The people of Fort Worth buy only juice and cloth. The CPI market basket contains the quantities bought in 2009. The average household spent $60.00 on juice and $30.00 on cloth in 2009 when the price of juice was $2.00 a bottle and the price of cloth was $5.00 a yard. In the current year, 2010, juice is $4.00 a bottle and cloth is $6.00 a yard. Calculate the CPI and inflation rate in 2010. (Note: use formula for finding CPI = (total spending in current year/total spending in base year) x 100 for inflation use formula for change in CPI = (CPI current year – CPI base year/CPI base year) x 100.
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PROBLEM SET 3
Name _____________________________________ Semester __________________
- The people of Fort Worth buy only juice and cloth. The
CPI market basket contains the quantities bought in 2009. The average household spent $60.00 on juice and $30.00 on cloth in 2009 when the price of juice was $2.00 a bottle and the price of cloth was $5.00 a yard. In the current year, 2010, juice is $4.00 a bottle and cloth is $6.00 a yard. Calculate the CPI and inflation rate in 2010. (Note: use formula for finding CPI = (total spending in current year/total spending in base year) x 100 for inflation use formula for change in CPI = (CPI current year – CPI base year/CPI base year) x 100.
- A) Assume the market basket contains 10X, 20Y, and 45Z. The current year prices for goods X, Y, and Z are $1, $4, and $6, respectively. The base-year prices are $1, $3, and $5, respectively. What is the CPI in current year?
- B) If the CPI is 150 and the nominal income is $100,000, what does real income equal? (use formula: Real income = (Nominal Income/CPI) x 100
- PRICE INDEX CALCULATIONS:
Using the necessary formulas, complete the table below: (Please state formulas used)
|
|
Year 1 |
Year 2 |
Average Monthly |
Total |
Total |
Change |
|
Item |
(Base Yr) |
(current Yr) |
Consumption |
Expenses |
Expenses |
in |
|
|
(Prices in $) |
(Prices in $) |
for family X |
in Yr 1 |
in Yr 2 |
Prices (%) |
|
|
P1 |
P2 |
Q |
(P1 Q) |
(P2 Q) |
(P2-P1/P1) x 100 |
|
Fish @ |
2.5 |
2.85 |
15 |
|
|
|
|
Rice (1bag) |
3.99 |
4 |
12 |
|
|
|
|
Beans (1bag) |
1.95 |
2.25 |
10 |
|
|
|
|
Sugar (1bag) |
1.75 |
1.99 |
7 |
|
|
|
|
Toothpaste @ |
3.5 |
3.95 |
2 |
|
|
|
|
Gas (gallon) |
3.75 |
3.99 |
75 |
|
|
|
|
Books (1 a week) |
25 |
26 |
4 |
|
|
|
|
Car Insurance (a month) |
75 |
77 |
2(12) |
|
|
|
- Calculate the inflation rate for the following time periods (use the CPI data on BLS.GOV) or Simply click on this link: https://data.bls.gov/pdq/SurveyOutputServlet?series_id=CUURA421SA0,CUUSA421SA0 and select 1959 to 1999 the hit go. Then use the formula Change in CPI or inflation = (CPI current year – CPI base year/CPI base year) x 100. You will need five answers for a. to e.
- 1959 – 1963
- 1964 – 1969
- 1970 – 1979
- 1980 – 1989
- 1990 – 1999
What is the difference between a & b? Why? Compare inflation for 1970s and 1980s. Any improvement in the 1990s? What might be one reason for the improvement?
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