Question

1. If the CPI-U rises 6.3% over a 12-month period, what would the new cost be for a basket of goods which cost $67.50 at the beginning of the period?

2. If we expect inflation to average 2.8% over the next five years, how much would a $200 basket of goods cost in 5 years?

Answer 1

2.Final answer:

To calculate the cost of a $200 basket of goods in 5 years with an average inflation rate of 2.8%, use the formula New cost = Old cost * (1 + inflation rate)^number of years. The basket of goods would cost approximately $230.20 in 5 years.

Step-by-step explanation:

To calculate how much a $200 basket of goods would cost in 5 years, we need to account for the expected inflation rate of 2.8% per year. We can use the formula:

New cost = Old cost * (1 + inflation rate)^number of years.

Plugging in the values, we get:

New cost = $200 * (1 + 0.028)^5 = $200 * 1.151 = $230.20. Therefore, the basket of goods would cost approximately $230.20 in 5 years.