Assume an economy produces and consumes only two goods: entertainment and houses. The following table shows quantities consumed and the 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
|
1. Calculate the CPI for Year 1 and Year 2 by using the base year basket.
2. Calculate the GDP deflator for Year 1 and Year 2.
3. Calculate the inflation rates based on CPI and the GDP deflators.