Answer:
current price of the CPI basket = $550
base year's price of CPI basket = $500
CPI = (cost of basket in current year / cost of basket in base year) x 100
1) the CPI for the current year = ($550 / $500) x 100 = 110
2) if the CPI decreased to 90, it means that the economy is suffering from deflation or the decrease in the general price level. It would take a 10% decrease in the price level (deflation) to reach a CPI of 90.
3)
nominal GDP real GDP GDP deflator
$100 billion $80 billion 125
$200 billion $100 billion 200
$240 billion $200 billion 120
$300 billion $200 billion 150
$100 billion $80 billion 125
