Chapter 15, Problem 3CYU

To determine

The question requires us to determine the value of the inflation rate between year 1 and year 2.

Explanation of Solution

From part 1,

Consumer price index in year 1 = 214.537

Consumer price index in year 2 = 218.056

Insert these values in the inflation formula:

  $\begin{array}{c}\text{Inflation}\text{}\text{rate = }\frac{\text{CPI}\text{in}\text{year}\text{2 - CPI}\text{in}\text{year}\text{1}}{\text{CPI}\text{in}\text{year}\text{1}}\text{×100}\\ =\frac{218.056-214.537}{214.537}\times 100\\ =1.640\end{array}$

The inflation rate between year 1 and year 2 is 1.640 percent.

Economics Concept Introduction

The inflation rate formula in terms of price index is:

  $\text{Inflation}\text{}\text{rate = }\frac{\text{CPI}\text{in}\text{year}\text{2 - CPI}\text{in}\text{year}\text{1}}{\text{CPI}\text{in}\text{year}\text{1}}\text{×100}$