Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
![**Understanding Inflation Calculation**
When studying inflation, the Consumer Price Index (CPI) is a critical metric. Let's explore a practical example to understand how to calculate the rate of inflation between two periods.
**Problem Statement:**
*If the CPI in period 1 is 180 and the CPI in period 2 is 240, then the rate of inflation between period 1 and period 2 is:*
- \( \circ \) 66.7%
- \( \circ \) 50%
- \( \circ \) 33.3%
- \( \circ \) 25%
**How to Calculate the Rate of Inflation**
To find the rate of inflation between two periods, you can use the following formula:
\[
\text{Inflation Rate} = \left( \frac{\text{CPI in Period 2} - \text{CPI in Period 1}}{\text{CPI in Period 1}} \right) \times 100
\]
**Step-by-Step Solution:**
1. **Substitute the Given Values:**
\[
\text{CPI in Period 1} = 180
\]
\[
\text{CPI in Period 2} = 240
\]
2. **Calculate the Difference in CPI:**
\[
\text{Difference in CPI} = 240 - 180 = 60
\]
3. **Divide the Difference by the CPI in Period 1:**
\[
\frac{60}{180} = 0.3333
\]
4. **Convert the Result to a Percentage:**
\[
0.3333 \times 100 = 33.33\%
\]
**Final Answer:**
The rate of inflation between period 1 and period 2 is **33.3%**.
Therefore, the correct option is:
- \( \circ \) 66.7%
- \( \circ \) 50%
- \( \bullet \) 33.3%
- \( \circ \) 25%
Understanding this concept is essential for analyzing economic conditions and making informed financial decisions.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb6ea49f2-aec0-47e4-ae21-0e0a47907cd1%2F41dbc770-5052-436a-a8f8-6922bc8fdcbe%2F75013xq_processed.png&w=3840&q=75)
Transcribed Image Text:**Understanding Inflation Calculation**
When studying inflation, the Consumer Price Index (CPI) is a critical metric. Let's explore a practical example to understand how to calculate the rate of inflation between two periods.
**Problem Statement:**
*If the CPI in period 1 is 180 and the CPI in period 2 is 240, then the rate of inflation between period 1 and period 2 is:*
- \( \circ \) 66.7%
- \( \circ \) 50%
- \( \circ \) 33.3%
- \( \circ \) 25%
**How to Calculate the Rate of Inflation**
To find the rate of inflation between two periods, you can use the following formula:
\[
\text{Inflation Rate} = \left( \frac{\text{CPI in Period 2} - \text{CPI in Period 1}}{\text{CPI in Period 1}} \right) \times 100
\]
**Step-by-Step Solution:**
1. **Substitute the Given Values:**
\[
\text{CPI in Period 1} = 180
\]
\[
\text{CPI in Period 2} = 240
\]
2. **Calculate the Difference in CPI:**
\[
\text{Difference in CPI} = 240 - 180 = 60
\]
3. **Divide the Difference by the CPI in Period 1:**
\[
\frac{60}{180} = 0.3333
\]
4. **Convert the Result to a Percentage:**
\[
0.3333 \times 100 = 33.33\%
\]
**Final Answer:**
The rate of inflation between period 1 and period 2 is **33.3%**.
Therefore, the correct option is:
- \( \circ \) 66.7%
- \( \circ \) 50%
- \( \bullet \) 33.3%
- \( \circ \) 25%
Understanding this concept is essential for analyzing economic conditions and making informed financial decisions.
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