Question

In: Economics

Tables 1 and 2 show the quantities of the goods that Suzie bought and the prices she paid during two...

Tables 1 and 2 show the quantities of the goods that Suzie bought and the prices she paid during two consecutive weeks. Suzie’s CPI market basket contains the goods she bought in Week 1. Calculate the cost of Suzie’s CPI market basket in Week 1 and in Week 2. What percentage of the CPI market basket is gasoline? Calculate the value of Suzie’s CPI in Week 2 and her inflation rate in Week 2.

Table 1 Data for Week 1

Item

Quantity

Price (per unit)

Coffee

11 cups

$3.25

DVDs

1

$25.00

Gasoline

15 gallons

$2.50

Table 2 Data for Week 2

Item

Quantity

Price (per unit)

Coffee

11 cups

$3.25

DVDs

3

$12.50

Gasoline

5 gallons

$3.00

Concert

1 ticket

$95.00

Use the following information to work Problems 4 and 5.

The GDP price index in the United States in 2000 was about 90, and real GDP in 2000 was $11 trillion (2005 dollars). The GDP price index in 2010 was about 111, and real GDP in 2010 was $13.1 trillion (2005 dollars).

Calculate nominal GDP in 2000 and in 2010 and the percentage increase in nominal GDP between 2000 and 2010.What was the percentage increase in production between 2000 and 2010, and by what percentage did the cost of living rise between 2000 and 2010?

Expert Solution

	Week 1		Week 2
	Quantity	Price $	Quantity	Price $	market basket in Week 1 $	market basket in Week 2 $
Coffee	11	3.25	11	3.25	35.75	35.75
DVD	1	25.00	3	12.50	25	12.5
Gasoline (gallons)	15	2.50	5	3.00	37.5	45
					98.25	93.25
Base year year 1

Cost of the base year market basket in the base period
CPI market basket in Week 1= $98.25.
Base year price x base year quantity

CPI market basket in Week 2=$93.25.
Cost of the base year market basket in the current period

Percentage of gasoline to market basket is=(37.5/98.25)x100 (Week 1)				38.17%
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
(93.25/98.25)x100
CPI for week 2 is 94.91%
CPI for week 1 (base period) is 100
Inflation rate between week 1 to week 2
((Current period CPI-Prior period CPI)/Prior period CPI)) 100

(93.25-100)/100 =-6.25%

Rahul Sunny answered 2 years ago

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