The
Explanation of Solution
CPI is a measure that examines the changes in the price levels of a basket of consumer goods and services in the current year with reference to the base year. CPI can be calculated as the ratio of total dollar expenditure for a particular market basket of goods and services consumed in the current year to the total dollar expenditure for the same market basket of goods and services consumed in the base year in percentage terms. The CPI in the base year is calculated as follows:
Thus, the CPI in the base year or bench mark year is 100. The bench mark CPI is used to compare the changes in the price level in the current year to the price level of the same basket of goods in the reference year.
Consumer Price index (CPI): Consumer price index is a measure that examines the changes in price levels of a basket of consumer goods and services for the present time from base year.
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Chapter 6 Solutions
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- How does the CPI compare the cost of the typical market basket of goods and services?arrow_forwardYear Price of a pound of Bacon (10 units) Price of a dozen Eggs (15 units) Price of a pound of Coffee (20 units) $5.50 $1.75 $4.00 $5.25 $2.00 $4.50 3. $5.50 $2.00 $5.00 Use the information in the table above to calculate the CPI in Year 2, using Year 1 as the base year. Round to the nearest whole number.arrow_forwardSuppose the current CPI is 252 and in 2005 it was 196. A pair of Levi's jeans costs $43 today. Based on the CPIs, what would you expect the 2005 price to have been for the same style of Levis, in a similar retail outlet? Round your answer to two decimal places. 0 $ Click or tap the numbers or use your keyboard to type. If you're not sure, just take a guess. 1 2 3 4 5 6 7 8 9 Donearrow_forward
- Use your CPI Chart to calculate the numbers 2-4. 2. If you made $38,000 in 1997, how much money would you have to make in 2006 to maintain your real income? Explain.arrow_forwardThe CPI (using a 2000 base year) for 1965 is 26.0. Suppose a household's annual take-home pay in 1965 was $8,320. What would be an equivalent take-home pay in 2000?arrow_forwardSuppose your mother received a salary of $35,000 in 2000. To preserve the purchasing power, what should this salary be in 2020 if the CPI in 2000 was 120 and CPI in 2020 is 200. Show all your calculations.arrow_forward
- How has CPI changed over time?arrow_forwardWhy is the CPI is called a price index?arrow_forwardSuppose the current CPI is 252 and in 2005 it was 196. A pair of Levi’s jeans costs $43 today. Based on the CPIs, what would you expect the 2005 price to have been for the same style of Levis, in a similar retail outlet?arrow_forward
- Over a long period of time the CPI rose from 100 to 150. What does a CPI of 150 mean? If the price of imported vegetables rises, between the CPI and the GDP deflator, which one of the two will be affected more? Explain.arrow_forwardYear Price of a pound of Bacon (10 units) Price of a dozen Eggs (15 units) Price of a pound of Coffee (20 units) 1 $5.50 2 $5.25 $1.75 $2.00 $4.00 $4.50 3 $5.50 $2.00 $5.00 Use the information in the table above to calculate the CPI in Year 2, using Year 1 as the base year. Round to the nearest whole number. The Consumer Price Index isarrow_forwardThe basket of goods and services included in the Consumer Price Index cost $450 in the base year. If the same basket cost $700 ten years later, what was the CPI on that date?arrow_forward
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
