Consider the simple economy that produces only three products. Use the information in the following table to calculate the (annual rate of) inflation for 2020 as measured by the consumer price index (CPI). BASE YEAR (2010) Price $10.00 2.00 15.00 2019 Price $11.00 2.45 15.00 Quantity 3 11 5 2020 Price $16.20 2.40 14.00 Product Haircuts Hamburgers Movies Using the information in the table, the CPI for 2019, with 2010 as the base year, is (Enter your response rounded to one decimal place.) The inflation rate for 2020 as measured by the consumer price index (CPI) is %. (Enter your response rounded to two decimal places.)

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### Calculating Inflation Using the Consumer Price Index (CPI)

Consider the simple economy that produces only three products. Use the information in the following table to calculate the (annual rate of) inflation for 2020 as measured by the consumer price index (CPI).

#### Table: Product Prices and Quantities

| Product    | Quantity | BASE YEAR (2010) Price | 2019 Price | 2020 Price |
|------------|----------|------------------------|------------|------------|
| Haircuts   | 3        | $10.00                 | $11.00     | $16.20     |
| Hamburgers | 11       | $2.00                  | $2.45      | $2.40      |
| Movies     | 5        | $15.00                 | $15.00     | $14.00     |

Using the information in the table, the CPI for 2019, with 2010 as the base year, is **[Box]**. (Enter your response rounded to one decimal place.)

The inflation rate for 2020 as measured by the consumer price index (CPI) is **[Box]**%. (Enter your response rounded to two decimal places.)

#### Explanation of How to Calculate CPI and Inflation Rate:

To calculate the Consumer Price Index for 2019 and 2020:

1. **CPI Formula:**
   \[
   CPI = \left(\frac{\text{Total Cost of Basket in Current Year}}{\text{Total Cost of Basket in Base Year}}\right) \times 100
   \]
   
2. **Total Cost of Basket Calculation:**
   Calculate the total cost of the basket of goods for each year (multiply the quantity of each product by its price in that year and sum the results).
   
   - **Base Year (2010) Total Cost:**
     \[
     \text{Total} = (3 \times 10) + (11 \times 2) + (5 \times 15) = 30 + 22 + 75 = 127
     \]

   - **2019 Total Cost:**
     \[
     \text{Total} = (3 \times 11) + (11 \times 2.45) + (5 \times 15) = 33 + 26.95 + 75 = 134.95
     \]

   -
Transcribed Image Text:### Calculating Inflation Using the Consumer Price Index (CPI) Consider the simple economy that produces only three products. Use the information in the following table to calculate the (annual rate of) inflation for 2020 as measured by the consumer price index (CPI). #### Table: Product Prices and Quantities | Product | Quantity | BASE YEAR (2010) Price | 2019 Price | 2020 Price | |------------|----------|------------------------|------------|------------| | Haircuts | 3 | $10.00 | $11.00 | $16.20 | | Hamburgers | 11 | $2.00 | $2.45 | $2.40 | | Movies | 5 | $15.00 | $15.00 | $14.00 | Using the information in the table, the CPI for 2019, with 2010 as the base year, is **[Box]**. (Enter your response rounded to one decimal place.) The inflation rate for 2020 as measured by the consumer price index (CPI) is **[Box]**%. (Enter your response rounded to two decimal places.) #### Explanation of How to Calculate CPI and Inflation Rate: To calculate the Consumer Price Index for 2019 and 2020: 1. **CPI Formula:** \[ CPI = \left(\frac{\text{Total Cost of Basket in Current Year}}{\text{Total Cost of Basket in Base Year}}\right) \times 100 \] 2. **Total Cost of Basket Calculation:** Calculate the total cost of the basket of goods for each year (multiply the quantity of each product by its price in that year and sum the results). - **Base Year (2010) Total Cost:** \[ \text{Total} = (3 \times 10) + (11 \times 2) + (5 \times 15) = 30 + 22 + 75 = 127 \] - **2019 Total Cost:** \[ \text{Total} = (3 \times 11) + (11 \times 2.45) + (5 \times 15) = 33 + 26.95 + 75 = 134.95 \] -
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