Imagine that you calculate the inflation rate of some economy using the CPI. You get that inflation in 2008 was 22.4%, in 2009 w

Question

2 years ago

8

Imagine that you calculate the inflation rate of some economy using the CPI. You get that inflation in 2008 was 22.4%, in 2009 w

as 12.5% and in 2010 was 3.9%. For your method you used 2010 as the base year, but your friend (who is a mathematical genius) tells you that your calculations would be more accurate if you used as base year 2008. What will be true about these new calculations?

Business

1 answer:

Free_Kalibri [48] · Answer 1 · 2023-03-14T01:30:26+03:00

Free_Kalibri [48]2 years ago

3 0

Answer:

The calculation will be more accurate, because the base year is the oldest.

CPI is calculated as

(P_n / P_base - 1)*100

as:

P_n prices at time n

The mathematical reason why it is better to take the oldest year is that % growth works better