The people on Coral Island buy only juice and cloth. The CPI basket contains the quantities bought in 2013 (the reference base year). The average household spent $24 on juice and $35 on cloth in 2013 when the price of juice was $2 a bottle and the price of cloth was $7 a yard. In 2014, juice is $5 a bottle and cloth is $6 a yard. Calculate the CPI and the inflation rate in 2014.

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Business

Freddy Rowe

1 January, 13:47

The people on Coral Island buy only juice and cloth. The CPI basket contains the quantities bought in 2013 (the reference base year). The average household spent $24 on juice and $35 on cloth in 2013 when the price of juice was $2 a bottle and the price of cloth was $7 a yard. In 2014, juice is $5 a bottle and cloth is $6 a yard. Calculate the CPI and the inflation rate in 2014.

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Answers (1)

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Kenzie Warner · Answer 1

The answers are:

The CPI for 2014 is 152.54 The inflation rate for 2014 is 52.54%

Explanation:

CPI basket for 2013

12 bottles of juice x $2 per bottle = $24 5 yards of cloth x $7 per yard = $35 The total value of the CPI basket for 2013 is $59

CPI basket for 2014

12 bottles of juice x $5 per bottle = $60 5 yards of cloth x $6 per yard = $30 The total value of the CPI basket for 2014 is $90

The CPI for 2014 = (CPI basket 2014 / CPI basket 2013) x 100 = 152.54

The inflation rate for 2014 = [ (CPI basket 2014 / CPI basket 2013) - 1] x 100 = 52.54%