Henry is an economist and wants to understand the relationship between inflation and consumer spending habits. For his research, he needs the Consumer Price Index for 2014 and the inflation rate. Based on the prices of the goods given, what will he find to be the CPI and inflation rate for 2014? Assume that a consumer’s basket for three consecutive years consists of the following:

A. 100 CPI, 49.56 percent inflation

B. 165 CPI, 45.40 percent inflation

C. 185 CPI, 55.35 percent inflation

D. 175 CPI, 60.56 percent inflation

E. 125 CPI, 50.60 percent inflation

Answer:

The answer is E

Explanation:

According to the situation, a consumer’s basket for three consecutive years consists of 125 CPI, and 50.60 percent inflation. The correct option is (E).

Inflation is defined as the pace at which prices rise over a particular time period. Inflation is usually defined as a broad measure, such as the overall rise in prices or the expense of living in a nation.

The average price rise of a basket of chosen products and services over time can represent the rate at which purchasing power declines.

The increase in prices, which is often stated as a percentage, indicates that a unit of money gets less than it did previously.

Inflation is distinguished from deflation, which happens when prices fall while buying power rises.

Therefore, a consumer’s basket for three consecutive years consists of 125 CPI, and 50.60 percent inflation.

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