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Inflation continued

Inflation continued. practice. Weightings are adjusted by region, for example Food is 15% in Boston and 16% in Cinncinatii. 1. Fix the basket (basket = 4 hot dogs and 2 hamburgers). 2. Find the price of each good in each year. 3. Compute the cost of the Basket of Goods in Each Year.

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Inflation continued

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  1. Inflation continued practice

  2. Weightings are adjusted by region, for example Food is 15% in Boston and 16% in Cinncinatii

  3. 1. Fix the basket (basket = 4 hot dogs and 2 hamburgers) 2. Find the price of each good in each year 3. Compute the cost of the Basket of Goods in Each Year

  4. 4. Choose One Year as a Base Year (2005) and Compute the Consumer Price Index in Each Year 5. Use the Consumer Price Index to Compute the Inflation Rate From Previous Year

  5. Equations for steps 4 and 5 Price of basket of goods and services Price of basket in base year CPI = X 100 CPI in year 2 – CPI in year 1 CPI in year 1 Inflation rate in year 2 = X 100

  6. 1. Calculate the price of each veggie in each year 2. Using 2006 as the base year, calculate the CPI for each year 3. What is the inflation rate in 2007?

  7. Dollar figures from Different times • Amount in today’s dollars = Amount in year T dollars x Price level today / price level in year T • Salary in 2005 dollars = salary in 1931 dollars x price level in 2005 / price level in 1931 • $80,000 x (195 / 15.2) = $1,026,316 • This is Babe Ruth’s salary in 2005 • Current index is 228, what is his salary worth now?

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