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Inflation Index

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Consider the following price indexes: 90 in 2005, 100 in 2006, 110 in 2007, 121 in 2008, and 150 in 2009, Answer the following questions.

a. What is the base year?

b. What is the inflation rate from 2006 and 2007?

c. What is the inflation rate from 2007 and 2008?

d. If the cost of a market basket in 2006 is $2,000, what is the cost of the same basket of goods and services in 2005? In 2009?

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Solution Summary

The solution explains the computation of Inflation Index.

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Base year is the year in which index is 100 which is 2006.

What is the inflation rate from 2006 and 2007?
Inflation rate in 2007 is (Inflation Index in 2007-Inflation index ...

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