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The cost of a consumer basket is $234 in 2012, $240 in 2013, and $245 in 2014.If the base year (=100) is 2013, what is the value of your CPI in 2012?

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Solution

The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them.

Here are the steps to calculate the CPI for 2012:

  1. Identify the cost of the basket of goods in the base year (2013) and the year you are measuring (2012). In this case, the cost of the basket in 2013 is 240andin2012is240 and in 2012 is 234.

  2. Divide the cost of the basket of goods in the year you are measuring (2012) by the cost of the basket of goods in the base year (2013). So, 234/234 / 240 = 0.975.

  3. Multiply the result by 100 to get the CPI. So, 0.975 * 100 = 97.5.

Therefore, the value of the CPI in 2012 is 97.5 when the base year is 2013. This means that the cost of the basket of goods was 2.5% lower in 2012 than in the base year of 2013.

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