Chapter 17: Problem 5

As shown in Exhibit \(6,\) the rate of inflation for Year 5 is a. 4.2 percent. b. 5 percent. c. 20 percent. d. 25 percent.

Short Answer

Expert verified

The inflation rate for Year 5 can be found using the formula \( \textrm{Inflation Rate} = \frac{\textrm{Price Level in current year} - \textrm{ Price Level in previous year}}{\textrm{Price Level in previous year}} \times 100\). Based on the data in Exhibit 6, plug in the price levels for Year 4 and Year 5, and calculate the inflation rate. Compare the result with the given options: a. 4.2 percent, b. 5 percent, c. 20 percent, and d. 25 percent. The calculated inflation rate will indicate the correct answer.

Step by step solution

Understand the data in Exhibit 6

We need to analyze the information provided in Exhibit 6 to find the necessary data to calculate the inflation rate for Year 5. We are looking for price level, consumer price index or any related data that allows us to find the percentage change in price level from Year 4 to Year 5.

Percent change formula

To find the inflation rate, we need to use the percent change formula. The formula for calculating the percentage change in price level is: \( \textrm{Inflation Rate} = \frac{\textrm{Price Level in current year} - \textrm{ Price Level in previous year}}{\textrm{Price Level in previous year}} \times 100\) In this situation, we will use this formula to find the inflation rate from Year 4 to Year 5.

Find the price levels for Year 4 and Year 5 in Exhibit 6

From Exhibit 6, let's assume the following information is provided: - Price level in Year 4: \(X\) - Price level in Year 5: \(Y\)

Calculate the inflation rate for Year 5 using the given data

Now, we will apply the percent change formula to calculate the inflation rate for Year 5: \( \textrm{Inflation Rate} = \frac{Y - X}{X} \times 100\) Plugging in the values of X and Y from Exhibit 6, we can calculate the inflation rate.

Compare the calculated inflation rate with the given options

After calculating the inflation rate, we need to compare it with the possible answers: a. 4.2 percent b. 5 percent c. 20 percent d. 25 percent The calculated inflation rate will allow us to determine which option is correct.