Asked by Jalon Williams on Jun 16, 2024
Verified
If the consumer price index (CPI) is 220 one year and 210 the next,the annual rate of inflation as measured by the CPI is approximately _____.
A) −2.3 percent
B) −4.6 percent
C) 10 percent
D) 4.8 percent
E) 220 percent
Consumer Price Index
is a measure that examines the weighted average of prices of a basket of consumer goods and services, often used to assess inflation.
Annual Rate
Refers to the yearly interest rate or growth rate applied to investments, loans, or any financial product that calculates earnings or payments over a year.
Inflation
The rate at which the general level of prices for goods and services is rising, eroding purchasing power.
- Determine the inflation rate using the consumer price index (CPI) and understand its impact on the economy.
Verified Answer
SM
Susan MutaleJun 17, 2024
Final Answer :
B
Explanation :
The formula for calculating the inflation rate based on CPI is:
(In Year 2 CPI - In Year 1 CPI) / In Year 1 CPI x 100%
So, plugging in the values from the question:
(210 - 220) / 220 x 100% = -4.5%
Since the CPI decreased, this represents deflation, so the annual rate of deflation would be approximately 4.5%. Rounded up, this corresponds to answer choice B, -4.6 percent.
(In Year 2 CPI - In Year 1 CPI) / In Year 1 CPI x 100%
So, plugging in the values from the question:
(210 - 220) / 220 x 100% = -4.5%
Since the CPI decreased, this represents deflation, so the annual rate of deflation would be approximately 4.5%. Rounded up, this corresponds to answer choice B, -4.6 percent.
Learning Objectives
- Determine the inflation rate using the consumer price index (CPI) and understand its impact on the economy.