Thursday, February 4, 2010

Computing a Price Index

Complete the table by compute both the Base Year and Year 1 expenditures and total expenditures. Next calculate the CPI for the Base Year and Year 1. Finally, calculate the inflation rate.
I have the inflation rate at 4%.
Can you think of some reasons why inflation might have fueled price growth?
Some suggestions are: an unanticipated growth in the money supply; a fiscal policy that actually worked to create jobs; and expectations of higher prices in the future.

About the Author: Mike Fladlien is an AP Economics teacher from Muscatine High School in Muscatine, IA. He is an author, and also publishes the Mikeroeconomics and iMacroeconomics VB blogs.


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