Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year.In 2012,the basket's cost was $77;in 2013,the basket's cost was $82;and in 2014,the basket's cost was $90.The value of the CPI in 2014 was
A)109.8 and the inflation rate was 9.8%.
B)109.8 and the inflation rate was 16.9%.
C)116.9 and the inflation rate was 9.8%.
D)116.9 and the inflation rate was 16.9%.

Question

Quizplus · Accepted Answer

To calculate the CPI, we need to use the following formula:

CPI = (Cost of basket in current year/Cost of basket in base year) x 100

Using the numbers given:

CPI in 2013 = (82/77) x 100 = 106.49
CPI in 2014 = (90/77) x 100 = 116.88 (rounded to one decimal place)

Therefore, the value of the CPI in 2014 is 116.9 (to one decimal place).

To calculate the inflation rate:

Inflation rate = ((CPI in current year - CPI in previous year)/CPI in previous year) x 100

Inflation rate from 2013 to 2014 = ((116.9 - 106.49)/106.49) x 100 = 9.78% (rounded to two decimal places)

So the best choice is C, with a CPI of 116.9 and an inflation rate of 9.8%.

Suppose a Basket of Goods and Services Has Been Selected