Assume that there are only 4 goods purchased by the typical consumer: shelter, food, transportation and medical services. Below, we have a table that reveals the price of each item in April, 2009, and then again in May, 2009, and June, 2009. The quantities listed are what the typical consumer purchased in the base period – which we’ll assume is April, 2009.
a. Use this information to construct a (consumer) price index for May, 2009.
b. What is the inflation rate between May and the base period (April, 2009)
c. Do we experience disinflation as we move from April, to May, and then to June?
d. Assume that at the end of April there is a major innovation in medical services that causes the “product” being produced to significantly increase in quality. How does that change affect the consumer price index in May and/or June?