Chapter 22, Problem 34P

The total price of purchasing a basket of goods in the United Kingdom over four years is: year $1=\pounds 940$, year $2=\pounds 970$, year $3=\pounds 1000$, and year $4=\pounds 1070$.

Calculate two price indices, one using year 1 as the base year (set equal to 100) and the other using year 4 as the base year (set equal to 100). Then, calculate the inflation rate based on the first price index. If you had used the other price index, would you get a different inflation rate? If you are unsure, do the calculation and find out.