Suppose Tajikistan's economy produces only two goods, Cosmic Brownies and Instant Noodles. The quan- tities and...

  

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Suppose Tajikistan's economy produces only two goods, Cosmic Brownies and Instant Noodles. The quan- tities and the prices are given below: 2020 2000 (base year) Price Quantity Price Quantity Price Quantity Cosmic Brownies $1.50 3,000 $2.50 3,500 $3.50 4,000 Instant Noodles $3.00 1,000 $3.50 1,025 $4.00 1,500 2019 a) In the following, we are treating 2000 as the base year. Please identify the price and quantities of the Fixed Basket of Goods. b) What is the value of the basket in 2000, in 2019 and in 2020? c) Calculate the inflation rate between 2000 and 2020. What is the average annual rate of inflation over the 20 year span? d) What is the inflation rate between 2019 and 2020? Is your answer higher or lower than the average annual rate of inflation calculated in part c.)? e) Suppose Cosmic Brownies and Instant Noodles are both produced by Nestlé and suppose that every worker in Tajikistan works for this company. While workers' annual incomes grew at an average rate of 5%, the CPI stated inflation to be 4.5% for the same year. What would happen to a worker's real income if the CPI understates inflation? Suppose Tajikistan's economy produces only two goods, Cosmic Brownies and Instant Noodles. The quan- tities and the prices are given below: 2020 2000 (base year) Price Quantity Price Quantity Price Quantity Cosmic Brownies $1.50 3,000 $2.50 3,500 $3.50 4,000 Instant Noodles $3.00 1,000 $3.50 1,025 $4.00 1,500 2019 a) In the following, we are treating 2000 as the base year. Please identify the price and quantities of the Fixed Basket of Goods. b) What is the value of the basket in 2000, in 2019 and in 2020? c) Calculate the inflation rate between 2000 and 2020. What is the average annual rate of inflation over the 20 year span? d) What is the inflation rate between 2019 and 2020? Is your answer higher or lower than the average annual rate of inflation calculated in part c.)? e) Suppose Cosmic Brownies and Instant Noodles are both produced by Nestlé and suppose that every worker in Tajikistan works for this company. While workers' annual incomes grew at an average rate of 5%, the CPI stated inflation to be 4.5% for the same year. What would happen to a worker's real income if the CPI understates inflation?

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