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The price index was 220 in one year and 238.2 in the next year. What was the inflation rate?

A. 8.3 percent
B. 108.3 percent
C. 4.8 percent
D. 38.2 percent

Answer :

The inflation rate in one year is 8.3%, which is option (a).

How to calculate the inflation rate?

The price index is a measure of the average price level of goods and services in an economy over time, relative to a base period. In this case, we are given two price index values: 220 for one year and 238.2 for the next year.

To calculate the inflation rate, we need to determine the percentage increase in the price level from one year to the next. We can use the formula:

Inflation Rate = ((Price Index in Year 2 - Price Index in Year 1) / Price Index in Year 1) x 100%

Substituting the given values, we get:

Inflation Rate = ((238.2 - 220) / 220) x 100%

Inflation Rate = (18.2 / 220) x 100%

Inflation Rate = 0.083 x 100%

Inflation Rate = 8.3%

Therefore, the inflation rate is 8.3%, which means that the average price level of goods and services increased by 8.3% from one year to the next.

To illustrate this, let's say that a basket of goods and services cost $100 in the first year when the price index was 220. In the second year, when the price index was 238.2, the same basket of goods and services would cost $108.30 ($100 x 1.083). This means that prices increased by 8.3% over the one-year period.

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