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# Fdb version 4
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Output written on pset3.pdf (7 pages, 155062 bytes).
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Output written on pset3.pdf (7 pages, 155362 bytes).
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@ -294,24 +294,26 @@ The Consumer Expenditure Survey finds that a typical consumer in the U.S. buys 1
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\begin{enumerate}[(a)]
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\begin{enumerate}[(a)]
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\item Using 2016 as the base year, what is the CPI in 2016?
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\item Using 2016 as the base year, what is the CPI in 2016?
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The CPI in the base year is always \textbf{100}.
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\begin{align*}
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\text{CPI in 2016} = \$60 + 7 \times 80 = 60 + 560 = \textbf{\$620}
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\end{align*}
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\item Using 2016 as the base year, what is the CPI in 2020?
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\item Using 2016 as the base year, what is the CPI in 2020?
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\begin{align*}
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\begin{align*}
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\text{CPI} = \frac{\text{Cost of Basket in 2020}}{\text{Cost of Basket in 2016}} \times 100 = \frac{70 + 9 \times 80}{60 + 7 \times 80} \times 100 = \textbf{147.42}
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\text{CPI in 2020} = \$70 + 9 \times 80 = 70 + 720 = \textbf{\$790}
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\end{align*}
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\end{align*}
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\item Calculate inflation between 2016 and 2020
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\item Calculate inflation between 2016 and 2020
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\begin{align*}
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\begin{align*}
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\text{Inflation} = \frac{\text{CPI in 2020} - \text{CPI in 2016}}{\text{CPI in 2016}} \times 100 = \frac{147.42 - 100}{100} \times 100 = \textbf{47.42\%}
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\text{CPI} = \frac{\text{Cost of Basket in 2020}}{\text{Cost of Basket in 2016}} \times 100 = \frac{70 + 9 \times 80}{60 + 7 \times 80} \times 100 = \frac{790}{620} \times 100 = \textbf{127.42}
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\end{align*}
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\end{align*}
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\item If you were making \$10/hr in 2016, how much would you have to make in 2020 for your purchasing power to remain constant, given our inflation estimate?
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\item If you were making \$10/hr in 2016, how much would you have to make in 2020 for your purchasing power to remain constant, given our inflation estimate?
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\begin{align*}
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\begin{align*}
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\text{New Wage} = \text{Old Wage} \times \left(1 + \frac{\text{Inflation}}{100}\right) = 10 \times \left(1 + \frac{47.42}{100}\right) = \textbf{\$14.74}\text{/hr}
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\text{New Wage} = \text{Old Wage} \times \left(1 + \frac{\text{Inflation}}{100}\right) = 10 \times \left(1 + \frac{27.42}{100}\right) = 10 \times 2.2742 = \textbf{\$12.74/hr}
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\end{align*}
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\end{align*}
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\item \textbf{(2 Points)} If we wanted to calculate inflation accurately, what are some shortcomings of using the CPI that we constructed in this problem?
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\item \textbf{(2 Points)} If we wanted to calculate inflation accurately, what are some shortcomings of using the CPI that we constructed in this problem?
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