Question

Take 2014 as the price index base year. That year, you paid $80 for a day at a theme park. In 2015, the price was up to $84. Assuming that the increase reflects the inflation rate and that this rate continues in 2016, match each number to its description.

a. the 2016 price index
b. the 2015 price index
c. the inflation rate as a percentage.
d. the cost of a theme park visit in 2016 dollars:

1. 88.20
2. 110.2
3. 105
4. 5

Answer 1

a. 110.2

b. 105

c, 5%

d. 88.2

Step-by-step explanation:

Price index measures the changes in price level over time. It is measure of inflation.

Price index = (price of good in a given year / price of good in the base year) x 100

Types of price indexes

1. Producer price index measures the goods and services produced. this would not increase because it is used cars that is being examined

2. The consumer price index measures the changes in price of a basket of good.

Inflation is a persistent rise in the general price levels

Inflation rate = (change in prices / previous years price) x 100

Types of inflation

1. Demand pull inflation – this occurs when demand exceeds supply. When demand exceeds supply, prices rise

2. Cost push inflation – this occurs when the cost of production increases. This leads to a reduction in supply. Higher prices are the resultant effect

a. (88.2 / 80) x 100 = 110.25

b. (84 / 80 x 100) = 105

c. (84 / 80) - 1 = 5%

d. 1.05 x 84 = 88.2