Calculating inflation using a simple price index:
Consider a fictional price index, the College Student Price Index (CSPI), based on a survey of annual purchases of a typical college student. Suppose the following table shows information on the market basket for the CSPI and the prices of each good in 2012, 2013, and 2014
Quantity
in basket
2012
2013
2014
Price($) Cost of basket($)
Price($) Cost of basket($)
Price($) Cost of basket($)
Notebooks
10
5 50
7
11
Calculators
1
100 100
110
140
Large coffees
150
1 150
1
1
Energy drinks
50
2 100
3
4
Textbooks
10
100 1000
120
150
Total cost
1400
Price index
100
The cost of each item in the basket and the total cost of the basket are shown for 2012.
Perform these same calculations for 2013 and 2014, and enter the results in the table.
Suppose the base year for this price index is 2012. Calculate and enter the value of the CSPI for the remaining years in the last row of the table. Between 2012 and 2013, the CSPI increased by..........
Between 2013 and 2014, the CSPl increased by..........
Calculating inflation using a simple price index:
Consider a fictional price index, the College Student Price Index (CSPI), based on a survey of annual purchases of a typical college student. Suppose the following table shows information on the market basket for the CSPI and the prices of each good in 2012, 2013, and 2014
|
|
Quantity in basket |
2012 |
2013 |
2014 |
|
Price($) Cost of basket($) |
Price($) Cost of basket($) |
Price($) Cost of basket($) |
||
|
Notebooks |
10 |
5 50 |
7 |
11 |
|
Calculators |
1 |
100 100 |
110 |
140 |
|
Large coffees |
150 |
1 150 |
1 |
1 |
|
Energy drinks |
50 |
2 100 |
3 |
4 |
|
Textbooks |
10 |
100 1000 |
120 |
150 |
|
Total cost |
|
1400 |
|
|
|
Price index |
100 |
|
|
The cost of each item in the basket and the total cost of the basket are shown for 2012.
Perform these same calculations for 2013 and 2014, and enter the results in the table.
Suppose the base year for this price index is 2012. Calculate and enter the value of the CSPI for the remaining years in the last row of the table. Between 2012 and 2013, the CSPI increased by..........
Between 2013 and 2014, the CSPl increased by..........
Related textbook solutions
Related questions
|
Base Year (2006) 2013 |
|||
|
Product |
Quantity |
Price |
Price |
|
Cokes |
100 |
$0.50 |
$0.75 |
|
Hamburgers |
200 |
2.00 |
2.50 |
|
CDs |
10 |
20.00 |
21.00 |
1) Refer to the table above. Assume the market basket for the consumer price index has three products: Cokes, hamburgers, and CDs.
The consumer price index for 2013 equals ______.
|
Product |
Quantity |
Base Year Price (2001) |
Price (2012) |
Price (2013) |
|
Burritos |
10 |
$1.00 |
$1.50 |
$1.75 |
|
Flashlights |
15 |
5.00 |
7.00 |
6.75 |
|
Golf balls |
8 |
2.00 |
3.00 |
3.50 |
2) Refer to the table above. Consider a simple economy that produces only three products: burritos, flashlights, and golf balls. Use the information in the table to calculate the inflation rate for 2013 (vs. 2012), as measured by the consumer price index.
|
Year |
Nominal Average Hourly Earnings |
CPI |
|
2011 |
$10 |
100 |
|
2012 |
10 |
105 |
|
2013 |
12 |
110 |
3) Refer to the table above. Real average hourly earnings were equal to ________ in 2012.
4) Looking at the table above, real average hourly earnings between 2012 and 2013 changed by ______%.
5) Matt's real wage in 2014 is $26.80. If the price level is 104, what is Matt's nominal wage?
You are given the following table of prices:
|
Item |
Price in 2013 |
Price in 2014 |
|
1 Loaf of Bread |
$ 1.00 |
$ 1.50 |
|
1 Pound of Chicken |
$ 6.25 |
$ 7.00 |
|
1 Gallon of Milk |
$ 2.00 |
$ 3.00 |
|
1 Gallon of Gasoline |
$ 3.00 |
$ 2.80 |
|
1 year of cable (TV and Internet) |
$ 840.00 |
$ 960.00 |
|
1 Pair of Jeans |
$ 50.00 |
$ 60.00 |
|
1 year of Rent for Apartment |
$ 8,400.00 |
$ 9,000.00 |
To represent the purchases of the average consumer throughout the year, the government uses the following market basket:
52 loaves of bread, 30 pounds of chicken, 35 gallons of milk, 416 gallons of gasoline, 1 year of cable, 12 pairs of jeans, 1 year of rent for an apartment.
a.Calculate the cost of the market basket in 2013 and the cost of the market basket in 2014.
b.Using 2013 as the base year, calculate the CPI for 2013 and 2014.
c.Calculate the CPI inflation rate between 2013 and 2014.
d.Now suppose the nominal wage of an individual for 2013 and 2014 is given as follows:
|
Year |
Nominal Wage |
|
2013 |
$ 56.00 |
|
2014 |
$ 60.00 |
(i)What is the percentage change in the nominal wage between 2013 and 2014?
(ii)Calculate the real wage for both years in 2013 dollars (i.e. using 2013 as the base year).
(iii)What is the percentage change in the real wage between 2013 and 2014?
(iv)Has the purchasing power of the worker increased or decreased between 2013 and 2014? Explain how you know this (using a previous calculation from above).
