In an imaginary economy, consumers buy only razors and cologne. The fixed basket consists of 6 razors and 4 bottles of cologne. A razor cost $20 in 2009 and $25 in 2010. A bottle of cologne cost $30 in 2009 and $40 in 2010. Using 2009 as the base yeara. What is the CPI for 2009? b. What is the CPI for 2010? c. What is the inflation rate for 2010?

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Business

Paulina Summers

24 April, 12:49

In an imaginary economy, consumers buy only razors and cologne. The fixed basket consists of 6 razors and 4 bottles of cologne. A razor cost $20 in 2009 and $25 in 2010. A bottle of cologne cost $30 in 2009 and $40 in 2010. Using 2009 as the base yeara. What is the CPI for 2009? b. What is the CPI for 2010? c. What is the inflation rate for 2010?

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Aubrey Potter · Answer 1

The answers are:

The CPI for 2009 is 100 (since it is the base year) The CPI for 2010 is 129.17 The inflation rate for 2010 is 29.17%

Explanation:

CPI basket for 2009

6 razors x $20 per razor = $120 4 bottles of cologne x $30 per bottle = $120

The total value of the CPI basket for 2009 is $240

CPI basket for 2010

6 razors x $25 per razor = $150 4 bottles of cologne x $40 per bottle = $160

The total value of the CPI basket for 2010 is $310

The CPI for 2009 is 100, since it is the base year The CPI for 2010 = (CPI basket 2010 / CPI basket 2009) x 100 = ($310 / $240) x 100 = 129.17 The inflation rate for 2010 = [ (CPI basket 2010 / CPI basket 2009) - 1] x 100 = (1.2917 - 1) x 100% = 29.17%