Suppose for Candyland the cost of a CPI basket is worth $500 in 2016, and the same basket is worth $600 in 2017. Answer the following questions a. Using 2016 as the base year, calculate the CPIs of 2016 and 2017, respectively. Then calculate the inflation rate between 2016 and 2017. Show steps. b. If a computer costs $1500 in 2016, using the CPIs you calculated in (a), what is the cost of this computer if measured in 2017 dollars? Show steps. Hint: the same computer should have the same real values in both years.
Suppose for Candyland the cost of a
a. Using 2016 as the base year, calculate the CPIs of 2016 and 2017, respectively. Then calculate the inflation rate between 2016 and 2017. Show steps.
b. If a computer costs $1500 in 2016, using the CPIs you calculated in (a), what is the cost of this computer if measured in 2017 dollars? Show steps. Hint: the same computer should have the same real values in both years.
Cost of basket of goods in 2016 = 500 $
Cost of basket of goods in 2017 = 600 $
a.
CPI for base year 2016 = cost of basket for 2016 / cost of basket in base year * 100 = 500/500 * 100 = 100
CPI for 2017 = cost of basket for 2017 / cost of basket in base year 2016 * 100 = 600 / 500 * 100 = 120
Inflation rate = CPI in 2017 / 2016 – 1 * 100 = 20 %
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