CPI every month?

The main three macroeconomic indicators that is use by the US government to measure of economic health are: GDP, inflation and unemployment. CPI is the main benchmark to measure the inflation in the USA. A stable and reasonable inflation rate is vital for a sound economic growth. So, the Bureau of Labor Statistics decision to estimate the CPI every month that help to understand the the central bank and government to understand the inflation in the economy.

If the CPI was 140 in 1942 and is 290 today, then how much value of good one can purchase today if the consumer spent $10 in 1942 to purchase certain amount of goods and services?

Previous year is- 1942

Current year is - Today (assume 2020)

CPI in previous year is- 140

CPI in current year is- 290

Inflation rate = Inflation Rate = [(CPI in the the current year - CPI in the previous year)/CPI in the previous year]*100

= [(290-140)/140]*100

=[150/140]*100

= 1.07142*100 = 107.14

Inflation rate = 107.14

Value of $10 in current year = $10+ 10*107.14%

= $10+ 10.71 = $20.71

Value of $10 in current year = $20.71

(A goods and services costing $10 in 1942 would cost you $20.71 in current year.)

If 2015 is the base year, what is the cost of the basket in 2015?

Consumer’s basket consists of 36 Pizza’s and 40 Cases’ of Soda.

Cost of  Consumer’s basket in 2015 = 36*14 + 40*6 = $744

Cost of  Consumer’s basket in 2016 = 36*12 + 40*10 = $832

Cost of  Consumer’s basket in 2017 = 36*15 + 40*5 = $740

Base year = 2015

CPI in 2015 = (Cost of  consumer’s basket in current year /Cost of  consumer’s basket in base year)*100

= ($744/ $744)*100 = 100

CPI in 2016 = ($832/$744)*100 = 111.82

CPI in 2017 = ($740/$744)*100 = 99.46

Value of consumer's basket in 2015 :

Inflation rate =  [(CPI in the the current year - CPI in the previous year)/CPI in the previous year]*100

Inflation in 2015 =( (100 -100)/100)*100= 0

Value of consumer's basket in 2015 = $744 + 0 = $744

Value of consumer's basket in 2015 = $744

If 2015 is the base year, then what is the cost of the basket in 2017?

Value of consumer's basket in 2017 :

Inflation rate =    [( $740-$744)/$740)]*100 = (-4/740)*100 = -0.54% (Negative inflation rate)

Value of consumer's basket in 2017 = $740 + (-0.54*740) = $740 -3.99 = $736

Value of consumer's basket in 2017 = $736

If 2015 is the base year, what is the CPI in 2017?

CPI in 2015 = (Cost of  consumer’s basket in current year /Cost of  consumer’s basket in base year)*100

CPI in 2017 = ($740/$744)*100 = 99.46

CPI in 2017 = 99.46

Thank You