Question

Suppose the following economy produced pencils and erasers in 2010 and 2011 according to the following table. CPI basket in this economy consists of 5 pencils and 7 erasers. Which one is the value nearest to an inflation rate by CPI between 2010 and 2011 using 2010 as a base year? 2010 2010 2011 2011 Pencils 5 10 8 30 Erasers 7 20 15 40 Select one a. 135 b. 115 С. 125 d. 100 Suppose the following economy produced pencils and erasers in 2010 and 2011 according to the following table. CPI basket in this economy consists of 5 pencils and 7 erasers. Which one is the value nearest to an inflation rate by GDP deflator between 2010 and 2011 using 2011 as a base year? 2010 2010 2011 2011 Pencils 5 10 Erasers 7 20 15 40 8 30 Select one a. 100 b. 140 O C. 125 d. 130

Answer 1

Inflation Rate = CPI_2 - CPI_1/CPI_1 * 100 where: CPI_2 - is the CPI in the second period CPI_1 - is the CPI in the previous period CPI is calculated as follows: Consumer Price Index (CPI)_t = Cost of market basket_t/Cost of market basket_b * 100 CPI_2010 = 5 * 10 + 7 * 20/5 * 10 + 7 * 20 * 100 = 100 CPI_2011 = 5 * 30 + 7 * 40/5 * 10 + 7 * 20 * 100 = 430/190 * 100 = 226.32 Inflation rate = CPI_2011 - CPI_2010/CPI_2010 = 226.32 - 100/100 = 126.32% Correct Ans (C)

CPI is calculated as follows:

$CPI_{2010} = \frac{5*10 + 7*20}{5*10 + 7*20}*100 = 100$

$CPI_{2011} = \frac{5*30 + 7*40}{5*10 + 7*20}*100 = \frac{430}{190}*100 = 226.32$

Inflation rate

$= \frac{CPI_{2011}-CPI_{2010}}{CPI_{2010}} = \frac{226.32 - 100}{100} = 126.32 \%$

Correct Ans (C)