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Chapter 22: Q. 3 (page 552)

Compute the inflation rate for fruit prices from 2001 to 2004.

Short Answer

Expert verified

28.96%,11.23%,and 6%are the inflation rate for fruit prices from 2001 to 2004.

Step by step solution

01

Step 1. Inflation Rate.

The inflation rate is an increase in the price of goods and services over time that decreases the purchasing power of money.

02

Step 2. Calculation.

The formula used for computing the inflation rate is the percentage change in the price index from year to year.

The inflation rate for fruit prices from 2001to 2002,

= (89.90 - 69.71)/69.71

=20.19/69.71

=0.2896

=28.96%

The inflation rate for fruit prices from 2002to 2003,

=(100-89.90)/89.90

=10.1/89.90

=0.1123

=11.23%

The inflation rate for fruit prices from 2003to 2004.

=(100-106)/100

=-6/100

=0.06

=6%

28.96%,11.23%,and 6% are the inflation rate for fruit prices from 2001to 2004.

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Most popular questions from this chapter

Why do you think the U.S. experience with inflation over the last 50 years has been so much milder than in many other countries?

Why does the “quality/new goods bias” arise if we calculate the inflation rate based on a fixed basket of

goods?

Construct the price index for a “fruit basket” in each year using 2003as the base year.

If inflation rises unexpectedly by 5%, indicate for each of the following whether the economic actor is helped, hurt, or unaffected:

a. A union member with a COLA wage contract

b. Someone with a large stash of cash in a safe deposit box

c. A bank lending money at a fixed rate of interest

d. A person who is not due to receive a pay raise for another 11 months

Do you think perfect indexing is possible? Why or why not?
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