Question

3. Consider the following price indexes: 2 pts

2018 Consumer Price index: 251.107 2019 Consumer price Index: 255.651
1. Which year is likely the base year?
2. What is the inflation rate from 2018 to 2019?

Answer 1

The base year for the given CPI data cannot be determined with the information provided. However, the inflation rate from 2018 to 2019 can be calculated using the CPI figures and is approximately 1.810%.

Step-by-step explanation:

Before diving into the specific questions, let's define some key terms:

• Inflation is the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.
• A price index is a normalized average of price relatives for a given class of goods or services in a given region, during a given interval of time.
• The term base year refers to the year used for comparison in the measure of a price index, which is typically set to an arbitrary value of 100 to serve as a benchmark.

Now, let's address the two parts of the question:

1. The year that would likely be the base year for the given Consumer Price Index (CPI) cannot be determined from the information provided. The base year is where the CPI is set to 100, and since neither of the years given have a CPI set to 100, we don't have enough information to ascertain the base year without additional context.
2. To find the inflation rate from 2018 to 2019, you would use the formula:

Inflation Rate = (CPI in Later Year - CPI in Earlier Year) / CPI in Earlier Year × 100%

Plugging in the numbers from the question:

Inflation Rate = (255.651 - 251.107) / 251.107 × 100% ≈ 1.810%

The inflation rate from 2018 to 2019 is therefore approximately 1.810%.

Answer 2

1. Which year is likely the base year?

The base year is likely to be 2018, because it has the lower consumer price index. This is because most economies show inflation (the gradual increase of the prices overtime within an economy) rather than deflation (the gradual decrease)

2. What is the inflation rate from 2018 to 2019?

Using the consumer price index (CPI) the inflation rate formula is:

Inflation rate = CPI year 2 - CPI year 1 / CPI year 1

in this case, the year 1 is our likely base year, 2018, and year 2 is 2019.

Now, we simply plug the amounts into the formula:

Inflation rate = 255.651 - 251.107 / 251.107 = 0.018 or 1.8%

So the inflation rate from 2018 to 2019 is 1.8%, a rather low number.