Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket’s cost was $77; in 2013, the basket’s cost was $82; and in 2014, the basket’s cost was $90. The value of the CPI in 2014 was .a. 116.9 and the inflation rate was 16.9%.b. 109.8 and the inflation rate was 9.8%.c. 109.8 and the inflation rate was 16.9%.d. 116.9 and the inflation rate was 9.8%.Explain how you got the answer please.

a. 116.9 and the inflation rate was 16.9%

Explanation:

Definition

Consumer Price Index (CPI) is a statistical measure that is constructed using a weighted average market basket of consumer goods and services produced by a household.

CPI = (Cost of market basket ₓ / Cost of market basket ₓ₁) * 100

where x = present year(2014) and x1 = base year(2012)

CPI = (90/77) * 100

CPI = 116.88

CPI = 116.9 (to 1 decimal place)

Inflation =Current year basket cost - Base year basket cost    * 100

                                    Base year basket cost

Inflation = 90-77  * 100

                   77

Inflation = 16.88

Inflation = 16.9% ( to 1 decimal place)

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