Year | Price of Food | Price of Drink 2018 | €10 | €3 2019 | €11 | €3 2020 | €12

[answerhappygod]

Year | Price of Food | Price of
Drink
2018 | €10
| €3
2019 | €11
| €3
2020 | €12
| €4
ii) Using 2018 as the base year, calculate the Consumer Price Index
(CPI)
for 2019 and 2020.
iii) What is the inflation rate in 2019 and in 2020 as measured by
the CPI?
iv) Using 2018 as the base year to calculate the GDP deflator for
Country A
results in a value of 106 for 2019, and 112 for 2020. Does this
method give
the same inflation rates as the CPI method? Why/ why not?
Country B uses pounds, and Country A uses euros as their
currency. In 2019 one
pound trades for €1.30. In 2020 one pound trades for €1.20.
v) Express the nominal exchange rate in 2019 and 2020 in
units of pounds
per euro. What happened to the euro from 2019 to 2020?
vi) In 2019 in Country B the cost of a basket of goods
containing 8 units of
food and 2 units of drink (i.e. the basket we used to calculate the
CPI in
part ii)) is £110. Calculate the real exchange rate for 2019.

vii) In 2020, the cost of the basket in Country B increases to
£130. What
happens to the real exchange rate? Does this effect net exports in
Country
A and/or in Country B? Explain