Final answer:
£1346.21 rounded to two decimal places is B) £1346.21, as there is no third decimal place to consider. To calculate price indices and inflation rates, one must create indices for each year using a specified base year and then follow a formula to determine the inflation rate. The choice of base year affects the percentage value but not the economic meaning of the inflation rate.
Step-by-step explanation:
The question asks to round £1346.21 to two decimal places (2DP). When rounding to two decimal places, you look at the third decimal place to decide whether to round up or down. In this case, there is no third decimal place, so the number remains the same. The correct answer is B) £1346.21.
Price Indices and Inflation Rate Calculation
To calculate two price indices for a basket of goods over four years using different base years and then ascertain the inflation rates, we would proceed as follows:
- Divide each year's price by the base year's price and then multiply by 100 to create the index for each year.
- For year 1 as the base year (set equal to 100):
- Year 1 index = (£940/£940) * 100 = 100
- Year 2 index = (£970/£940) * 100
- Year 3 index = (£1000/£940) * 100
- Year 4 index = (£1070/£940) * 100
- For year 4 as the base year (set equal to 100):
- Year 1 index = (£940/£1070) * 100
- Year 2 index = (£970/£1070) * 100
- Year 3 index = (£1000/£1070) * 100
- Year 4 index = (£1070/£1070) * 100 = 100
Whether using year 1 or year 4 as the base year, the inflation rate calculation would yield different percentage values. However, the economic meaning of the inflation rate would not alter; it would still reflect the increase in prices over time, but expressed in relation to different base years.