Question

A small nation of 10 people idolizes the TV show The Voice. All they produce and consume are karaoke machines and CDs, in the following amounts:

	Karaoke Machines		CDs
	Quantity	Price	Quantity	Price
		(Dollars)		(Dollars)
2017	10	20	50	13
2018	15	30	60	15

Using a method similar to that used to calculate the consumer price index, the percentage change in the overall price level is . (Note: Use 2017 as the base year, and fix the basket at 1 karaoke machine and 5 CDs.)

Using a method similar to that used to calculate the GDP deflator, the percentage change of the overall price level is . (Note: Again, use 2017 as the base year.)

Which of the following statements is correct? Check all that apply.

The GDP deflator holds the basket of goods and services constant.

The CPI holds the basket of goods and services constant.

The inflation rate in 2018 is the same using the two methods.

Answer 1