Continue with the same data as inProblem 3. Now let’s calculate the inflation in the economy.
Assume that there are 1,000 households identical households in the economy, and each of them
consumes the same basket of consumption goods: only bananas, cars and computers. You can
present your results in one table with the series of CPI and GDP deflator and one plot with the
series of inflation.
(a) Assume that the “representative consumption basket” is the one reflected by the quantities of 2014. What is the price of this basket in 2015, 2016 and 2017?
(b) Assume that the “representative consumption basket” is the one reflected by the quantities of 2017. What is the price of this basket in 2014, 2015 and 2016?
(c) Compute the GDP deflator associated with the chain-weighted real GDP from the last question.
(d) Plot the series of inflation associated with the indexes calculated in (a), (b) and (c)
(e) Why are the inflation rates different?