Principles of Economics, 7th Edition (MindTap Course List)
Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 24, Problem 2QCMC
To determine

Thelargest component ofCPI’s basket.

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The market basket used to calculate the CPI in Aquilonia is 4 loaves of bread, 6 gallons of milk, 2 shirts, and 2 pairs of pants. In 2005, bread cost $1.00 per loaf, milk cost $1.50 per gallon, shirts cost $6.00 each, and pants cost $10.00 per pair. In 2006, bread cost $1.50 per loaf, milk cost $2.00 per gallon, shirts cost $7.00 each, and pants cost $12.00 per pair. Using 2005 as the base year, what was Aquilonia’s inflation rate in 2006?   This question is stumping me. I thought that this answer was 124.4 but it seems that it is 24.4. I cant figure it out
Price (2011) Quantity (2012) $5.00 $6.00 Item Quantity (2011) Price (2012) Magazines 450 200 $4.50 $8.00 $10.50 400 Movie tickets 50 Pizzas 100 $10.00 120 The data in the table above shows the consumption by families in an economy. The year 2011 is the reference base period. Based on the table above, the CPI for 2012 is A. 105.1. B. 5.0 percent. C. 102.5. O D. 100. O E. 98.5.
Describe how the CPI is calculated. How might the CPI overstate the true increase in cost of living?
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