Question

The steps involved in calculating the consumer price index and the inflation rate, in order, are as follows:
a.

Fix the basket, find the prices, compute the inflation rate, compute the basket's cost, and choose a base year and compute the index.
b.

Choose a base year, update the basket, find the prices, estimate the basket's cost, compute the index, and compute the inflation rate.
c.

Fix the basket, find the prices, compute the basket's cost, choose a base year and compute the index, and compute the inflation rate.
d.

Choose a base year, fix the basket, find the prices, compute the inflation rate, compute the basket's cost, and compute the index.

Answer 1

The correct order of steps for calculating the Consumer Price Index (CPI) and the inflation rate is:

**c. Fix the basket, find the prices, compute the basket's cost, choose a base year and compute the index, and compute the inflation rate.**

This process involves:
1. Fixing a basket of goods and services that represents what consumers typically purchase.
2. Finding the current prices for those items in the basket.
3. Calculating the total cost of the basket based on the current prices.
4. Choosing a base year for comparison.
5. Computing the CPI by comparing the cost of the basket in the current year to the cost in the base year.
6. Finally, calculating the inflation rate based on the change in the CPI.