3. In a small community, breakfast is the most important meal of the day. Therefore, the only two goods that this community produces are coffee and scones in the following amounts: Coffee Year 2020 2021 Quantity 60 cups 90 cups Price $1.25 $1.45 Quantity 45 units 65 units Scones Price $2.10 $3.95 a) Calculate the inflation rate for 2021 using the GDP deflator method (assume that 2020 is the base year for real GDP calculations). Show your work. b) Calculate the inflation rate for 2021 using the CPI method (assume that 2020 is the base year for CPI calculations). Additionally, assume that the consumption basket for both years contains only 10 cups of coffee and 40 scones. Show your work. c) Compare the results of both inflation calculations and explain why they are similar or different based on the two methods and on the specific data used in this example.

3. In a small community, breakfast is the most important meal of the day. Therefore, the only two goods that this community produces are coffee and scones in the following amounts: Coffee Year 2020 2021 Quantity 60 cups 90 cups Price $1.25 $1.45 Quantity 45 units 65 units Scones Price $2.10 $3.95 a) Calculate the inflation rate for 2021 using the GDP deflator method (assume that 2020 is the base year for real GDP calculations). Show your work. b) Calculate the inflation rate for 2021 using the CPI method (assume that 2020 is the base year for CPI calculations). Additionally, assume that the consumption basket for both years contains only 10 cups of coffee and 40 scones. Show your work. c) Compare the results of both inflation calculations and explain why they are similar or different based on the two methods and on the specific data used in this example.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

3. In a small community, breakfast is the most important meal of the day. Therefore, the only
two goods that this community produces are coffee and scones in the following amounts:
Year
2020
2021
Quantity
60 cups
90 cups
Coffee
Price
$1.25
$1.45
Quantity
45 units
65 units
Scones
Price
$2.10
$3.95
a) Calculate the inflation rate for 2021 using the GDP deflator method (assume that 2020 is the
base year for real GDP calculations). Show your work.
b) Calculate the inflation rate for 2021 using the CPI method (assume that 2020 is the base year
for CPI calculations). Additionally, assume that the consumption basket for both years contains
only 10 cups of coffee and 40 scones. Show your work.
c) Compare the results of both inflation calculations and explain why they are similar or
different based on the two methods and on the specific data used in this example.

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