Suppose an economy produces and consumes only two goods: houses and entertainment. The following table shows quantities consumed and prices for three years: Year 0 (the base year), Year 1, and Year 2.

a) Using the base year basket, compute the CPI for Year 1 and Year 2.
b) Compute the GDP deflator for Year 1 and Year 2.
c) Compute inflation rates based on CPI and the GDP deflators.

Question

Suppose an economy produces and consumes only two goods: houses and entertainment. The following table shows quantities consumed and prices for three years: Year 0 (the base year), Year 1, and Year 2.

a) Using the base year basket, compute the CPI for Year 1 and Year 2.
b) Compute the GDP deflator for Year 1 and Year 2.
c) Compute inflation rates based on CPI and the GDP deflators.

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The Answer of Suppose an economy produces and consumes only two goods: houses and entertainment. The following table shows quantities consumed and prices for three years: Year 0 (the base year), Year 1, and Year 2.

a) Using the base year basket, compute the CPI for Year 1 and Year 2.
b) Compute the GDP deflator for Year 1 and Year 2.
c) Compute inflation rates based on CPI and the GDP deflators.

Suppose an Economy Produces and Consumes Only Two Goods: Houses