Question

Table 4.3 1970 - 2018 Consumer Price Index for All Urban Consumers Price Price Price Price Price Year Index Year Index Year Index Year Index Year Index 38.8 172.2 1970 1980 82.4 1990 130.7 2000 2010 218.1 2001 177.1 1971 40.5 1981 90.9 1991 136.2 2011 224.9 1992 140.3 2002 1972 41.8 1982 96.5 179.9 2012 229.6 1973 44.4 1983 100 1993 144.5 2003 184 2013 233 49.3 1984 103.9 1974 1994 148.2 2004 188.9 2014 234.8 1975 53.8 1985 107.6 1995 152.4 2005 195.3 2015 237 1976 56.9 1986 109.6 1996 156.9 2006 201.6 2016 240.1 1987 113.6 2007 207.3 1977 60.6 1997 160.5 2017 245.1 1978 65.2 1988 118.3 1998 163 2008 215.3 2018 251 1979 72.6 1989 124 1999 166.6 2009 214.5

Based on the above table answer the following questions;

1. What year is the base year?        (15)     __________________________________________

2. In which year, did we experience deflation? (15)          ______________________________

3. What was the rate of inflation between 1970 and 1980? (15) ________________________

4. If you earned $10,000 in 1990, how much would you have had to earn in 2016 in order to maintain the same purchasing power? (5) ___________________________________

Answer 1

il companion to Price Indix takes the value of 100 in the year 1983 So, 1983 is the base Year The year in which the price andex must have declined from the preverions one will be the ytar of Dflation Looking at table, fer most of years the Price Index keeps rising except for Year 2009. 2n year 2008 , Price Index= 215.3 In year 2009, Crice Index = 214.5 do, we experienced DEFLATION in year? | 2009. C1970) C. Rate of Inflation between 19.704. 1980 Inflation (1970-80) = Price Index (1986)- Price Tudex, Price Judex (1970) 182.4 -38.8 ( 38.8 112.37% 1237

14 Companion De We need to find the change in inflation from 1990 to 2016 and then inflate or increase the value of $10,000 ly' that amount. Inflation (1990-2016) - Price Index (2016)- Price Tadix (1990) - Price Index (1990) = 240.1 - 130-7 - 109.4 130-7 130.7 = 0.8370 = 83.7 % Now, Value of $10,000 of 1990 in 2016 so to maintain same purchasing power - = $10000 (1 + Inflation Rate) = 10000 (1 + 0.837) = $ 18,3707