Question

11. The price index is 200 in 2008. In 2009, the price index is 216. What is the inflation rate in 2009?
A. 4 percent
B. 8 percent
C. 16 percent
D. 32 percent
E. 216 percent

12. Which change in the price index shows the greatest rate of inflation?
A. 150 to 160
B. 160 to 170
C. 170 to 180
D. 180 to 190
E. All changes show the same rate of inflation.

13. Which of the following statements is (are) correct?
(x) The CPI differs from the GDP deflator in that increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the GDP deflator but not in the CPI.
(y) When we are calculating the consumer price index and the inflation rate for a certain year, the value of the consumer price index may depend on the choice of a base year, but the inflation rate does not depend on the choice of a base year.
(z) If we know the base year is 2000, and if we know the value of the consumer price index for the year 1995, then we have all the information we need to calculate the percentage change in the cost of living between 1995 and 2000.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (z) only

Answer 1

11. Given, the price index is 200 in 2008 and in 2009, the price index is 216.

Thus, Inflation rate=(Price index of 2009-Price index of 2008)/Price index of 2008*100=(216-200)/200*100=8%

Hence the inflation rate of the example is 8%. Therefore, option B is the correct answer:

12. Here, the correct option is E (i.e. All changes show the same rate of inflation) because all the options shows same change in price index i.e. 150-160=160-170=170-180=180-190=10
Hence option E is the correct answer.

13. The option B is the correct answer i.e. (x) and (y) statements are correct only because without knowing the value of the consumer price index for the year 2000 we cannot calculate the percentage change in the cost of living between 1995 and 2000. Hence the statement (z) is not correct statement.