If the price index rose from 254 in year 1 to 289 in year 2, then the rate of inflation for this economy in year 2 would be:
A)11.3 percent.
B)13.78 percent.
C)89 percent.
D)35 percent.

Question

Quizplus · Accepted Answer

To calculate the rate of inflation, we use the following formula:

Rate of inflation = ((Price index in year 2 - Price index in year 1) / Price index in year 1) x 100%

Substituting the values:

Rate of inflation = ((289 - 254) / 254) x 100%
Rate of inflation = (35 / 254) x 100%
Rate of inflation = 0.1378 x 100%
Rate of inflation = 13.78%

Therefore, the rate of inflation for this economy in year 2 is 13.78 percent, which is option B.

If the Price Index Rose from 254 in Year 1