Question

3. Consider the following price indexes: 2 pts

Answer 1

Answer:

1. Which year is likely the base year?

The base year is likely to be 2018, because it has the lower consumer price index. This is because most economies show inflation (the gradual increase of the prices overtime within an economy) rather than deflation (the gradual decrease)

2. What is the inflation rate from 2018 to 2019?

Using the consumer price index (CPI) the inflation rate formula is:

Inflation rate = CPI year 2 - CPI year 1 / CPI year 1

in this case, the year 1 is our likely base year, 2018, and year 2 is 2019.

Now, we simply plug the amounts into the formula:

Inflation rate = 255.651 - 251.107 / 251.107 = 0.018 or 1.8%

So the inflation rate from 2018 to 2019 is 1.8%, a rather low number.