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. (1)the 2016 price index: 110.25, (2)the 2015 price index: 105, (3) the inflation rate as a percentage: 5, (4) the cost of a theme park visit in 2016 dollars: 88.20

Answer 1

Following is the solution to this problem:

The inflation rate as a percentage:

=(4/80)*100

=5%

The cost of a theme park visit in 2016 dollars:

`80(1+0.05)^(2)`

`80(1.05)^(2)`

=88.20

The 2015 Price Index:

Consumer Price Index Formula =
`(Cost of Market Basket in a Given Year)/(Cost of Market at Base Year) * 100`

=(84/80)*100

=105

The 2016 Price Index:

=(88.2/80)*100

=110.25