Essay
Suppose an economy produces and consumes only two goods: houses and entertainment. The following table shows quantities consumed and prices for three years: Year 0 (the base year), Year 1, and Year 2.
a) Using the base year basket, compute the CPI for Year 1 and Year 2.
b) Compute the GDP deflator for Year 1 and Year 2.
c) Compute inflation rates based on CPI and the GDP deflators.
Correct Answer:
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a) CPI1=(295×1000+25×700)/(280×1000+24×7...View Answer
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