Posted by **Sarah** on Monday, April 2, 2007 at 2:06am.

Suppose that the residents of Vegopia spend all of their income on cauliflower, broccoli, and carrots. In 2006 they buy 100 heads of cauliflower for $200, 50 bunches of broccoli for $75, and 500 carrots for $50. In 2007, they buy 75 heads of cauliflower for $225,80 bunches of broccoli for $120, and 500 carrots for $100.

b) Using 2006 as the base year calculate the CPI for each year.

c) What is the inflation rate in 2007?

My answers:

b)CPI of 2006= [($325/$325)x 100] = 100

CPI of 2007= [($425/$325) x 100] = 137

c) Inflation rate in 2007 = [(137-100)/100 x 100] = 37%

Inflation rate in 2007 is 37%.

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