Question

If the Consumer Price Index (CPI) for 1989 was 124, the rate of inflation between the base period and 1989 was _ _ _ __? 24 percent, 2.4 percent, 14 percent, 1.4 percent?

Answer 1

If the CPI for 1989 was 124, the rate of the inflation between the base period and 1989 was 24%!

Answer 2

The correct option is 1.

Explanation:

Formula for Consumer Price Index (CPI):

`CPI=\frac{\text{Cost of market basket in current year}}{\text{Cost of market basket in base year}}* 100`

It is given that Consumer Price Index (CPI) for 1989 was 124.

`\text{Rate of inflation}=(CPI_x-CPI_0)/(CPI_0)`

Where,
`CPI_x` is current consumer price index and
`CPI_0` is initial consumer price index.

The initial consumer price index is always 100.

`(124-100)/(100)=0.24=24\%`

Since If the rate of inflation between the base period and 1989 is 24%, therefore option 1 is correct.