Chapter 3R, Problem 25MCQ

To determine

The question requires us to determine the inflation rate with the help of given consumer price indices.

Explanation of Solution

The inflation rate formula in terms of price index is:

  $\inf lation\text{}rate=\frac{priceindexinyear2-priceindexinyear1}{priceindexinyear1}\times 100$

Given,

Price index in year 1 = 120

Price index in year 2 = 132

Insert these values in the inflation formula:

  $\begin{array}{c}\inf lation\text{}rate=\frac{priceindexinyear2-priceindexinyear1}{priceindexinyear1}\times 100\\ =\frac{132-120}{120}\times 100\\ =10\end{array}$

Inflation rate is 10%.

Thus, option “b” is correct.

Economics Concept Introduction

Inflation indicates an increase in the general prices of goods and services in a market.