Scenario 25-3
A small economy produced and consumed goods X and Y in 2019 and 2020 in the amounts shown in the table below.
Assume that the market basket for the CPI is defined in the base year.
2019
2020
50
60
Good X
Quantity
Price
$100
$120
Good Y
Quantity
Price
100
120
$10
$12
6. Refer to Scenario 25-3. Using 2019 as the base year, what is the inflation rate in 2020?
7. If the CPI increased from 215 to 218 between the years 2012 and 2013, while the nominal interest rate increased from
3.25% to 3.80%, what is the real interest rate in 2013?
8. If the real value of an item bought ten years ago is less than it's nominal value at that time, what can one infer about the
change in the overall price level during this ten year period?
9. Suppose the Tooth Fairy paid 50 cents for a tooth in 1970. The CPI in 1970 was 38.8, while the CPI in 2010 was 218.1.
What is the value of the Tooth Fairy's payment in 2010 dollars?