Suppose that yearly inflation for 2020, 2021 and 2022 are 20%, 25% and 20% respectively. If the consumer price index (CPI) is 220TL at the beginning of 2020, what will it be after 3 years?
Suppose that yearly inflation for 2020, 2021 and 2022 are 20%, 25% and 20% respectively. If the consumer price index (CPI) is 220TL at the beginning of 2020, what will it be after 3 years?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:**Consumer Price Index Calculation Over Three Years**
**Problem Statement:**
Suppose that the yearly inflation rates for 2020, 2021, and 2022 are 20%, 25%, and 20% respectively. If the Consumer Price Index (CPI) is 220 TL at the beginning of 2020, what will it be after 3 years?
**Explanation:**
To find the CPI after 3 years, we need to adjust the initial CPI value based on the given yearly inflation rates. Here is the step-by-step calculation:
1. **Initial CPI (2020) = 220 TL**
2. **For 2020:**
- Inflation Rate: 20%
- New CPI = Initial CPI * (1 + Inflation Rate)
- New CPI for 2020 = 220 TL * (1 + 0.20) = 220 TL * 1.20 = 264 TL
3. **For 2021:**
- Inflation Rate: 25%
- New CPI = CPI at end of 2020 * (1 + Inflation Rate)
- New CPI for 2021 = 264 TL * (1 + 0.25) = 264 TL * 1.25 = 330 TL
4. **For 2022:**
- Inflation Rate: 20%
- New CPI = CPI at end of 2021 * (1 + Inflation Rate)
- New CPI for 2022 = 330 TL * (1 + 0.20) = 330 TL * 1.20 = 396 TL
**Result:**
The Consumer Price Index (CPI) after 3 years will be **396 TL**.
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