Suppose the CPI in 2020 is 250, and the CPI in 2021 is 240. a) What is the inflation rate between 2020 and 2021? Based on this information, what is the economy experiencing over th... Suppose the CPI in 2020 is 250, and the CPI in 2021 is 240. a) What is the inflation rate between 2020 and 2021? Based on this information, what is the economy experiencing over this time period?
Understand the Problem
The question is asking us to calculate the inflation rate using the Consumer Price Index (CPI) values for two different years. The inflation rate can be calculated using the formula: (CPI in later year - CPI in earlier year) / CPI in earlier year * 100. Additionally, the question prompts us to analyze the economic condition based on the CPI data provided.
Answer
The formula for the inflation rate is given by $$ \text{Inflation Rate} = \frac{CPI_{later} - CPI_{earlier}}{CPI_{earlier}} \times 100 $$, and the analysis will depend on the calculated rate.
Answer for screen readers
The final answer will depend on the CPI values provided. Using the formula:
$$ \text{Inflation Rate} = \frac{CPI_{later} - CPI_{earlier}}{CPI_{earlier}} \times 100 $$
Insert the relevant values after performing the calculations.
Steps to Solve
- Identify the CPI values for the given years
Start by identifying the Consumer Price Index (CPI) values for the two years you have. Let’s say the CPI for the earlier year is $CPI_{earlier}$ and for the later year is $CPI_{later}$.
- Apply the inflation rate formula
Use the inflation rate formula to find the inflation rate. The formula is given by:
$$ \text{Inflation Rate} = \frac{CPI_{later} - CPI_{earlier}}{CPI_{earlier}} \times 100 $$
- Substitute the CPI values into the formula
Replace $CPI_{earlier}$ and $CPI_{later}$ with the actual CPI values you have.
- Perform the calculations
Carry out the subtraction, division, and multiplication as indicated in the formula to determine the inflation rate.
- Analyze the economic condition
Based on the calculated inflation rate, discuss the economic condition. A high inflation rate may indicate rising prices and reduced purchasing power, while a low or negative rate might suggest economic stability or deflation.
The final answer will depend on the CPI values provided. Using the formula:
$$ \text{Inflation Rate} = \frac{CPI_{later} - CPI_{earlier}}{CPI_{earlier}} \times 100 $$
Insert the relevant values after performing the calculations.
More Information
The inflation rate is an important economic indicator that affects consumer behavior and financial planning. A moderate inflation rate is generally seen as healthy for an economy, while extremely high rates can lead to hyperinflation, disrupting economic stability.
Tips
- Not converting the CPI values properly; ensure they are both in the same format.
- Forgetting to multiply by 100 after dividing to get the percentage.
- Misplacing the years when calculating inflation, which can lead to incorrect results.
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