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Calculating CPI

Use the hypothetical date in Table III to respond to the questions that follow.

Table III: Relative Importance in the
Basket of Goods and Services, 1995-2000.

CATEGORY QO Po P1 PoQo P1Qo
Food 16 50 50
Clothing 5 10 15
Housing 40 10 20
Transportation 17 10 10
Medical 6 5 10
Education 5 10 15
Recreation 6 10 15
Other 5 10 15
Total 100

a. Calculate the CPI using the formula

Pi Qo
CPI = ________ X 100 =
Po Qo

b. Interpret/explain the meaning of this numerical value of the CPI. Be specific.

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Solution Preview

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Solution:

CATEGORY QO Po P1 Po*Qo P1*Qo
Food 16 50 50 800 800
Clothing 5 10 15 50 75
Housing 40 10 20 ...

Solution Summary

Solution describes the steps to calculate CPI in the given case.

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