Answer:
- <u><em>1. CPI in the subsequent year: 1,135</em></u>
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- <u><em>2. Rate of inflation: 13.5%</em></u>
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Explanation:
<u>1. Calculate the CPI</u>
<em></em>
<em>CPI </em>is the consumer price index.
CPI is created using a basket of goods and services that are typically consumed.
In the given case the typical basket is:
- Gasoline and car maintenance
- Phone service (basic service plus 10 long-distance calls).
Then to find the CPI for a determined year you multiply each item by its price and then add up all the results.
For the base year, the expenditures per month were:
- 25 pizzas at $ 10: $10 × 25 = $250
- Gasoline and car maintenance: $100
- Phone service (basic service plus 10 long-distance calls): $50
Then, the CPI for the base year is:
- CPI = $250 + $600 + $100 + $50 = $1,000
The year following the base year, the expenditures per month are:
- 25 pizzas at $ 11 : $11 × 25 = $275
- Gasoline and car maintenance: $120
- Phone service (basic service plus 10 long-distance calls): $40
Then the CPI for the followng year is:
- CPI = $275 + $700 + $120 + $40 = $1,135
<u>2. Calculate the rate of inflation</u>
The rate of<em> inflation</em> is defined as the increase of the CPI of the given year with respect ot the base year:
The formula to calculate the rate of inflation is:
- Inflation = (CPI of the year - CPI of the base year) / (CPF of the base year) × 100
- Inflation = [ (1,135 - 1,000) / (1,000)] × 100 = 13.5%
Hence, <em>the rate of inflation for the subsequent year is 13.5%</em>
Answer:
- <u><em>To maximize the purchasing power of his income, Juand should accept the offert of Atlanta, GA.</em></u>
Explanation:
To answer this question you need the <em>comparative costs of living</em> in each of the trhee cities.
In a similar question, you can find the <em>cost of iiving indexes</em> for <em>Atlanta, Boston,</em> and <em>San Francisco</em>. Here is the table:
<em />
<em> Cost of living index</em>
<em>City (100 = U.S. City average)</em>
<em>Atlanta, GA 98</em>
<em>Boston, MA 160</em>
<em>San Francisco, CA 245</em>
Thus, to determine which offer <em>Juan should accept to maximize the purchasing power of his income</em>, divide each income by the cost of living index.
<u>Atlanta, GA:</u>
<u />
<u>Boston, MA</u>
<u>San Francisco, CA</u>
Rank the adjusted earnings in decreasing order:
- $510.20 > $437.50 > $407.16
Hence, in spite of the nominal earnings in Atlanta are the lowest, the higher cost of living indexes of the other cities, make that the offer from Atlanta the best one.
Answer:
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