The people of buy only juice and cloth. The CPI market basket contains the quantities bought in 2009. The average household spent $60.00 on juice and $30.00 on cloth in 2009 when the price of juice was $2.00 a bottle and the price of cloth was $5.00 a yard. In the current year, 2010, juice is $4.00 a bottle and cloth is $6.00 a yard. Calculate the CPI and inflation rate in 2010.

The CPI and inflation rate in 2010 is 173.33 and 73.33% respectively.

Explanation:

The computation of the CPI and the inflation rate for the year 2010 is shown below:

For CPI

= (Current year price) : (Base year price)

where,

Current year price is

= 30 bottles * $4 + 6 yard * $6

= $120 + $36

= $156

The 30 bottles is come from

= $60 : $5

= 30

And, the 6 yard is come from

= $30 : $5

= 6

Now the base year price is

= $60 + $30

= $90

So, the CPI is

= ($156) : ($90) * 100

= 173.33

And, the inflation rate is

= (173.33 - 100) : (100) * 100

= 73.33%