Claudette Moreo:
1. Table shows the prices of fruit purchased by the typical college student from 2001 to 2004. What is the amount spent each year on the “basket” of fruit with the quantities shown in column 2?
Items Qty (2001) Price (2001)
Amount Spent (2002) Price (2003) Amount Spent (2003) Price (2003) Amount Spent (2004) Price (2004)Amount Spent
Apples 10 $0.50 $0.75 $0.85 $0.88
Bananas 12 $0.20 $0.25 $0.25 $0.29
Grapes 2 $0.65 $0.70 $0.90 $0.95
Raspberries 1 $2.00 $1.90 $2.05 $2.13 $2.13
Total
2. Construct the price index for a “fruit basket” in each year using 2003 as the base year.
3. Compute the inflation rate for fruit prices from 2001 to 2004
4. The index number representing the price level changes from 110 to 115 in one year, and then from 115 to 120 the next year. Since the index number increases by five each year, is five the inflation rate each year? Is the inflation rate the same each year? Explain your answer.
5. If inflation rises unexpectedly by 5%, indicate for each of the following whether the economic actor is helped, hurt, or unaffected:
a. A union member with a COLA wage contract
b. Someone with a large stash of cash in a safe deposit box
c. A bank lending money at a fixed rate of interest
d. A person who is not due to receive a pay raise for another 11 months