Solved: 6972 require the following discussion.The Consumer

Chapter 6, Problem 72

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6972 require the following discussion.The Consumer Price Index (CPI) indicates the relative change in price over time for a fixed basket of goods and services.It is a cost of living index that helps measure the effect of inflation on the cost of goods and services.The CPI uses the base period 19821984 for comparison (the CPI for this period is 100).The CPI for January 2006 was 198.3.This means that $100 in the period 19821984 had the same purchasing power as $198.30 in January 2006.In general, if the rate of inflation averages r per annum over n years, then the CPI index after n years is where is the CPI index at the beginning of the n-year period. Source: U.S. Bureau of Labor Statistics CPI0 CPI = CPI0 a1 + r 100 b nConsumer Price Index The base period for the CPI changed in 1998. Under the previous weight and item structure, the CPI for 1995 was 456.5. If the average annual inflation rate was 5.57%, what year was used as the base period for the CPI?

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