Question

QUESTION 13

1. The United Kingdoms of Dempsania, produces two goods, Single (S) and Double (D) rainbows. The price and quantities for the years 2015, 2016 and 2017 ate as follow:

   Year	PD	QD	PS	QS
   2015	6	200	4	400
   2016	9	240	6	480
   2017	12	264	8	528

   Note: all answers should be rounded to the closest integer, i.e. 33.3 = 33 and 66.6 = 67

   What is the inflation rate for 2016, base year 2015?

Answer 1

Calculation of CPI

	Price 2015	Price 2016	Price 2017
Single rainbows	4	6	8
Double rainbows	6	9	12
Total	10	15	20

CPI = (Current year price/Base year price)*100

CPI base year 2015 = (10/10)*100 = 100

CPI 2016 = (15/10)*100 = 150

CPI 2017 = (20/10)*100 = 200

Inflation rate = [(Current year CPI – Last year CPI)/Last year CPI]*100

Inflation rate for 2016 = [(CPI 2016 – CPI 2015)/CPI 2015]*100

Inflation rate = [(150-100)/100]*100 = [50/100]*100 =50%

Inflation rate for 2016 = 50%