Calculate Inflation for 2012 taking CPI as 100 for the base year 2010. The market bundle is 5 Oranges, 5 portions of bacon and 7 Drinks. Prices ($) are as follows
2010
2011
2012
Orange
2
4
5
Bacon
4
6
6
Drinks
1
1.5
1.9
Calculate Inflation for 2012 taking CPI as 100 for the base year 2010. The market bundle is 5 Oranges, 5 portions of bacon and 7 Drinks. Prices ($) are as follows
|
2010 |
2011 |
2012 |
Orange |
2 |
4 |
5 |
Bacon |
4 |
6 |
6 |
Drinks |
1 |
1.5 |
1.9 |
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Real versus nominal GDP
Consider a simple economy that produces two goods: apples and oranges. The following table shows the prices and quantities for the goods over a three-year period.
Year |
Apples
|
Oranges
|
||
---|---|---|---|---|
Price | Quantity | Price | Quantity | |
(Dollars per apple) | (Number of apples) | (Dollars per orange) | (Number of oranges) | |
2010 | 1 | 120 | 1 | 195 |
2011 | 2 | 130 | 4 | 195 |
2012 | 4 | 130 | 4 | 145 |
A. Use the information from the previous table to fill in the following table.
Year | Nominal GDP | Real GDP | GDP Deflator |
---|---|---|---|
(Dollars) | (Base year 2010, Dollars) | ||
2010 | |||
2011 | |||
2012 |
B. From 2011 to 2012, change in nominal GDP is __________, and real GDP is ________.
C. The inflation rate in 2012 was ____________.
D. Why is real GDP a more accurate measure of an economy's production than nominal GDP?
a. Real GDP does not include the value of intermediate goods and services, but nominal GDP does.
b. Real GDP includes the value of exports, but nominal GDP does not.
c. Real GDP is not influenced by price changes, but nominal GDP is.
Part 2. Suppose that the consumers buy 5 apples and 3 oranges every year (basket of goods), and the price of each one was shown as the following:
2012 |
2013 |
2014 |
|
Apple |
$2 |
$3 |
$4 |
Orange |
$3 |
$4 |
$5 |
If we considered 2012 is the base year, then:
What is the value of the Consumer price index (CPI) in 2012, 2013, and 2014?
What is the value of Inflation in, 2013, and 2014?
In your opinion, how inflation affects economic activities.