The people who live on Second Life Island consume only juice and cloth. Last yea
ID: 1112834 • Letter: T
Question
The people who live on Second Life Island consume only juice and cloth. Last year, which was the CPI base year, the price of juice was $5 a bottle, the price of cloth was $6 a length, and the average urban household spent $20 on juice and $24 on cloth. (You can use this information to calculate the quantity of juice and cloth in the basket.) This year, the price of juice is $3 a bottle and the price of cloth is $5 a length. The CPl in the current year is Answer to 1 decimal place The CPl in 2000 was 172.2. The CPI in 2001 was 177.1. >Answer to 1 decimal place. The inflation rate in 2001 was percent.Explanation / Answer
In Base year comsumer spent $5 on each bottle and $6 on cloth per length hence he consumed 4 bottles of juice and 4 length of cloth as per information therefore he spent $ 44 on basket of 4 bottles and 4 unit length of cloth.
Now current year we have $3 per bottle and $5 per length of cloth.
Hence this year cost of samae basket is $12+$20= $ 32
Hence CPi for current year will be
= (Cost of basket in current year/ Cost of basket in base year)*100
= (32/44)*100=80.8
We know that
Inflation rate = ((CPI at time t / CPI at time t-1)-1)*100
Therefore (177.1/172.1)-1=0.02905 which is multiplied by 100 gives inflation rate therefore inflation rate will be 0.02905×100 = 2.905%
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