# Assume the year 2005 is used as the base year. What belongs in space E? a) 6% b) 3.9% c) 6.7% d) 60%

## Question:

 Year Consumer Price Index Inflation Rate 2005 100 2006 115 B 2007 125 C 2008 140 D 2009 A 10% 2010 160 E

Assume the year 2005 is used as the base year. What belongs in space E?

a) 6%

b) 3.9%

c) 6.7%

d) 60%

## Consumer Price Index:

Consumer price index is a measure of an economy's overall price level. It is computed as the weighted average price of goods in a basket of goods that is representative of the average consumer. Changes in the consumer price index indicates the level of inflation.

## Answer and Explanation:

The answer is b).

The number in space E represents inflation in 2010. The rate of inflation in period t is computed as:

• (CPI in period t - CPI in...

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