Question

5. Suppose that while sitting around bored in your dorm room one night, you and your friends decide to construct an Easter Basket Price Index (EBPI). After careful research, you come up with the following data concerning the contents of an Easter basket: item basket grass cream eggs elly beans bunnies chicks eggs stuffed bunny Hershey's kisses quantity price(2018) price(2019) $4.00 $1.00 $5.00 $2.00 2 $2.00 $3.00 $1.00 $6.00 4 $2.00 $3.00 $2.00 1 $10.00 $15.00 $1.00 $0.50 $4.00 4 $1.00 10 $0.60 Assume that 2018 is the base year. a. Find the EBPI for 2018. b. Find the EBPI for 2019 c. What is the rate of inflation between 2018 and 2019? 6. Suppose that the immigration restrictions imposed by the Trump Administration have the effect of reducing the supply of labor in the United States. Using the production function, labor market, and product market graphs of the classical model, please show the effects of restricting immigration. Describe how the variables of the model change.

Answer 1

Question 5: 2018 is the base year

a. Cost of basket in 2018 = Sum of (price of 2018* quantity) = (4*1) + (1*2) + (2*2) + (0.5*4) + (4*2) + (2*4) + (1*6) + (10*1) + (0.6*10) = 4 + 2 + 4 + 2 + 8 + 8 + 6 + 10 + 6 = $50
EBPI for 2018 = (Cost of basket in 2018/Cost of basket in base year)*100 = (50/50)*100 = 100

b) Cost of basket in 2019 = Sum of (price of 2019* quantity) = (5*1) + (2*2) + (3*2) + (1*4) + (6*2) + (3*4) + (2*6) + (15*1) + (1*10) = 5 + 4 + 6 + 4 + 12 + 12 + 12 + 15 + 10 = $80
EBPI for 2019 = (Cost of basket in 2019/Cost of basket in base year)*100 = (80/50)*100 = 160

c) Inflation rate = [(EBPI for 2019-EBPI for 2018)/EBPI for 2018]*100 = [(160-100)/100]*100 = 60%