Use the information in the table to calculate a consumer price index (CPI) and the inflation...

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Use the information in the table to calculate a consumer price index (CPI) and the inflation rate. The base year is 1975. Round answers to two decimal places.

Market basket	Quantity	1975 prices	1976 prices
A dozen eggs	29	$1.10	$1.70
Calculator	19	$15.00	$17.00
Microwave oven	9	$180.00	$230.00

What is the CPI for 1975?

What is the CPI for 1976?

What is the inflation rate for 1976?

Use the information in the table to calculate a consumer price index (CPI) and the inflation rate. The base year is 1975. Rou

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Answer 1

Answer #1

Calculate the value of market basket in 1975 -

Value = [Quantity of eggs * Price of eggs] + [Quantity of calculators * Price of calculators] + [Quantity of microwave ovens * Price of microwave ovens]

Value = [29 * $1.10] + [19 * $15] + [9 * $180]

Value = $31.90 + $285 + $1,620

Value = $1,936.90

The value of market basket in 1975 is $1,936.90

The base year is 1975.

Calculate the value of market basket in 1976 -

Value = [Quantity of eggs * Price of eggs] + [Quantity of calculators * Price of calculators] + [Quantity of microwave ovens * Price of microwave ovens]

Value = [29 * $1.70] + [19 * $17] + [9 * $230]

Value = $49.30 + $323 + $2,070

Value = $2,442.30

The value of market basket in 1976 is $2,442.30

(a)

Calculate the CPI for 1975 -

CPI = [Value of market basket in 1975/Value of market basket in base year] * 100

CPI = [$1,936.90/$1,936.90] * 100

CPI = 100

The CPI for 1975 is 100.

(b)

Calculate the CPI for 1976 -

CPI = [Value of market basket in 1976/Value of market basket in base year] * 100

CPI = [$2,442.30/$1,936.90] * 100

CPI = 126.09

The CPI for 1976 is 126.09

(c)

Calculate the inflation rate for 1976 -

Inflation rate = [(CPI in 1976 - CPI in 1975)/CPI in 1975] * 100

Inflation rate = [(126.09 - 100)/100] * 100

Inflation rate = 26.09%

The inflation rate for 1976 is 26.09%

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Answer 2

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