Question

1. Good                    Quantity              Price in 1999                     Price in 2000

X                            10                          $5                                         $6

Y                            20                          $10                                      $10

Z                            5                            $6                                         $10

Assume year 2000 is the base year.

1. Calculate the market basket value for each year. What is the consumer price index in 1999?
2. What is the inflation rate between 1999 and 2000?

Show all calculations please.

Answer 1

Item	Quantity (1999)	Price (1999) $	Quantity (2000) Base year	Price 2000 $ Base year	market basket in 1999 $	market basket in 2000 $ Base year
X	10	5.00	10	6.00	50	60
Y	20	10.00	20	10.00	200	200
Z	5	16.00	5	10.00	80	50
					330	310
Market basket in 1999= Price in 1999 x quantity in 2000 ( base year)
Base year is 2000
a)
Market basket in 1999 = $330.
Market basket in 2000 = $310.
CPI in 1999
CPI formula
CPI formula	(Base year basket quantity times current year prices)/Base year basket quantities times base year prices)100
CPI=( Cost of the base year market basket in the current period/Cost of the base year market basket in the base period)x100
(330/310)x100
106.45%
b)
Inflation rate between 1999 to 2000
((Current period CPI-Prior period CPI)/Prior period CPI)) 100
CPI in base year is always 100.
(100-106.45)/106.45 =-6.45/106.45=-6.06%