It is true that because of the substitution problem, the CPI tends to overstate the true change in the price of the typical basket of consumer goods.
<h3>What is CPI?</h3>
- A consumer price index measures a market basket of goods and services that households have purchased at a weighted average price.
- The measured CPI fluctuates to reflect changes in prices over time.
- One of the most popular methods for determining inflation and deflation is the CPI.
- An essential gauge of an economy's health is inflation. The CPI and other indexes are used by governments and central banks when making economic decisions.
- The decision to raise or cut interest rates is crucial among these.
- If the CPI increases, it indicates that the average rate of change in price over time has increased. The cost of living and income are eventually changed as a result of this.
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Answer:
reported as income for all three years is $7,000
Explanation:
given data
cost of the ending inventory = $181,000
market value inventory = $160,000
to find out
Shondee Corporation must add income
solution
we get here Income per year that is
Income per year = (Value under FIFO Method - Value Under Cost Method ) ÷ Number of year ..............................1
put here value we get
Income per year = 
Income per year = 
Income per year = $7000
so reported as income for all three years is $7,000
Answer:
CPI in 2020 =142.7
CPI in 2019 = 100
Inflation rate = 42.7%
Explanation:
Inflation is the increase in the general price level. Inflation erodes the value of money.
Consumer Price Index(CPI ): This is the weighted average price of a basket of goods and services consumed by a typical consumer. It is used to measure the rate of inflation.
The increase in the CPI is taken to be the rate of inflation. For example, the CPI rose to 1.09 from 1.00, this implies an inflation rate of 9% within the time period in focus.
The CPI =
The price of a basket of goods in a current year ÷ Divided by the price of a basket of goods in a base year
The consumer price
Value of basket of goods in 2019 = (1000× $2) + (100× $50) + ( 500× $0.10)= 7050
Value of basket of goods in 2020= (1000× $2.50) + (100× $75) + ( 500× $$0.12)=10,060
CPI in 2020 = 10,060/7050× 100 =142.7
CPI in 2019 = 100
CPI in 2020 =142.7
CPI in 2019 = 100
The inflation rate =(142.7/100-1 ) × 100 = 42.7%
Note , we assume the CPI for 2019 is 100, since we were not provided with data to compute the price of a basket of good in 2018
CPI in 2020 =142.7
CPI in 2019 = 100
Inflation rate = 42.7%
In order to properly tackle this problem, we must understand the relationship between the nominal annual rate and real (effective) annual rate.
To do this:
-First you take the nominal rate, divide by the number of times it's compounded (converted) per year.
-Then, add one to that number, and raise that number to the power of how many times you compound per year.
Here is the method in practice:
First 3 Years:
Nominal rate= 2% ÷ 12 times/yr = 0.001667
Effective rate = 1.001667 ^12 = 1.020184
Next 2 Years (Discounting)
3% ÷ 2/yr = .015
1.015 ^ 2 = 1.061364
Next 4 years (Interest)
.042 ÷ .5 (once every 2 years) = .084
1.084 ^ (1/2) = 1.041153
The last 3 years are already expressed as an effective rate, so we don't need to convert them. The annual rate is:
1.058
I kept the 1 in the numbers (1.058 instead of 5.8% for example) so that it's easier to find the final number
Take every relevant number and raise it to the power of the number of years it's compounded for. For discounting, raise it to a negative power.
First 3 years: 1.020184 ^ 3 = 1.061784
Next 2 years: 1.030225 ^ -2 = .942184
Next 4 years: 1.041163 ^ 4 = 1.175056
Last 3 years: 1.058 ^ -3 = .84439
Multiply these numbers (include all decimals when you do this calculation)
1.062 * .942 * 1.175 * .844 = .992598
This is our final multiplier to find the effect on our principal:
.992598 * 2,480 = 2461.64
Answer is 2461.64
