A consumer Expenditure Survey in the city of Firestrom shows that people buy onl

Question

A consumer Expenditure Survey in the city of Firestrom shows that people buy only firecrackers and bandages. A consumer Expenditure Survey in 2011 shows that the average household spent $267 on firecrackers and $12 on bandages. In 2011, the reference base year, the price of a frecracker was $3, and the price of bandages was $2.00 a pack. In the current year, 2012, firecrackers are $8 each and bandages are $2.00 a pack. Calculate the CPI in 2012 and the inflation rate in 2012. The CPI in 2012 is The inflation rate in 2012 is percent.

Explanation / Answer

In 2011 consumer purchases 89 firecrackers (i.e. $267 / $3) and 6 bandages (i.e. $12 / $2)

Cost of the basket of good in 2011 = 267 + 12 = $279

Cost of the basket of good in 2012 = ($8 * 89) + ($2 * 6) = $724

CPI in 2011 with Base Year 2011 = $279 / $279 * 100 = 100

CPI in 2012 with Base Year 2011 = $724 / $279 * 100 = 259.5

Inflation rate in 2012 = [(259.5 - 100) / 100] * 100 = 159.5%

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

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