The CPI’s at the start of each decade from 1940 to 1990 were: Year 1940 1950 196

ID: 1228316 • Letter: T

Question

The CPI’s at the start of each decade from 1940 to 1990 were:

Year 1940 1950 1960 1970 1980 1990

CPI 14.0 24.1 29.6 38.8 82.4 130.7

1. What was the rate of inflation for the 1950’s, as measured by the percentage change in the CPI?

2. What was the rate of inflation for the 1970’s, as measured by the percentage change in the CPI?

3. Name the major category added for the market basket of goods and services in 1998?

4. Tuition at University Z was $1200 per quarter in 1985 (CPI = 107.6). How much should tuition be in 2001 adjusted for inflation (CPI = 175.1)?

(1)

Inflation rate, 1950 = (CPI, 1950 / CPI, 1940) - 1 = (24.1 / 14) - 1 = 1.7214 - 1 = 0.7214 = 72.14%

(2)

Inflation rate, 1970 = (CPI, 1970 / CPI, 1960) - 1 = (38.8 / 29.6) - 1 = 1.3108 - 1 = 0.3108 = 31.08%

Note: First 2 questions are answered.

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