Chapter 24 Homework for Group C

1. What is the CPI and what is its purpose?
2. Fix the basket at 3 footballs and 4 basketballs.

Year	Price of Footballs	Price of Basketballs
Year 1	$10	$12
Year 2	12	15
Year 3	14	18

1. Compute the cost of the basket:
   Cost in Year 1
   Cost in Year 2
   Cost in Year 3
2. Using Year 1 as the base year, compute the index:
   CPI in Year 1
   CPI in Year 2
   CPI in Year 3
3. Compute the inflation rate:
   Inflation rate for Year 2
   Inflation rate for Year 3
4. Take a look at the following link. Notice all the different measures of a country's "Standard of Living." Which do you think is the best measure and why?

1. The Consumer Price Index (CPI) is a measure of the overall cost of goods and services bought by a consumer. The government uses this index to report inflation rates each month and each year. The composition of the market basket for the CPI is based on spending patterns of consumers in specific periods. 

1. Cost in Year 1 = (3x10) + (4x12) = 78

    Cost in Year 2 = (3x12) + (4x15) = 96

    Cost in Year 3 = (3x14) + (4x18) = 114

2. CPI in Year 1 = (78/78) x 100 = 100

    CPI in Year 2 = (96/78) x 100 = 123.08

    CPI in Year 3 = (114/78) x 100 = 146.15

3. Inflation Rate for Year 2 = 123.08 - 100 = 23.08%

    Inflation Rate for Year 3 = 146.15 - 100 = 46.15%

4. I think the best measurement of a country's "standard of living" is the Human Poverty Index. I say this because it measures a variety of socio-economic variables which include per-capita GDP, life expectancy, political stability, family life, gender equality, and job security. The other measurements are unevenly distributed, and does not take into consideration as many variables as the Human Poverty Index does. Also, I feel that the other measurements are not as accurate due to the fact that they are not highly ranked.