a. Define Consumer Price Index (CPI) and describe how to calculate the CPI.
b. Given the following CPIs, what is the inflation relative to a Base Year (the base year is not provided for purposes of this question): Year A = 90, Year B = 100, Year C = 125, Year D = 150?
c. Using the data from 3(b) above, explain why the percent change in prices from Year C to Year D is not 25%.
d. What is the formula to calculate nominal interest rates and real interest rates?
e. If actual inflation is greater than the anticipated inflation, who would benefit? Explain why.
f. If actual inflation is greater than the anticipated inflation, who would be harmed? Explain why.