Suppose that the cost of a representative basket used to calculate the Consumer Price Index (CPI) is $500 in the base year 2000. Further, suppose that the cost of the same basket is $525 in 2017. The CPI for 2017 is _____, and the inflation rate between 2000 and 2017 is _____ percent.
A) 100; 5
B) 105; 5
C) 125; 25
D) 100; 25

Question

Quizplus · Accepted Answer

The CPI for 2017 is calculated by taking the cost of the basket in 2017 ($525) divided by the cost of the basket in the base year 2000 ($500) and then multiplying by 100. This gives a CPI of 105. The inflation rate is the percentage increase in the CPI, which is calculated as (CPI in 2017 - CPI in base year) / CPI in base year * 100. This gives an inflation rate of 5%.

Suppose That the Cost of a Representative Basket Used to Calculate