Suppose a basket of goods and services has been selected to calculate the CPI and 2014 has been selected as the base year.In 2013,the basket's cost was $80;in 2014,the basket's cost was $86;and in 2015,the basket's cost was $90.The value of the CPI in 2015 was
A)112.5 and the inflation rate was 12.5%.
B)112.5 and the inflation rate was 4.6%.
C)104.6 and the inflation rate was 4.6%.
D)104.6 and the inflation rate was 12.5%.

Question

Quizplus · Accepted Answer

To calculate the CPI, we use the formula:

CPI = (Cost of Basket in Given Year / Cost of Basket in Base Year) x 100

Using the given information:

CPI in 2013 = (80/86) x 100 = 93.02
CPI in 2014 = (86/86) x 100 = 100
CPI in 2015 = (90/86) x 100 = 104.65

Therefore, the CPI in 2015 is 104.6, which is closest to option C.

To calculate the inflation rate, we use the formula:

Inflation Rate = ((CPI in Given Year - CPI in Previous Year) / CPI in Previous Year) x 100

Using the CPI values we just found:

Inflation rate from 2013 to 2014 = ((100 - 93.02) / 93.02) x 100 = 7.49%
Inflation rate from 2014 to 2015 = ((104.65 - 100) / 100) x 100 = 4.65%

Therefore, the inflation rate in 2015 is 4.6%, which is also given by option C.

Suppose a Basket of Goods and Services Has Been Selected