If 2011 is the base year and the inflation rate between 2011 and 2012 is -4.5,the price index in 2012 is

Question

Quizplus · Accepted Answer

The price index is calculated using the formula: 
Price index = (Price of basket in current year / Price of basket in base year) x 100

Let P be the price of the basket of goods in 2011. 
According to the question, the inflation rate between 2011 and 2012 is -4.5, which means that the price level has decreased by 4.5%. 
So, the price of the same basket of goods in 2012 will be: 
Price in 2012 = P - 0.045P = 0.955P

Therefore, the price index in 2012 will be: 
Price index in 2012 = (0.955P / P) x 100 = 95.5

Hence, the best choice is B, and the price index in 2012 is 95.5.

If 2011 Is the Base Year and the Inflation Rate