CA Foundation · Business Economics · Indian Economy
Between two years, the Consumer Price Index of a basket rises from 120 to 132. Assuming the index measures the general price level, the rate of inflation over the period is:
Inflation is the percentage change in the price index: (132 minus 120) divided by 120, times 100, which equals 10%. Dividing by the new index of 132 wrongly gives 9.09%, and treating the 12-point rise as 12% is also incorrect.
- A8%
- B10%Correct
- C12%
- D9.09%
Explanation
Inflation = (132 - 120) / 120 x 100 = 12/120 x 100 = 10%. The figure 12% results from using the index difference as a percentage directly, and 9.09% results from dividing by the later index 132 instead of the base 120.
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