QuestionMay 29, 2025

How can the price index be used with understanding inflation rates? Use the paperclip button below to attach files.

How can the price index be used with understanding inflation rates? Use the paperclip button below to attach files.
How can the price index be used with understanding inflation rates?
Use the paperclip button below to attach files.

Solution
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Answer

The price index helps calculate the inflation rate by comparing current and previous price levels, indicating changes in purchasing power. Explanation 1. Define Price Index A price index measures the average change in prices over time for a basket of goods and services. 2. Calculate Inflation Rate **Inflation Rate = \frac{(CPI_{current} - CPI_{previous})}{CPI_{previous}} \times 100%** 3. Interpret Inflation Rate A positive rate indicates rising prices (inflation), while a negative rate indicates falling prices (deflation).

Explanation

1. Define Price Index<br /> A price index measures the average change in prices over time for a basket of goods and services.<br /><br />2. Calculate Inflation Rate<br /> **Inflation Rate = \frac{(CPI_{current} - CPI_{previous})}{CPI_{previous}} \times 100%**<br /><br />3. Interpret Inflation Rate<br /> A positive rate indicates rising prices (inflation), while a negative rate indicates falling prices (deflation).
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