In an imaginary economy,consumers buy only razors and cologne.The fixed basket consists of 6 razors and 4 bottles of cologne.A razor cost $20 in 2009 and $25 in 2010.A bottle of cologne cost $30 in 2009 and $40 in 2010.Using 2009 as the base year,which of the following statements is correct?
A)For the typical consumer,the number of dollars spent on razors is equal to the number of dollars spent on cologne in each of the two years.
B)The consumer price index is 310 in 2010.
C)The rate of inflation is 29.17% in 2010.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

To calculate the consumer price index (CPI) in 2010, we need to find the cost of the fixed basket in both years. 
In 2009, the cost of the fixed basket is:
6 x $20 (razors) + 4 x $30 (cologne) = $240
In 2010, the cost of the fixed basket is:
6 x $25 (razors) + 4 x $40 (cologne) = $290
Therefore, the CPI in 2010 is:
CPI = ($290 / $240) x 100 = 120.83
This means that the cost of the fixed basket has increased by 20.83% from 2009 to 2010. 
The rate of inflation can be calculated by subtracting 1 from the percentage increase in CPI and multiplying by 100:
Rate of inflation = (CPI increase - 1) x 100%
Rate of inflation = (120.83 / 100 - 1) x 100% = 20.83%
Therefore, the correct statement is C) The rate of inflation is 29.17% in 2010.

In an Imaginary Economy,consumers Buy Only Razors and Cologne