Question

The country of Caspir produces only cereal and milk. Quantities and prices of these goods for the last several years are shown in the following table. The base year is 2015. ​

Cereal		Milk
Price (Dollars per box)	Quantity (Boxes of cereal)	Price (Dollars per gallon)	Quantity (Gallons)
2015	4.00	100	1.50	180
2016	4.00	120	2.00	200
2017	5.00	150	2.50	200
2018	6.00	180	3.50	240

This country's inflation rate from 2016 to 2017 was

Select one:

a. 25.0%.

b. 18.8%.

c. 26.1%.

d. 23.1%.

Answer 1

Ans: a) 25.0%

Explanation:

Cost of the basket in the 2015 ( base year) = ( $4.00 * 100 ) + ( $1.50 * 180) =$400 + $270 =$670

Cost of the basket in the 2016 = ( $4.00 * 100 ) + ( $2 * 180) =$400 + $360 = $760

Cost of the basket in the 2017 = ( $5.00 * 100 ) + ( $2.50 * 180) =$500 + $450 = $950

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

CPI in 2016 = ( 760 / 670) * 100 = 1.1343 * 100 = 113.43

CPI in 2017 = ( 950 / 670) * 100 = 1.4179 * 100 = 141.79

Inflation rate = {( Current year CPI - Previous year CPI ) / Previous year CPI} * 100

Inflation rate from the year 2016 to 2017 ;

= {( 141.79 - 113.43) / 113.43} * 100

= (28.36 / 113.43) * 100

= 0.2500 * 100

= 25.0%