please show all work 1. Problem A-05-4: The CPI-U (U.S. city average, a tems) ha
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please show all work
1. Problem A-05-4: The CPI-U (U.S. city average, a tems) has the following annual averages Year 2002 2003 2004 Index 179.9 184.0 188.9 2005 2006 195.3 201.6 a. For each year from 2003 to 2006, determine the annual inflation rate in percent to two decimal places. b. Since inflation, like interest, is compounded from period to period (e.g., from year to year), estimate the overall annual inflation rate per year from 2002 to 2006. Hint: Do not simply average the rates of Part a. [Solution: (a) 2.28% for 2003 is first of four answer values, (b) 2.89%]Explanation / Answer
a) Inflation Rate in year 2003 = (rate in 2003 - rate in 2002)/rate in 2002
=(184-179.9)/179.9 =>2.27%
Inflation Rate in year 2004 = (rate in 2004 - rate in 2003)/rate in 2003
=(188.9-184)/184=>2.66%
Inflation Rate in year 2005 = (rate in 2005 - rate in 2004)/rate in 2004
=(195.3-188.9)/188.9 =>3.38%
Inflation Rate in year 2006 = (rate in 2006 - rate in 2005)/rate in 2005
=(201.6-195.3)/195.3 =>3.22%
b)Overall inflation = (rate in 2006 - rate in 2002)/(rate in 2002*no of years)
=(201.6-179.9)/179.9*4 = 3.01%
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