The market basket used to calculate the CPI inAquilonia is 4 loaves of bread, 6

Question

The market basket used to calculate the CPI inAquilonia is 4 loaves of bread, 6 gallons of milk, 2 shirts and 2pants. In 2005, bread cost $1.00 per loaf, milk cost $1.50 pergallon, shirts cost $6.00 each and pants cost $10.00 per pair. In2006, bread cost $1.50 per loaf, milk cost $2.00 per gallon, shirtscost $7.00 each and pants cost $12.00 per pair. Using 2005 as thebase year, what was Aquilonia?s inflation rate in 2006?

A.   30 percent

B.   24.4 percent

C.   21.6 percent

D.   0 percent

Part II
If this year the CPI is 125 and last year it was 120, then

A.   the cost of the CPI basket of goods and services hasincreased this year by 417 percent.

B.   the price level as measured by the CPI has increasedby 41.7 percent.

C.   the inflation rate for this year is 4.17percent.

D.   None of the above.

Part III
The price index in 2006 is 120, and in 2007 it is 127.2. What isthe inflation rate?

A.   5.4 percent

B.   6.0 percent

C.   7.2 percent

D.   None of the above.

Explanation / Answer

cost of items in 2005 was $45 cost of items in 2006 was $56 : so an 11 dollar increase........11/45=.2444(100)=24.44% inflation answer is B : Part II : 125-120 = change=5........5/120=.0417(100)=4.17% : C.   the inflation rate for thisyear is 4.17 percent.

:
Part III :
127.2-120=change=7.2 ........7.2/120=6.0% : B. 6.0 percent : B. 6.0 percent

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