A)For the base year 2013, we utilize 2013 quantities2013 (2*100) + (1*100) = 3002014 (2.50*100) + (0.90*100) = 3402015 (2.75*100) + (1*100) = 375B)The base year is 2013, thus we take 3002013 = (300/300)*100 = 1002014 (340/300)*100 = 113.32015(375/300)*100=12125C)[(113.3-100)=100] *100 = 13.3%It is biased upward because there is a moderate substitution bias in the CPI. People would shiftquantities consumed based on upward price movements, but because the basket is constant, itdoes not show those shifts. 2. The table below shows the prices and the quantities of meat consumed in Meat-Loversville.Suppose the base year is 2003.Year200320042005Price of Beef Quantity ofBeef100$2.00$2.50$2.75Price of Pork Quantity ofPork100120130$1.00$0.90$1.0090105a. Determine the values of the basket in 2003,2004, 2005.b. Determine the values of the CPI in 2003,2004, and 2005.c. What was the inflation rate for 2004? Why is the inflation rate for this yearbiased upward?d. Suppose that the base year is changed from 2003 to 2005. Also, suppose thatthe typical consumption basket was now determined in 2005. What is the newCPI for 2004?The solutions of (a) (b) (c) are given as follows,please just solve forquestion(d),I wii be very very appreciate!!~

Given information: The base year is changed from 2003 to 2005. The typical consumption basket now…

Answered: d. Suppose that the base year is…

d. Suppose that the base year is changed from 2003 to 2005. Also, suppose that the typical consumption basket was now determined in 2005. What is the new CPI for 2004?

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

100%

A)
For the base year 2013, we utilize 2013 quantities
2013 (2*100) + (1*100) = 300
2014 (2.50*100) + (0.90*100) = 340
2015 (2.75*100) + (1*100) = 375
B)
The base year is 2013, thus we take 300
2013 = (300/300)*100 = 100
2014 (340/300)*100 = 113.3
2015
(375/300)*100=12125
C)
[(113.3-100)=100] *100 = 13.3%
It is biased upward because there is a moderate substitution bias in the CPI. People would shift
quantities consumed based on upward price movements, but because the basket is constant, it
does not show those shifts.

2. The table below shows the prices and the quantities of meat consumed in Meat-Loversville.
Suppose the base year is 2003.
Year
2003
2004
2005
Price of Beef Quantity of
Beef
100
$2.00
$2.50
$2.75
Price of Pork Quantity of
Pork
100
120
130
$1.00
$0.90
$1.00
90
105
a. Determine the values of the basket in 2003,2004, 2005.
b. Determine the values of the CPI in 2003,2004, and 2005.
c. What was the inflation rate for 2004? Why is the inflation rate for this year
biased upward?
d. Suppose that the base year is changed from 2003 to 2005. Also, suppose that
the typical consumption basket was now determined in 2005. What is the new
CPI for 2004?
The solutions of (a) (b) (c) are given as follows,please just solve for
question(d),I wii be very very appreciate!!~

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