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Suppose an economy produces and consumes only two goods houses and entertainment

Suppose an economy produces and consumes only two goods: houses and entertainment. The following table shows quantities consumed and prices for three years: Year 0 (the base year), Year 1, and Year 2.

Item

Year 0

Year 1

Year 2

 

Quantity

(units)

Price

($/unit)

Quantity

(units)

Price

($/unit)

Quantity

(units)

Price

($/unit)

Food

1000

280

900

295

1050

297

Entertainment

700

24

780

25

785

25

a)         Using the base year basket, compute the CPI for Year 1 and Year 2.

b)         Compute the GDP deflator for Year 1 and Year 2.

c)         Compute inflation rates based on CPI and the GDP deflators.

Apr 30 2020 View more View Less

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