Question

Suppose we have the following CPI figures below:

	CPI(Price Level)
Year	(1982=100)
July 2017	215
July 2018	223
July 2019	236

Using the table above, please answer Questions 8a through 8c below:

     a. What do these numbers tell you about the price level in these three years? Is there inflation or deflation? Why? Explain.

    9b. Calculate the inflation rates for July 2018 and July 2019. Is there inflation or deflation occurring and why? What factors could contribute to inflation or deflation between July 2018 and July 2019?

Answer 1

Que

A. The numbers in table shows that price levels are consistently increasing in 2018 and 2019 because CPI is increasing to 223 aand 236 respectively.

Here there is inflation. Because increase in general price level is called as inflation. Here price levels are increasing so here is inflation.

B. Inflation rate for 2018 and 2019 calculate on the previous year as base year.

Year	CPI Price level	Change in price level	Inflation rate
2017	215	N. A.	N.A.
2018	223	8	3.72%
2019	236	13	5.82%

Note : inflation rate calculation is is done on the base year 2017 because at the inflation level at base year 1982 are already given.
Factors which may be responsible for inflation.

1. Increase in demand for goods and services.

2. Decrease in supply if goods and services

3. Decrease in production level.

4. Increase in money supply more than income growth

5. Increased public spending through deficit spending.

6. Increase in exports which may create shortage of supply in the economy.

7. Imposition of indirect taxes.

8. Increase in transportation cost

9. Increase in cost of production.

10 l. Increase in disposable income

11. Increase in population