Macroeconomics 1st Edition by Dean Karlan,Jonathan Morduch

Exercise 16

Table 8P-4 lists the prices and quantities consumed of three different goods from 2010-2012
a. Calculate how much money the typical consumer pays each year to purchase the quantities listed in the table.
b. Using the amounts you found in part a, calculate the change in how much the consumer paid from 2010 to 2011, and from 2011 to 2012.
c. Why is it problematic to use your answers to part b as a measure of inflation?
d. Suppose we take 2010 as the base year, which implies that the market basket is fixed at the consumption levels of 2010. Now find the rate of inflation from 2010 to 2011 and from 2011 to 2012.
e. Repeat the exercise from part d, now assuming that the base year is 2011. f. Why were your answers from parts d and e different?