Gce Model Questions Vol1 2020 Economics Question 33

Practice objective / multiple choice question 33 from the 2020 Gce Model Questions Vol1 Economics examination.

Gce Model Questions Vol1 2020 Economics Objective / Multiple Choice Medium Difficulty
Question 33 GCE_MODEL_QUESTIONS_VOL1 • 2020 • ECONOMICS • objective

An economy uses a fixed consumption basket consisting of 5 units of Good A and 3 units of Good B. The prices (in dollars) for the three consecutive years are:\n\n- Year 1: \(p_A = 10\), \(p_B = 20\)\n- Year 2: \(p_A = 12\), \(p_B = 22\)\n- Year 3: \(p_A = 13\), \(p_B = 24\)\n\nUsing Year 1 as the base year, (i) compute the Consumer Price Index (CPI) for Year 2 and Year 3, (ii) determine the overall inflation rate from Year 1 to Year 3, and (iii) assuming the inflation rate is constant each year, calculate the average annual inflation rate (to one decimal place).

Answer Options

A. CPI Year 2 ≈ 110.0, CPI Year 3 ≈ 120.0, overall inflation = 20.0 %, average annual inflation ≈ 9.5 %
Correct Answer B. CPI Year 2 ≈ 114.5, CPI Year 3 ≈ 124.5, overall inflation = 24.5 %, average annual inflation ≈ 11.6 %
C. CPI Year 2 ≈ 112.0, CPI Year 3 ≈ 122.0, overall inflation = 22.0 %, average annual inflation ≈ 10.5 %
D. CPI Year 2 ≈ 115.0, CPI Year 3 ≈ 125.0, overall inflation = 25.0 %, average annual inflation ≈ 12.0 %
Correct Answer
B
Correct Option:
CPI Year 2 ≈ 114.5, CPI Year 3 ≈ 124.5, overall inflation = 24.5 %, average annual inflation ≈ 11.6 %

About This Question

This is Gce Model Questions Vol1 2020 Economics Question 33. It is one of the objective questions from the 2020 Gce Model Questions Vol1 Economics examination.

Difficulty level: Medium .

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