Refer to the following table. Suppose the CPI basket consists of 10 pies of pizza and 20 bottles of milk respectively, and 2020 is the base year. Year Price of pizza Price of milk 2020 $250 $40 2021 $280 $45 a. Calculate the CPI in 2020 and 2021 respectively. What is the inflation rate in 2021? b. Suppose the minimum wage is $37.5 per hour in 2020, how much would it be in 2021 in order to maintain the same purchasing power in 2020? c. Which one do you think is a better measure of a household's cost of living, CPI or GDP deflator? Why?
Refer to the following table. Suppose the CPI basket consists of 10 pies of pizza and 20 bottles of milk respectively, and 2020 is the base year. Year Price of pizza Price of milk 2020 $250 $40 2021 $280 $45 a. Calculate the CPI in 2020 and 2021 respectively. What is the inflation rate in 2021? b. Suppose the minimum wage is $37.5 per hour in 2020, how much would it be in 2021 in order to maintain the same purchasing power in 2020? c. Which one do you think is a better measure of a household's cost of living, CPI or GDP deflator? Why?
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter16: Measuring The Cost Of Living
Section: Chapter Questions
Problem 3CQQ
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![Refer to the following table. Suppose the CPI basket consists of 10 pies of pizza and 20
bottles of milk respectively, and 2020 is the base year.
Year
Price of pizza
Price of milk
2020
$250
$40
2021
$280
$45
a. Calculate the CPI in 2020 and 2021 respectively. What is the inflation rate in 2021?
b. Suppose the minimum wage is $37.5 per hour in 2020, how much would it be in 2021 in
order to maintain the same purchasing power in 2020?
c. Which one do you think is a better measure of a household's cost of living, CPI or GDP
deflator? Why?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe9cffbc5-75b7-473b-86ac-46a3f7f0cd6f%2Fdb4d48c6-152e-4b8a-bea0-91d09ade09d0%2Flq5iee_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Refer to the following table. Suppose the CPI basket consists of 10 pies of pizza and 20
bottles of milk respectively, and 2020 is the base year.
Year
Price of pizza
Price of milk
2020
$250
$40
2021
$280
$45
a. Calculate the CPI in 2020 and 2021 respectively. What is the inflation rate in 2021?
b. Suppose the minimum wage is $37.5 per hour in 2020, how much would it be in 2021 in
order to maintain the same purchasing power in 2020?
c. Which one do you think is a better measure of a household's cost of living, CPI or GDP
deflator? Why?
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