Question: Use the following information to work Problems 8 and 9. The people on Coral Island buy only juice and cloth. The CPI basket contains the

Use the following information to work Problems 8 and 9.

The people on Coral Island buy only juice and cloth. The CPI basket contains the quantities bought in 2013. The average household spent $60 on juice and $30 on cloth in 2013 when the price of juice was $2 a bottle and the price of cloth was $5 a yard. In 2014, juice is $4 a bottle and cloth is $6 a yard.

8.Calculate the CPI basket and the percentage of the household's budget spent on juice in 2013.

9.Calculate the CPI and the inflation rate in 2014.

Use the following data to work Problems 10 to 11.

The BLS reported the following CPI data:

June 2008 217.3

June 2009 214.6

June 2010 216.9

10.Calculate the inflation rates for the years ended June 2009 and June 2010. How did the inflation rate change in 2010?

11.Why might these CPI numbers be biased? How can alternative price indexes avoid this bias?

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