Compute the cost of the market basket for each year

Assignment Help Business Economics

Reference no: EM13936127

Suppose you are given the following information to answer this set of questions.

Item	Price in 2005	Price in 2006	Price in 2006	Price in 2007
Hammers	$15.00	$17.00	$17.00	$20.00
Lawn Mowers	$150.00	$150.00	$180.00	$160.00
Groceries for Year	$4800.00	$5000.00	$5100.00	$5200.00
Bicycle	$250.00	$250.00	$250.00	$220.00

For this problem assume that the market basket is defined as 1 hammer, 1 lawn mower, 1 unit of groceries for the year, and 2 bicycles. Note in this problem you may want to use a calculator and round all numbers to the nearest hundredth.

a. Compute the cost of the market basket for each year.
1. Cost of market basket in 2005 = ____________________________

2. Cost of market basket in 2006 = ____________________________

3. Cost of market basket in 2007 = ____________________________

4. Cost of market basket in 2008 = ____________________________

b. Calculate the CPI four times. Use 2005 as the base year the first time, then use 2006 as the base year, then 2007 as the base year, and finally 2008 as the base year. Complete the following table with your calculated values.

Year	CPI with Base Year 2005	CPI with Base Year 2006	CPI with Base Year 2007	CPI with Base Year 2008
2005
2006
2007
2008

c. Calculate the inflation rate between each year using 2005 as the base year. Fill in the following table based on your calculations.

Time Period	Inflation Rate using 2005 as the Base Year
2005-2006
2006-2007
2007-2008

d. Calculate the inflation rate between each year using 2006 as the base year. Fill in the following table based on your calculations.

Time Period	Inflation Rate using 2006 as the Base Year
2005-2006
2006-2007
2007-2008

e. Calculate the inflation rate between each year using 2007 as the base year. Fill in the following table based on your calculations.

Time Period	Inflation Rate using 2007 as the Base Year
2005-2006
2006-2007
2007-2008

f. Calculate the inflation rate between each year using 2008 as the base year. Fill in the following table based on your calculations.

Time Period	Inflation Rate using 2008 as the Base Year
2005-2006
2006-2007
2007-2008

g. Compare your answers in parts (c), (d), (e), and (f) and explain the reasoning behind your results.

Reference no: EM13936127

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