Answered: To calculate inflation, we a. First…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

To calculate inflation, we

a. First calculate price indices. Such as GDP deflator or CPI

b. Calculate the inflation of each individual and then add them up

c. Calculate the inflation of each individual price, and then calculate the average

d. Fist calculate the GDP growth rate, using either nominal GDP or real GDP

Expert Solution

Step 1

Inflation refers to the rise in the prices of goods and services in an economy over a period of time. Now, to calculate inflation, we determine the change in the prices of goods and services over a period of time (Price indices). There are many price indices to determine inflation. One such example is CPI. In this, a weighted average of prices of consumer services and goods is calculated. In this, CPI is calculated of past date and current date. This helps to determine the inflation rate.

$I n f l a t i o n r a t e = \frac{C u r r e n t d a t e C P I - P a s t d a t e C P I}{P a s t d a t e C P I} \times 100$