Question

The price index was 120 in Year 1 and 126 in Year 2. What was the inflation rate?
a.

7.2%
b.

5%
c.

105%
d.

6%

Answers

GPT-4o mini
To calculate the inflation rate between Year 1 and Year 2 based on the price index, you can use the following formula:

\[
\text{Inflation Rate} = \left( \frac{\text{Price Index in Year 2} - \text{Price Index in Year 1}}{\text{Price Index in Year 1}} \right) \times 100
\]

Substituting the values:

\[
\text{Inflation Rate} = \left( \frac{126 - 120}{120} \right) \times 100
\]

Calculating the numerator:

\[
126 - 120 = 6
\]

Now, substituting back into the formula:

\[
\text{Inflation Rate} = \left( \frac{6}{120} \right) \times 100 = 0.05 \times 100 = 5\%
\]

Therefore, the inflation rate is **5%** (option b).

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