Question

Suppose the fixed basket of goods used to calculate the CPI consists of 4 units of good A, 3 units of good B, and 2 units of good C. From year 1 to year 2 the prices of the goods changed as shown in the table. Year 1 is the base year. Price in year 1 Price in year 2 Good A $2.20 $2.53 Good B $3.40 $3.74 Good C $5.60 $5.88 The price of good A changed by %, the price of good B changed by %, and the price of good C changed by %. The overall inflation rate was %. Enter numbers rounded to the nearest whole number.

Help please!

Answer 1

Item	Quantity Year 1	Price Year 1 $	Price Year 2 $	market basket in year 1 $	market basket in year 2 $	Percent change in Price of Good
Good A	4	2.20	2.53	8.80	10.12	15
Good B	3	3.40	3.74	10.20	11.22	10
Good C	2	5.60	5.88	11.20	11.76	5
				30.20	33.10
Base year year 1
Cost of the base year market basket in the base period
8.80 + 10.20 + 11.20 =30.20
Cost of the base year market basket in the current period
$10.12+$11.22+$11.76=$33.10
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
(33.10/30.20)x100
CPI for year2 =109.6%
Base period CPI is 100
Inflation rate between year 1 and year 2
(Current period CPI-Prior period CPI)/Prior period CPI
(109.6-100)/100 =-9.6%
Percentage change in good A from year I to year 2 is 15%
Percentage change in good B from year I to year 2 is 10%
Percentage change in good C from year I to year 2 is 5%
Overall inflation rate is 9.6%