ECONOMICS
INFLATION
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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the prices have risen by 3 percent
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the prices have remained constant
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the prices only include what suppliers paid to produce the goods
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the prices will never change
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the prices have declined by 3 percent
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Detailed explanation-1: -The Consumer Price Index (CPI) in year 1 was 120 and in year 2 was 150. Inflation is the rise in the price level. The inflation between year 1 and year 2 is calculated below. Hence, the inflation rate between year 1 and year 2 is 25%.
Detailed explanation-2: -To find the CPI in any year, divide the cost of the market basket in year t by the cost of the same market basket in the base year. The CPI in 1984 = $75/$75 x 100 = 100 The CPI is just an index value and it is indexed to 100 in the base year, in this case 1984. So prices have risen by 28% over that 20 year period.
Detailed explanation-3: -Compute the inflation rate – If the index rises from 120 to 150, the inflation rate is 25 percent.
Detailed explanation-4: -Find the average price in both years: $1.60 in 1992 and $2.62 in 2012. Enter the data into the equation. Subtract the 1992 price from the 2012 price ($1.02) Divide the difference by the original price. ($1.02 ÷ $1.60 = 0.6375) Multiply the previous answer by 100 to get a percentage.