Using the data in the table below calculate the CPI and the

Using the data in the table below, calculate the CPI and the inflation rate in each year using 2005 as the base year. Instructions: Round your answers to one decimal place. Price of basket Year 2005 2006 2007 2008 CPI 20,000 21,500 22,800 26,150 28,825 32,700 2010 References eBook & Resources Learning Objective: 08-04 Calculate the inflation rate by three methods and adjust nominal variables into real variables using a price index. Numeric Response Section: Using Price In

Solution

Answer

The CPI=(current price of the basket/base year price of the basket)*100

Inflation=((CPI in the current year-CPI in the last year)/CPI in last year)*100

Year	Price of basket	CPI	Inflation rate
2005	20000	100
2006	21500	107.5	7.50%
2007	22800	114.00	6.05%
2008	26150	130.75	14.69%
2009	28825	144.13	10.23%
2010	32700	163.50	13.44%