Question

 1. Calculating inflation using a simple price index

 Consider a fictional price index, the College Student Price Index (CSPI), based on a typical college student's annual purchases. Suppose the following

 table shows information on the market basket for the CSPI and the prices of each of the goods in 2014, 2015, and 2016.

 The cost of each item in the basket and the total cost of the basket are shown for 2014.

 Perform these same calculations for 2015 and 2016, and enter the results in the following table.

 Suppose the base year for this price index is 2014.

 In the last row of the table, calculate and enter the value of the CSPI for the remaining years.

 Between 2014 and 2015, the CSPI increased by _______ %. Between 2015 and 2016, the CSPI increased by _______ . 

 Which of the following, if true, would illustrate why price indexes such as the CSPI might overstate inflation in the cost of going to college? Check all that apply.

•  Energy drinks became increasingly popular on college campuses between 2014 and 2016 due to significant improvements in flavor, but this quality change is hard to measure.

•  Professors required each student to buy 10 notebooks, regardless of the price.

•  A new mobile device for personal computing became available for purchase.

•  As the price of calculators rose, fewer students decided to buy them, opting instead to use the free calculators in their cell phones or on their computers.

Answer 1