Question

Table 24-2

The following table pertains to Jouetpays, an economy in which the typical consumer's basket consists of 15 pounds of prunes and 8 dolls.

Year	Price of Prunes (Dollars per pound)	Price of Dolls (Dollars per toy)
1	11	9
2	9	7
3	12	11

Refer to Table 24-2. The cost of the basket

	a.	decreased from Year 1 to Year 2 and decreased from Year 2 to Year 3.
	b.	increased from Year 1 to Year 2 and increased from Year 2 to Year 3.
	c.	increased from Year 1 to Year 2 and decreased from Year 2 to Year 3.
	d.	decreased from Year 1 to Year 2 and increased from Year 2 to Year 3.

Table 24-1

The following table pertains to Quicheland, an economy in which the typical consumer's basket consists of 12 bushels of apples and 7 bushels of almond .

Year	Price of Apples (Dollars per bushel)	Price of Almond (Dollars per bushel)
Year 1	14	4
Year 2	7	13

Refer to Table 24-1. If Year 1 is the base year, then the inflation rate in Year 2 was

	a.	–13.21 percent.
	b.	–7.21 percent.
	c.	10.71 percent.
	d.	–10.71 percent.

Table 24-3

The following table lists the per gallon prices of gas and milk for the months of September, October, and November. Assume that the typical consumer buys 100 gallons of gas and 7 gallons of milk each month, and that September is the base period.

Month	Price of Gas (Dollars per gallon)	Price of Milk (Dollars per gallon)
September	4.00	3.50
October	4.40	3.52
November	4.60	3.58

Refer to Table 24-3. What is the consumer price index for November?

	a.	95.79
	b.	91.36
	c.	114.27
	d.	87.51

Table 24-1

The following table pertains to Quicheland, an economy in which the typical consumer's basket consists of 12 bushels of apples and 7 bushels of almond .

Year	Price of Apples (Dollars per bushel)	Price of Almond (Dollars per bushel)
Year 1	14	4
Year 2	7	13

Refer to Table 24-1. If Year 1 is the base year, then the CPI for Year 1 was

	a.	79.42.
	b.	90.01.
	c.	110.40.
	d.	100.00.

Table 24-2

The following table pertains to Jouetpays, an economy in which the typical consumer's basket consists of 15 pounds of prunes and 8 dolls.

Year	Price of Prunes (Dollars per pound)	Price of Dolls (Dollars per toy)
1	11	9
2	9	7
3	12	11

​Refer to Table 24-2. The inflation rate was

	a.	positive in Year 2 and positive in Year 3.
	b.	negative in Year 2 and positive in Year 3.
	c.	negative in Year 2 and negative in Year 3.
	d.	positive in Year 2 and negative in Year 3.

Answer 1

Refer to Table 24-2. Ans: d) decreased from Year 1 to Year 2 and increased from Year 2 to Year 3.

Explanation:

The cost of the basket decreased from Year 1 to Year 2 and increased from Year 2 to Year 3.

Year	Price of Prunes (Dollars per pound)	Price of Dolls (Dollars per toy)	Cost of Prunes	Cost of Dolls
1	11	9	165	72
2	9	7	135	56
3	12	11	180	88

Refer to Table 24-1. Ans: d ) –10.71 percent.

Explanation:

Cost of the basket in the year 1 : ( $14 * 12) + ( $4 * 7) = $168 + $28 = $196

Cost of the basket in the year 2 : ( $7 * 12) + ( $13 * 7) = $84 + $91 = $175

CPI of base year = (Current year cost / Base year cost)*100 = ( 196 / 196) * 100 = 1 * 100 = 100

CPI of year 2= (Current year cost / Base year cost)*100 = ( 175 / 196) * 100 = 0.8929 * 100 = 89.29

The inflation rate in Year 2 = { ( 89.29 - 100 ) / 100}*100 = (- 10.71 / 100 ) * 100 = -10.71

Refer to Table 24-3. Ans: c) 114.27

Cost of the basket in Spetember : ( $4 * 100) + ( $3.50 * 7) = $400 + $24.50 = $424.50

Cost of the basket in October : ( $4.40 * 100) + ( $3.52 * 7) = $440 + $24.64 = $464.64

Cost of the basket in November : ( $4.60 * 100) + ( $3.58 * 7) = $460 + $25.06 = $485.06

The consumer price index for November = (Current year cost / Base year cost)*100

= ( 485.06 / 424.50 ) * 100 = 1.1427 * 100 = 114.27

Refer to Table 24-1. d) 100.00

Explanation:

Base year price is always 100

​Refer to Table 24-2. Ans: b) negative in Year 2 and positive in Year 3.

Explanation:

Cost of the basket in the year 1 : ( $11 * 15) + ( $9 * 8) = $165 + $72 = $237

Cost of the basket in the year 2 : ( $9 * 15) + ( $7 * 8) = $135 + $56 = $191

Cost of the basket in the year 2 : ( $12 * 15) + ( $11 * 8) = $180 + $88 = $268

CPI of year 1 = (Current year cost / Base year cost)*100 = ( 237 / 237) * 100 = 1 * 100 = 100

CPI of year 2= (Current year cost / Base year cost)*100 = ( 191 / 237) * 100 = 0.8059 * 100 = 80.59

CPI of year 3= (Current year cost / Base year cost)*100 = ( 268 / 237) * 100 = 1.1308 * 100 = 113.08

The inflation rate in Year 2 = { ( 80.59 - 100 ) / 100}*100 = (- 19.41 / 100 ) * 100 = -19.41

The inflation rate in Year 3 = { ( 113.08 - 80.59 ) / 80.59 }*100 = 0.4031 * 100 = 40.31