03 Jun Question Question 1 (15 marks)
Question
Question 1 (15 marks)
A household survey concludes that the typical person consumes: 100 units of good X,
150 units of good Y and 25 units of good Z. The information for prices of good X, Y and
Z are given below:
Good
Quantity
Consumed
Prices 2000
Prices 2001
Prices 2002
X
100
$1.00
$1.50
$1.75
Y
150
1.50
2.00
2.00
Z
25
3.00
3.25
3.00
If the year 2000, is the predetermined base year:
a) Calculate the CPI for 2001 and 2002.
(4 marks)
b) Calculate the inflation rate in 2002.
(2 marks)
c) Identify TWO problems using the CPI as a measure of the cost of living.
(2 marks)
d) Provide an example for each of the TWO problems in part c.
(3 marks)
e) Differentiate between the CPI and the GDP deflator as a measure of the standard
of living.
(4 marks)
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