Question

The unit price and quantities for two goods for two years are shown in the table. Assume that consumers are purchasing 8 units of water and 10 loaves of bread. Also assume that Year 1 is the base year.

To one decimal place, the inflation rate between Year 1 and 2 is ______________.

Answer 1

The inflation rate between Year 1 and Year 2 is 6.5%.

Step-by-step explanation:

The percentage change in price between Year 1 and Year 2 can be calculated using the formula: (Price in Year 2 - Price in Year 1) / Price in Year 1. In this case, the price of the basket of goods in Year 1 is $100 and in Year 2 is $106.50.

Using the formula: (106.50 - 100) / 100 = 0.065 or 6.5%

Therefore, the inflation rate between Year 1 and Year 2 is 6.5%.