Question

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been chosen as the base year. In 2012, the basket's cost was $80.00; in 2013, the basket's cost was $84; and in 2014, the basket's cost was $87.60. The value of the CPI was a. 100 in 2012. b. 105 in 2013c. 109.5 in 2014 d. All of the above are correct

Answer 1

d. All of the above are correct

Step-by-step explanation:

Since 2012 is the base year, the CPI index in 2012 is 100

Cost of basket of good in 2012 = $80

Cost of basket of good in 2013 = $84

Cost of basket of good in 2014 = $87.6

Change in inflation in 2013 as compared to 2012 = ((84 - 80)/80)*100

= 5%

index in 2013 = 100 + (100*5%)

= 105

Change in inflation in 2014 as compared to 2013 = ((87.6 - 84)/84 )* 100 = 4.3%

index in 2014 = 105 + (105*4.3%)

= 109.5

Therefore, The value of the CPI was 100 in 2012, 105 in 2013 and 109.5 in 2014