Table 6-6. The table below applies to an economy with only two goods - hamburgers and hot dogs. The fixed basket consists of 4 hamburgers and 8 hot dogs.

-Refer to Table 6-6. If the base year is 2010, then the economy's inflation rate is

Question

Table 6-6. The table below applies to an economy with only two goods - hamburgers and hot dogs. The fixed basket consists of 4 hamburgers and 8 hot dogs.
 
-Refer to Table 6-6. If the base year is 2010, then the economy's inflation rate is

Quizplus · Accepted Answer

To calculate inflation rate, we use the following formula:

Inflation rate = (Price level in Year 2 - Price level in Year 1) / Price level in Year 1 × 100

Using data from the table:

Price level in 2010 = ($2.50 × 4) + ($1.50 × 8) = $20
Price level in 2011 = ($3.00 × 4) + ($1.75 × 8) = $23

Inflation rate = ($23 − $20) / $20 × 100 = 15 percent

Therefore, the correct option is not given in the choices, so we need to make the closest estimate.

Option D is the closest estimate with a base year inflation rate of 10% in 2010 and an estimated inflation rate of 6.36% in 2011.

Table 6-6 the Table Below Applies to an Economy with Only