Suppose that the cost of a representative basket used to calculate the Consumer Price Index (CPI) is $500 in the base year 2000 and the CPI in the year 2017 is 110. The cost of the representative basket in 2017 is _____, and the rate of inflation between 2000 and 2017 is _____ percent.
A) 110; 10
B) 550; 5
C) 500; 10
D) 550; 10

Question

Quizplus · Accepted Answer

The cost of the representative basket in 2017 is $550 because the CPI of 110 indicates that the cost has increased by 10% from the base year (100% + 10% = 110%). Therefore, $500 * 1.10 = $550. The rate of inflation between 2000 and 2017 is 10 percent, as the CPI increased from 100 to 110, indicating a 10% increase.

Suppose That the Cost of a Representative Basket Used to Calculate