Essay
A typical household in Orangeland consumes only orange juice and shorts. Last year, which was the base year, the household spent $400 on juice and $120 on shorts. In the base year, juice was $2 a bottle and shorts were $10 a pair. This year, juice is $3 a bottle, shorts are $12 a pair, and a typical household has bought 180 bottles of juice and 14 pairs of shorts.
a) What is the basket used in the CPI?
b) Calculate the CPI in the current year.
c) Calculate the inflation rate in the current year.
d) Is the inflation rate that you've calculated likely to be biased? Why or why not?
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a) The CPI basket is the quantities boug...View Answer
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