A typical family on Sandy Island consumes only juice and cloth Last year, which

Question

A typical family on Sandy Island consumes only juice and cloth Last year, which was the base year, the family spent $27 on juice and $6 on cloth. In the base year, juice was $3 a bottle and cloth was $3 a length This year, juice is $8 a bottle and cloth is $4 a length. What is the CPI basket? What is the CPI and the inflation rate in the current year? The CPI basket is bottles of juice and lengths of cloth. The CPI in the current year is >>Answer to 1 decimal place. The inflation rate in the current year is percent. >>Answer to 1 decimal place.

Explanation / Answer

Step 1:-

Consumption of Juice = (Family’s Spending) / (Base Year Price)

= 27 / 3

= 9 Bottles

Consumption of Cloth = (Family’s Spending) / (Base Year Price)

= 6 / 3

= 2 lengths of cloth.

The CPI Basket is 9 Bottles of Juice and 2 Lenghts of cloth.

Step 2:-

CPI in the Current Year is calculated by using the formula:-

CPI = ( Cost of CPI Basket at Current Price) / (Cost of CPI Basket at Base Period Price) * 100

Cost of CPI Basket at Current Price = (Quantity of Juice * Cost ) + (Quantity of Cloth * Cost)

= (9 * 8 )+ (2 *4)

= 72 + 8

= 80 $

Cost of CPI Basket at Base Period Price = (Quantity of Juice * Cost ) + (Quantity of Cloth * Cost)

= (9*3) + (2*3)

= (27 + 6)

= 33 $

CPI = 80 /33 * 100

= 242.42 %

Step 3:-

Inflation rate in the current year is given by following formula:-

i = (CPICurrent Year - CPIBase Year) / (CPIBase Year ) * 100

= [ (242.42 - 100) / (100 ) ] * 100

= 142.42 %

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.