A Consumer Expenditure Survey in Sparta shows that people buy only juice and cloth. In 2015, the

Question:

A Consumer Expenditure Survey in Sparta shows that people buy only juice and cloth. In 2015, the year of the Consumer Expenditure Survey and also the reference base year, the average household spent $40 on juice and $25 on cloth. Table 1 sets out the prices of juice and cloth in 2015 and 2016.

TABLE 1 PRICES Juice Cloth 2015 $4 a bottle $5 a yard 2016 $4 a bottle $6 a yard

1. Calculate the CPI market basket and the percentage of the average household budget spent on juice in the reference base year.

2. Calculate the CPI in 2016 and the inflation rate between 2015 and 2016.

3. Table 2 shows the CPI in Sparta. Calculate the inflation rates in 2015 and 2016. Did the CPI rise in 2016? Did the inflation rate increase in 2016?

TABLE 2 Year 2014 2015 2016 CPI 200 219 237