Question

A Consumer Expenditure Survey in Sparta shows that people buy only juice and cloth. In 2015, the year of the Consumer Expenditure Survey and also the reference base year, the average household spent $20 on juice and $12 on cloth The price of juice in 2015 was $2 a bottle, and the price of cloth was 54 a yard. In 2016, juice is $6 a bottle and cloth is $3 a yard. Calculate the CPI in 2016 and the inflation rate between 2015 and 2016 The CPI in 2016 is >>> Answer to 1 decimal place

Answer 1

The basket of goods consists of juice and cloth. In 2015 the market basket of goods consisted of ($20$\div$$2) i.e. 10 bottles of juice and ($12$\div$$4) i.e 3 yards of cloth.

The CPI in 2015 ( base year) = 100

CPI in 2016 = Total dollar expenditure on market basket in current year x 100 Total dollar expenditure on market basket in base year)

Dollar expenditure on market basket of goods in 2016 = 10 $\times$ $ 6 + 3 $\times$ $ 3 = $ 69

Dollar expenditure on basket of goods in 2015 = 10 $\times$ $ 2 + 3 $\times$ $ 4 = $ 32

CPI in 2016 = ($) x 100 CPI in 2016

The CPI in 2016 is 215.6

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Inflation rate between 2015 and 2016 = CPI in 2016 - CPI in 2015 CPI in 2015 X 100

215.6 - 100 Inflation rate between 2015 and 2016 = 100X100

Inflation rate between 2015 and 2016 = 115.6%