SOLUTION: From Table 21.5, you can determine the rate of inflation from one year to the next. For example, you find the rate of inflation from 1991 to 1992 by subtracting the two index numbe

Question 72459: From Table 21.5, you can determine the rate of inflation from one year to the next. For example, you find the rate of inflation from 1991 to 1992 by subtracting the two index numbers and dividing the earlier one: (140.6-136.2)/136.2=0.032=3.2%. Similarly, knowing the rate of inflation, you can compute one index number from another.
a) What was the rate of inflation from 1980 to 1981
b) For a 3% rate of inflation per year from 2003 on, what would the Co nsumer Price Index be in 2006?
Table 21.5 figures
1980-82.4
1981-90.0
1982-96.5
1983-99.6
1984-103.9
1985-107.6
1986-109.6
1987-113.6
1988-118.3
1989-124.0
1990-130.7
1991-136.2
1992-140.3
1993-144.5
1994-148.2
1995-152.4
1996-156.9
1997-160.5
1998-163.0
1999-166.6
2000-172.2
2001-177.1
2002-179.9
2003-184.0
2004-189.5
2005(EST)-195.0
2006 (EST)-200.5
Answer by stanbon(75887) (Show Source): You can put this solution on YOUR website!
From Table 21.5, you can determine the rate of inflation from one year to the next. For example, you find the rate of inflation from 1991 to 1992 by subtracting the two index numbers and dividing the earlier one: (140.6-136.2)/136.2=0.032=3.2%. Similarly, knowing the rate of inflation, you can compute one index number from another.
a) What was the rate of inflation from 1980 to 1981
b) For a 3% rate of inflation per year from 2003 on, what would the Co nsumer Price Index be in 2006?
Table 21.5 figures
1980-82.4
1981-90.0
1982-96.5
1983-99.6
1984-103.9
1985-107.6
1986-109.6
1987-113.6
1988-118.3
1989-124.0
1990-130.7
1991-136.2
1992-140.3
1993-144.5
1994-148.2
1995-152.4
1996-156.9
1997-160.5
1998-163.0
1999-166.6
2000-172.2
2001-177.1
2002-179.9
2003-184.0
2004-189.5
2005(EST)-195.0
2006 (EST)-200.5
a) rate of inflation 80' to 81'= (90.0-82.40/82.4 = 0.09
b) rate from 2003 to 2006 is 0.03, find index for 2006
Let indes for 2006 be "x":
Then (x-184)/184 = 0.03
Multiply both sides by 184 to get:
x-184=5.52
x=189.52 (This is the index for 2006)
=============
Cheers,
Stan H.
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