Question

In: Economics

Price ($) Quantity 2016 10 200 2017 12 400 2018 30 450 Consider the data in...

Price ($)

Quantity

2016

10

200

2017

12

400

2018

30

450

Consider the data in the table above for a 1-good economy (the only good produced and consumed)

Given that the CPI for 2016 is 100,

  • Compute the CPI inflation rates for the years 2017 and 2018.
  • Determine the percentage change in GDP deflator for 2016-2017 and 2017-2018. Compare your results with your answers in (a) and justify.
  • Explain three problems associated with using CPI to measure cost of living.
  • The government in 2018 announced and implemented a 10 percent increase in the nominal salary of an average public servant from $500 in 2017. Does the salary of an average public servant have more purchasing power in 2017 or 2018?
  • Briefly describe the concept of ‘rebasing’. Explain how rebasing affects the income and cost of living estimates of a country.

Solutions

Expert Solution

Rahul Sunny answered 2 years ago
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