Following is data for a hypothetical economy.The base year is 2002 (Price index = 100).

-Refer to the above data.From 2003 to 2006,prices rose by:
A) 3 percent.
B) 7 percent.
C) 9 percent.
D) 10.7 percent.

Question

Following is data for a hypothetical economy.The base year is 2002 (Price index = 100).
 
-Refer to the above data.From 2003 to 2006,prices rose by:
A) 3 percent. 
B) 7 percent. 
C) 9 percent. 
D) 10.7 percent.

Quizplus · Accepted Answer

To calculate the percentage change in prices from 2002 to 2003, we can use the following formula: ((2003 Price Index - 2002 Price Index)/2002 Price Index) x 100. Plugging in the values, we get ((105-100)/100) x 100 = 5%. Similarly, for the years 2004, 2005, and 2006, we get percentage changes of 2%, 2.5%, and 1.2%, respectively. To calculate the total percentage change over the years 2003-2006, we can use the formula: ((1+ % change in 2003) x (1+ % change in 2004) x (1+ % change in 2005) x (1+ % change in 2006) -1) x 100. Plugging in the percentage changes, we get ((1+0.05) x (1+0.02) x (1+0.025) x (1+0.012) -1) x 100 = 10.71%. Therefore, prices rose by 10.7% from 2003 to 2006.

Following Is Data for a Hypothetical Economy