Suppose that the residents of Vegopia spend all of their income on cauliflower, broccoli, and carrots. In 2006 they buy 100 heads of cauliflower for $200, 50 bunches of broccoli for $75, and 500 carrots for $50. In 2007, they buy 75 heads of cauliflower for $225,80 bunches of broccoli for $120, and 500 carrots for $100.
b) Using 2006 as the base year calculate the CPI for each year.
c) What is the inflation rate in 2007? My answers: b) CPI of 2006 = [ ($325/$325) x 100] = 100 CPI of 2007 = [ ($425/$325) x 100] = 137 c) Inflation rate in 2007 = [ (137-100) / 100 x 100] = 37%
Inflation rate in 2007 is 37%.
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