PAneapple 6 8 Year Nwi 4 2 5 2003 2004 Table1 3 2 6 Refer to

PAneapple $6 $8 Year Nwi $4 $2 $5 2003 2004 Table-1. $3 $2 $6 Refer to Table-1. Consider the same basket of goods (10 apples, 5 bananas, 3 kiwis, and 1 pineapple). At the year)? prices given in the table above, what is the rate of inflation between 2003 and 2004 (Use 2003 as the base Select one: O a. 3% 67% c.-2%

Solution

Answer
Nominal cost of basket of goods=sum of (current prices *quantity)
Nominal cost of basket of goods in 2004

=3*10+2*5+6*3+8*1
=$66
Nominal cost of basket of goods in 2003
=4*10+2*5+5*3+6*1
=71
CPI in 2003=100..........the base year CPI is 100
CPI in 2004=(Current bracket price/base year bracket price)*100
=(66/71)*100
=92.9577465
the rate of Inflation=((CPI in 2004-CPI in 2003)/CPI in 2003)*100
=((92.9577465-100)/100)*100
=-7.0422535%
The inflation is -7%
Option d