If the consumer price index for the United States rises from 350 at the end of a year to 365 at the end of the next year, how much inflation was there in the United States during that year?
What will be an ideal response?
Price indexes are ratios of the price level in a given year to the price level in a base year. Because the base year is the same in the two price indexes under consideration, we can take the ratio of the two price indexes and find the rate of inflation over that year. The ratio is 365/350 = 1.0429 or an inflation rate of 4.29%.
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