Question

In: Economics

In Virtual​ Reality, time travel became possible only in 3006. Economists in the Statistics Bureau decided...

In Virtual​ Reality, time travel became possible only in 3006. Economists in the Statistics Bureau decided to conduct a Consumer Expenditure Survey in 3005. The table shows the results of the survey. It shows the items that consumers buy and their prices. The Statistics Bureau fixes the reference base year as 3005. Calculate the CPI in 3006 and the inflation rate measured by the CPI in 3006.    ​>>> Answer to 1 decimal place. The CPI in 3006 using the 3005 CPI market basket is nothing. The inflation rate in 3006 using the 3005 CPI market basket is nothing percent. 3005 3006 Item Quantity Price Quantity      Price Games 10 ​$20 5 ​$30 Time travel 0 ​- 15 ​$8 comma 000

Solutions

Expert Solution

The CPI market basket in 3005 has only one good - Games.

Calculate the cost of 3005 CPI market basket in 3005 -

Cost = [Quantity of games in 3005 * Price of games in 3005]

Cost = [10 * $20] = $200

Calculate the cost of 3005 CPI market basket in 3006 -

Cost = [Quantity of games in 3005 * Price of games in 3006]

Cost = [10 * $30] = $300

Calculate the CPI -

CPI = [Cost of 3005 CPI market basket in 3006/Cost of 3005 CPI market basket in 3005] * 100

CPI = [$300/$200] * 100 = 150

The CPI in 3006 using the 3005 CPI market basket is 150.

The base year is 3005.

The value of CPI in base year is always 100.

So, the CPI in 3005 is 100.

Calculate the inflation rate in 3006 using the 3005 CPI market basket -

Inflation rate = [(CPI in 3006 - CPI in 3005)/CPI in 3005] * 100

Inflation rate = [(150 - 100)/100] * 100

Inflation rate = 50%

The inflation rate in 3006 using the 3005 CPI market basket is 50 percent.


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