Question

Suppose that the residents of Greenland play golf incessantly. In fact, golf is the only thing they spend their money on. They buy golf balls, clubs, and tees. In 2019, they bought 1,000 golf balls for $2.00 each, 100 clubs for $50.00 each, and 500 tees for $0.10 each. In 2020, they bought 1,000 golf balls for $2.50 each, 100 clubs for $75.00 each, and 500 tees for $0.12 each. What was the CPI for each year

Answer 1

CPI in 2020 =142.7

CPI in 2019 = 100

Step-by-step explanation:

Inflation is the increase in the general price level. Inflation erodes the value of money.

Consumer Price Index(CPI ): This is the weighted average price of a basket of goods and services consumed by a typical consumer. It is used to measure the rate of inflation.

The increase in the CPI is taken to be the rate of inflation. For example, the CPI rose to 1.09 from 1.00, this implies an inflation rate of 9% within the time period in focus.

The CPI =

The price of a basket of goods in a current year ÷ Divided by the price of a basket of goods in a base year

The consumer price

CPI in 2019 = (1000× $2) + (100× $50) + ( 500× $$0.10)= 7050

CPI in 2020= (1000× $2.50) + (100× $75) + ( 500× $$0.12)=10,060

CPI in 2020 = 10,060/7050× 100 =142.7

CPI in 2019 = 100

CPI in 2020 =142.7

CPI in 2019 = 100

Note , we assume the CPI for 2019 is 100, since we were not provided with data to compute the price of a basket of good in 2018