ITEM QUANTITY (2009) PRICE (2009) QUANTITY (2010) PRICE (2009) Bananas 20 $1.00 15 $1.00 Cupcakes 30...

ITEM	QUANTITY (2009)	PRICE (2009)	QUANTITY (2010)	PRICE (2009)
Bananas	20	$1.00	15	$1.00
Cupcakes	30	$1.00	45	$0.75
Sushi	10	$10.00	8	$11.00

A Consumer Expenditure Survey in Fancyville shows that people only consume bananas, cupcakes and sushi. The Consumer Expenditure Survey for both 2009 and 2010 are in the table above. The base year is 2009.
1. What and how much is in the CPI market basket?

What did the CPI market basket cost in 2009? What was the CPI in 2009?

What did the CPI market basket cost in 2010? What was the CPI in 2010?

What was the inflation rate between 2009 and 2010?

Expert Solution

Item	Quantity year 2009 (Base year)	Price year 2009 $	Quantity Year 2010	Price year 2010 $	Market basket year 2009 $	Market basket year 2010 $
Bananas	20	1.00	15	1.00	20.00	20.00
Cupcakes	30	1.00	45	0.75	30.00	22.50
Sushi	10	10.00	8	11.00	100.00	110.00
					150.00	152.50
CPI formula	(Base year basket quantity times current year prices)/Base year basket quantities times base year prices)100

CPI in year 2009 (base year) is 100.

CPI in year 2010
CPI=( Cost of the base year market basket in the current period/Cost of the base year market basket in the base period)x100
(152.50/150)
101.67



Inflation rate=

Inflation rate between 2009-2010
(Current period CPI-Prior period CPI)/Prior period CPI
(101.67-100)/100=1.67%.

a)
Market basket in base year is quantity in 2009 times prices in 2009.
Market basket in 2009 is base year quantity times prices in 2010.

b)
Market basket in 2009 is 150, CPI is 100.

c)
Market basket in 2010 is 152.50, CPI is 101.67.

d)
Inflation rate between 2009-2010
1.67%.

Rahul Sunny answered 2 years ago

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