Calculation of CPI and Inflation with Hypothetical Data The people on Coral Isla

Question

Calculation of CPI and Inflation with Hypothetical Data The people on Coral Island buy only juice and cloth. The CPlI basket contains the quantities bought in 2010. The average household spent $34 on juice and $24 on cloth in 2010 when the price of juice was $2 a bottle and the price of cloth was $8 a yard. In the current year, 2011, juice is $3 a bottle and cloth is $6 a yard. CPI in 2011 was Round up your answer to a full number. The inflation rate in 2011 waspercent.Round up your answer to a full number. 13030 120; 12 119;19 119; 1.9

Explanation / Answer

Option 3: 119, 19

Total expenditure in 2010 = 34 + 24 = $58

Quantity of Juice in 2010, J = 34/2 = 17

Quantity of Cloth in 2010, J = 24/8 = 3

Total expenditure in 2011 = 3*17 + 6*3 = 51+18 = 69

Basing to 2010, CPI in 2010 = 58*100/58 = 100

CPI in 2011 = 69*100/58 = 119

Inflation = (119 – 100)*100/100 = 19%

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