Use the following table to answer question. The table shows the prices and the quanti­ties consumed in Carnivore Country. Suppose the base year is 2017. Also, suppose that 2017 is the year the typical consumption basket was determined, so the quantities consumed in 2017 are the only quantities needed to calculate the CPI in each year.

Question

Year Price of Beef Quantity of Beef Price of Pork Quantity of Pork
2017 $2.00 100 $1.00 100
2018 2.50 90 0.90 120
2019 2.75 105 1.00 130

What is the inflation rate for 2018?
a. 0 percent
b. 9.2 percent
c. 11 percent
d. 13.3 percent

Answer 1

To calculate the inflation rate for 2018 using the Consumer Price Index (CPI), we first need to compute the CPI for both 2017 (the base year) and 2018. The CPI is calculated as follows:

\[ \text{CPI} = \left( \frac{\text{Cost of the basket in the current year}}{\text{Cost of the basket in the base year}} \right) \times 100 \]

1. Calculate the cost of the basket in the base year (2017):

• Cost of Beef in 2017 = Price of Beef × Quantity of Beef = $2.00 × 100 = $200
• Cost of Pork in 2017 = Price of Pork × Quantity of Pork = $1.00 × 100 = $100
• Total Cost of the basket in 2017 = $200 + $100 = $300

2. Calculate the cost of the basket in 2018:

• Cost of Beef in 2018 = Price of Beef × Quantity of Beef = $2.50 × 100 = $250
• Cost of Pork in 2018 = Price of Pork × Quantity of Pork = $0.90 × 100 = $90
• Total Cost of the basket in 2018 = $250 + $90 = $340

3. Calculate the CPI for both years:

• CPI for 2017 = \( \frac{300}{300} \times 100 = 100 \)
• CPI for 2018 = \( \frac{340}{300} \times 100 \approx 113.33 \)

4. Calculate the inflation rate from 2017 to 2018:

\[ \text{Inflation Rate} = \left( \frac{\text{CPI for 2018} - \text{CPI for 2017}}{\text{CPI for 2017}} \right) \times 100 \]

\[ \text{Inflation Rate} = \left( \frac{113.33 - 100}{100} \right) \times 100 \approx 13.33% \]

Thus, the inflation rate for 2018 is approximately 13.3 percent. The correct answer is d. 13.3 percent.