A small nation of ten people idolizes the TV show The Voice. All they produce and consume are ka

step 1 Okay, everybody. This is Chapter 24, Problem 5. We're given the information that we have in this

A small nation of ten people idolizes the TV show The Voice....

A small nation of ten people idolizes the TV show $The \space Voice$. All they produce and consume are karaoke machines and CDs, in the following amounts: a. Using a method similar to the CPI, compute the percentage change in the overall price level. Use 2017 as the base year and fix the basket at 1 karaoke machine and 3 CDs. b. Using a method similar to the GDP deflator, compute the percentage change in the overall price level. Also use 2017 as the base year. c. Is the inflation rate in 2018 the same using the two methods? Explain why or why not.

A small nation of ten people idolizes the TV show $The \space Voice$. All they produce and consume are karaoke machines and CDs, in the following amounts:

a. Using a method similar to the CPI, compute the percentage change in the overall price level. Use 2017 as the base year and fix the basket at 1 karaoke machine and 3 CDs.
b. Using a method similar to the GDP deflator, compute the percentage change in the overall price level. Also use 2017 as the base year.
c. Is the inflation rate in 2018 the same using the two methods? Explain why or why not.

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Transcript

00:01 Okay, everybody.

00:02 This is chapter 24, problem 5.

00:06 We're given the information that we have in this table here that the quantities and the total price of karaoke machines and the quantities and the price of the cds.

00:19 And we're asked in the first part to calculate inflation using the consumer price index method with the basket of good being one karaoke machine, three cds.

00:29 So the first thing we have to do is we have to calculate.

00:31 The per unit price.

00:33 And so for 2017, the price is $40 for 10 karaoke machines that equals $4.

00:43 And it's $10 for 30 cds, so it's 33 cents per cd.

00:50 In 2018, then it's $60 divided by 12 karaoke machines equals $5.

00:56 And we have $12 over 50 cds equals $2 .20 .000 equals $20.

01:01 24 cents.

01:04 And remember that to calculate the consumer price index, the formula is the current basket of goods over the base year basket of goods times 100.

01:20 And so remember the basket of goods is one karaoke machine and three cds.

01:26 So the consumer price index for 2017 is $4 .99 .9.

01:35 Over $499 times 100 equals 100.

01:40 The base year for the consumer price index is always going to equal 100.

01:45 For 2018, the cpi is $5 .72 over $4 .99 times 100 equals 115.

01:58 And we're calculating inflation, which is the change in the price level...

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