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25 April, 07:24

The people of buy only juice and cloth. The CPI market basket contains the quantities bought in 2009. The average household spent $60.00 on juice and $30.00 on cloth in 2009 when the price of juice was $2.00 a bottle and the price of cloth was $5.00 a yard. In the current year, 2010, juice is $4.00 a bottle and cloth is $6.00 a yard. Calculate the CPI and inflation rate in 2010.

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  1. 25 April, 07:35
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    The CPI and inflation rate in 2010 is 173.33 and 73.33% respectively.

    Explanation:

    The computation of the CPI and the inflation rate for the year 2010 is shown below:

    For CPI

    = (Current year price) : (Base year price)

    where,

    Current year price is

    = 30 bottles * $4 + 6 yard * $6

    = $120 + $36

    = $156

    The 30 bottles is come from

    = $60 : $5

    = 30

    And, the 6 yard is come from

    = $30 : $5

    = 6

    Now the base year price is

    = $60 + $30

    = $90

    So, the CPI is

    = ($156) : ($90) * 100

    = 173.33

    And, the inflation rate is

    = (173.33 - 100) : (100) * 100

    = 73.33%
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