Answered: Calculating and categorizing inflation…

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter7: Unemployment And Inflation

Section: Chapter Questions

Problem 3.7P

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Calculating and categorizing inflation

This table indicates the historical level of the Consumer Price Index (CPI) for the United States for 2006,2007, and 2008.

Complete the table by (1) selecting the inflation rates for 2007 and 2008, and (2) indicating for each year whether there has been inflation, deflation, or hyperinflation.

Year CPI Inflation rate Change in Price Level

2006 201.6

2007 207.3

2007 215.3

What rates of inflation for 2009 would be consistent with disinflation between 2008 and 2009? Check all that apply.

13.9%

3.7%

3.9%

3.8%

What rates of inflation for 2009 would be consistent with hyperinflation ? Check all that apply.

100.0 %

-3.9%

120.0%

15.0%

Expert Solution

Step 1

Answer:

The formula of inflation using CPI is given below:

$I n f l a t i o n = \frac{C P I_{1} - C P I_{0}}{C P I_{0}} \times 100 W h e r e, C P I_{0} = C P I o f p r e v i o u s y e a r C P I_{1} = C P I o f c u r r e n t y e a r$

Year	CPI	Inflation rate	Change in the price level
2006	201.6	-
2007	207.3	$\frac{207.3 - 201.6}{201.6} \times 100 = 2.83 %$	The price will increase (there will be inflation) and will be 2.83% more than the year 2006
2008	215.3	$\frac{215.3 - 207.3}{207.3} \times 100 = 3.86 %$	The price will increase (there will be inflation) and will be 3.86% more than the year 2007

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