-The market basket used to calculate the CPI in Aquilonia is: four loaves of bread
Six litres of milk,
Two shirts, and
Two pairs of pants.
Last year,
The price of bread was $1.00 per loaf,
The price of milk was $1.50 per litre,
The price of a shirt was $6.00, and
The price of a pair of pants was $10.00.
This year,
The price of bread is $1.50 per loaf,
The price of milk is $2.00 per litre,
The price of a shirt is $7.50, and
The price of a pair of pants is $13.00.
What is the inflation rate, as measured by the CPI, for Aquilonia between last year and this year?

Question

Quizplus · Accepted Answer

The CPI is calculated as the weighted average of the prices of the goods in the market basket. The weights are the quantities of each good in the basket. In this case, the weights are:Bread: 4 loavesMilk: 6 litersShirts: 2 shirtsPants: 2 pairsThe CPI for last year is:CPI = (4 * $1.00) + (6 * $1.50) + (2 * $6.00) + (2 * $10.00) = $44.00The CPI for this year is:CPI = (4 * $1.50) + (6 * $2.00) + (2 * $7.50) + (2 * $13.00) = $55.00The inflation rate is:Inflation rate = ((CPI this year - CPI last year) / CPI last year) * 100= (($55.00 - $44.00) / $44.00) * 100= 0.3556 * 100= 35.56%Therefore, the inflation rate, as measured by the CPI, for Aquilonia between last year and this year is 35.56%.

-The Market Basket Used to Calculate the CPI in Aquilonia