In a simple economy,people consume only 2 goods,food and clothing.The market basket of goods used to compute the CPI consists of 50 units of food and 10 units of clothing.
a.
What are the percentage increases in the price of food and in the price of clothing?
b.
What is the percentage increase in the CPI?
c.
Do these price changes affect all consumers to the same extent? Explain.
Definitions:
Discount Factor
A multiplier used in financial calculations to determine the present value of future cash flows or payments.
Profitability Index
A financial metric comparing the present value of future cash flows generated by a project to its initial investment cost, used in capital budgeting.
Investment Projects
Initiatives undertaken by a business or organization to invest in assets or resources with the expectation of generating future profit.
Discount Rate
The interest rate used to discount future cash flows of a financial instrument to present value.
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