Suppose the base year bundle of goods X, Y, and Z is: (X^(b), Y^(b), Z^(b))= (5,700,60) and the base year (vector of) prices is:  (Px^(b),Py^(b), Pz^(b))=(1000,5,25) The following year the (vector of) prices is: (Px^(b+1), Py^(b+1), Pz^(b+1))= (1010,5.05,27.50)   1) Compute the inflation using a Laspeyres Price Index, like the original form of the Consumer Price Index (CPI). 2) Compute the inflation index an alternative way. Calculate the price increase for each good separately and then take a weighted average of these price increases, using as weights the budget shares spent on each good in the base year. For example, for good X use weight  Sx^(b)= (Px^(b)X^(b))/(Px^(b)X^(b)+ Py^(b)Y^(b)+Pz^(b)Z^(b)) Please show all work very confused

Economics For Today
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ISBN:9781337613040
Author:Tucker
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Chapter17: Inflation
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 Suppose the base year bundle of goods X, Y, and Z is:

(X^(b), Y^(b), Z^(b))= (5,700,60)

and the base year (vector of) prices is: 

(Px^(b),Py^(b), Pz^(b))=(1000,5,25)

The following year the (vector of) prices is:

(Px^(b+1), Py^(b+1), Pz^(b+1))= (1010,5.05,27.50)

 

1) Compute the inflation using a Laspeyres Price Index, like the original form of the Consumer Price Index
(CPI).


2) Compute the inflation index an alternative way. Calculate the price increase for each good separately
and then take a weighted average of these price increases, using as weights the budget shares spent on each
good in the base year. For example, for good X use weight 

Sx^(b)= (Px^(b)X^(b))/(Px^(b)X^(b)+ Py^(b)Y^(b)+Pz^(b)Z^(b))

Please show all work very confused

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