The average, urban family of four in the peculiar country of Rushland consumes only three goods:...

The average, urban family of four in the peculiar country of Rushland consumes only three goods: slices of pizza, beef tacos, and banana muffins. The table below provides the quantities of these goods that the average, urban family of four consumed and the price of each good in 2017, 2018, and 2019.

Year	Quantity of Pizza (in slices)	Price of Pizza (per slice)	Quantity of Tacos	Price of a Taco	Quantity of Muffins	Price of a Muffin
2017	130	$4.50	160	$2.50	210	$1.75
2018	135	$4.50	158	$2.40	212	$1.70
2019	134	$4.75	163	$2.60	209	$1.95

Suppose that 2017 is the base year, and that the CPI basket is comprised of the quantities of these goods that the average, urban family of four consumed in 2017.

Calculate the: 1) CPI in each of the three years, and 2) the inflation rate in 2018 and 2019. Additionally, identify whether the price level has fallen or risen in 2018 and 2019, and explain whether inflation or deflation has occurred in 2018 and 2019. Your submission should explain the process of completing your calculations, but you do not need to provide the actual formulas or calculations themselves. Round all answers to the nearest one-hundredth (one-hundredth of one-percent, for answers that are percentages).

Solutions

Expert Solution

The Consumer Price Index (CPI) for each year is obtained using the formula,

Now,

The CPI for year 2018, year 2017 as base year is calculated as follow,

The CPI for year 2019, year 2017 as base year is calculated as follow,

The inflation rate for each year is obtained using the formula,

The % inflation for year 2018, year 2017 as base year is,

Based on the above results, we can conclude that the prices are slightly fallen in year 2018 compare to year 2017 (approximately 0.40%) and prices are increased in year 2019 compare to year 2017 (approximately 8.53%)

orchestra answered 1 year ago

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