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Question : 1. (20 POINTS) Suppose that the representative basket of goods : 1211

1. (20 POINTS) Suppose that the representative basket of goods consumed in the economy in a year is made of: 120 lbs of bread, 70 bottles of water and 40 T-shirts. Prices (in USD) of each of these items, across different years, are reported in the following table Year 1 lbs of bread 1 bottle of water 1 T-shirt 2008 $3 $14 $1.2 $1.2 2009 $3.3 $17 2010 $3.6 $1.35 $17 $1.8 2011 $3.8 $17 $1.8 2012 $4 $25 (a) Compute the value of the basket in each year (b) Compute the CPI price index for each year, using 2008 as base year. (c) Compute the CPI price index for each year, using 2010 as base year. (d) Compute the inflation rate of 2009, 2010, 2011 and 2012