Question

The total expenditure on a basket of goods and services for year one was $20,000, and for year two was $20,400. Use this information to calculate the percentage rate of inflation for year two.

a) 2%
b) 2.5%
c) 3%
d) 4%

Answer 1

The percentage rate of inflation for year two is calculated using the percentage change formula. By subtracting year one's expenditure from year two's and then dividing by year one's expenditure, the inflation rate is determined to be 2%. The correct option is A.

Step-by-step explanation:

To calculate the percentage rate of inflation for year two, you can use the formula for percentage change. The formula is: (New Value - Old Value) / Old Value × 100%. Using the information provided:

• Year 1 expenditure = $20,000
• Year 2 expenditure = $20,400

Plugging the values into the formula, we get:

(20,400 - 20,000) / 20,000 × 100% = 400 / 20,000 × 100% = 2%

Therefore, the inflation rate for year two is 2%, which corresponds to option a).