Question

The market basket used to calculate the CPI in Aquilonia is four loaves of bread, six litres of milk, two shirts, and two pairs of pants. Last year, the price of bread was $1.00 per loaf, the price of milk was $1.50 per litre, the price of a shirt was $6.00, and the price of a pair of pants was $10.00. This year, the price of bread is $1.75 per loaf, the price of milk is $2.25 per litre, the price of a shirt is $7.50, and the price of a pair of pants is $13.00. What is the inflation rate, as measured by the CPI, for Aquilonia between last year and this year? Select one: 20.00 percent O 24.40 percent 30.00 percent 36.67 percent

Answer 1

1.Option D is correct.

items	quantity	price PY	price of CY	real gdp PY	nominal gdp CY
loaves	4	1	1.75	4	7
milk	6	1.5	2.25	9	13.5
shirts	2	6	7.5	12	15
pants	2	10	13	20	26
				45	61.5
inflation rate = nominal gdp/ real gdp *100
	61.5/45 *100
*	136.67
it means that inflation rate has inreased to 36.67%

2. answer is (A)

multiplier= 1/ 1-mpc

=1/1-0.8

=5

with the help of government spending , AD will increase by $20 billions which is as follows

= $9 billion *5 = $ 45 billion will be AD and we will deduct crowding out effect 25

= 45-25= $20 billions

3. (A)

if the Canadian real exchange rate appreciate then it will decrease both import and export which result in reduction in net capital outflow of Canadian currency. it means that net export decrease and net capital outflow also decrease.

4. same answer as in question in 3. .