Henry is an economist and wants to understand the relationship between inflation and consumer spending habits. For his research, he needs the Consumer Price Index for 2014 and the inflation rate. Based on the prices of goods given, what will he find to be the CPI and inflation rate for 2014? Assume that a consumer’s basket for three consecutive years consists of the following:
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Looking at the variants, one can conclude that the Consumer Price Index and Inflation has shown a declining trend from 2014-15. moreover, the cost of consumption basket must be known for the base year for calculation purposes.
The CPI for all years is provided by the formula. Therefore, we only have to multiply it. Hence, the percentage change of CPI is the Inflation rate that is adeclining 5 percent.
Explanation:
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