Question

Suppose that the residents of Greenland play golf incessantly. In fact, golf is the only thing that they spend their money on. They buy golf balls, clubs, and tees. In 2010, they bought 2,000 golf balls for $3.00 each, 200 clubs for $80.00 each, and 1,000 tees for $0.10 each. In 2011, they bought 2,100 golf balls for $3.50 each, 250 clubs for $90.00 each, and 1,500 tees for $0.15 each. Using 2010 as the base year, answer the following questions. a. What was the CPI for 2010? b. What was the CPI for 2011? c. What was the inflation rate in 2011? %

Answer 1

a. 100

b. 113.80%

c. 13.8%

Step-by-step explanation:

a. As the question has already said that use 2010 as the base year so we assume that the CPI for 2010 would be 100

b. The CPI for 2011 is shown below:

= (Number of golf balls in 2010 × 2011 price + Number of clubs in 2010 × 2011 price + Number of tees in 2010 × 2011 price) ÷ (Number of golf balls in 2010 × 2010 price + Number of clubs in 2010 × 2010 price + Number of tees in 2010 × 2010 price)

= (2,000 × $3.5 + 200 × $90 + 1,000 × $0.15) ÷ (2,000 × $3.00 + 200 × $80 + 1,000 × $0.10)

= ($7,000 + $18,000 + $150) ÷ ($6,000 + $16,000 + $100)

= $25,150 ÷ $22,100

= 1.13 or 113.80%

3. The inflation rate is shown below:

= CPI in 2011 - CPI in 2010

= 113.80% - 100%

= 13.80%