Question

Given P​t-1​ = 120.0 and Pt​ = 122.4​, calculate the inflation rate in period t​:

Answer 1

The inflation rate for period t is calculated using the percentage change formula, resulting in an inflation rate of 2%.

Step-by-step explanation:

The inflation rate for period t can be calculated using the percentage change formula. To do this, you subtract the price index of the previous period from the price index of the current period (Pt - Pt-1), then divide by the price index of the previous period (Pt-1), and finally multiply by 100 to express it as a percentage.

Following this method, the inflation rate calculation would be:

1. Subtract the previous period's index (Pt-1) from the current period's index (Pt): 122.4 - 120.0 = 2.4
2. Divide this difference by the previous period's index: 2.4 / 120.0 = 0.02
3. Multiply by 100 to get the percentage: 0.02 x 100 = 2%

Therefore, the inflation rate for period t is 2%.