Question

Clearly indicate in your answers whether the following statements are TRUE or FALSE and then provide an appropriate explanation to justify your answer (approximately100 words):

1: Suppose the residents of Bernai Island spend all their income on bananas, mangos and pineapples. In 2018, they buy 60 Pineapples for $100, 54 mangos for $120 and 510 bananas for $90. In 2019 they buy 55 pineapples for $200, 65 mangos for $150 and 510 bananas for $150. If the base year is assumed to be 2018, then the inflation rate in 2019 is 53.8%.

Answer 1

		2018			2019
	P1	Q	TE	P2	P2*Q
Bananas	0.18	510	90	0.29	150.0	510	150
Mango	2.22	54	120	2.31	124.6	65	150
Pineapple	1.67	60	100	3.64	218.2	55	200
Total Expenditure			310		492.8		500
CPI			100		158.97
Inflation Rate					58.97

The CPI for 2019 is 158.97 and the inflation rate = (CPI2019/CPI2018-1)*100 = 58.97 Percent (the given value is not correct)

The price for the year 2019 is calculated as per-unit cost of buying the fruits. P2 = TE2019/Q2019. To arrive at the inflation rate we took the same quantity in both years.