To construct a consumer price index (CPI) let the reference basket of g/s be comprised of 500 litres of…

To construct a consumer price index (CPI) let the reference basket of g/s be comprised of 500 litres of…

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To construct a consumer price index (CPI) let the reference basket of g/s be comprised of
500 litres of water (per year), 300 kilos of apples (per year), and 200 kilos of almonds (per
year). We are holding the reference basket of goods fixed in each year.
Let P = the per-unit market price in each year; Q= the estimated number of units
purchased of a good; the Q for each good is held fixed (constant) for each year.
Based on the above table, and using information from your class notes:
1) Calculate the cost of the reference basket in each year.
2) Calculate the cost of living in each year.
3) Explain the relation between your answers to questions 1 and 2.
4) Calculate the CPI for each year, using 2020 as the base year.
5) Using the CPI for 2020, and the CPI for 2021, calculate the % change in the Cost of
Living from 2020 to 2021.
6) Using the CPI for 2021, and the CPI for 2022, calculate the % change in the Cost of
Living from 2021 to 2022.
7) Using the CPI for 2020, and the CPI for 2021, calculate the % change from 2020 to
2021 of the average price level of the goods that comprise the reference basket.
8) Using the CPI for 2021, and the CPI for 2022, calculate the % change from 2021 to
2022 of the average price level of the goods that comprise the reference basket.
9) Explain the relation between your answers to questions 5 and 7.
10) Explain the relation between your answers to questions 6 and 8.
11) Explain why the CPI in the base year always equals 1.00 (x 100 = 100, by convention). year
2020
2021
2022
Good A
Litres of water
PAX QA
2₺ X 500
4₺ X 500
66 X 500
Good B
Kilos of apples
PBX QB
3₺ X 300
5* X 300
7€ X 300
Good C
Kilos of
almonds
PcX Qc
86 X 200
10% X 200
126 X 200
Cost of Living

Expert Answer:

Answer rating: 100% (QA)

1 Calculate the cost of the reference basket in each year 2020 26500 36300 86200 2021 46500 5300 10700 2022 6500 76300 126200 2 Calculate the cost of
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