Assume that the index number representing the price level changes from 110 in 2018 to 120 in 2019.

Assume that the index number representing the price level changes from 110 in 2018 to 120 in 2019. Then it changes from 120 in 2019 to 130 in 2020. Is the inflation rate the same each year? Calculate and explain your answer

1. Change from 2018 to 2019=

2. Change from 2019 to 2020=

Solutions

Expert Solution

1. CPI changes from 110 to 120 which represent inflation rate of (120-110)*100/110=9.1%

2. CPI changes from 120 to 130 which represents inflation of =(130-120)*100/120=8.33%

So, Inflation rate is not same each year eventhough the index change of 10 unit is consistent since the base price level change hence the inflation percentage

Rahul Sunny answered 1 year ago

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