Select the correct answer.
Henry is an economist and wants to understand the relationship between inflation and consumer spending habits. For his research, he needs the Consumer Price Index for 2014 and the inflation rate. Based on the prices of goods given, what will he find to be the CPI and inflation rate for 2014? Assume that a consumer’s basket for three consecutive years consists of the following:

Year

Price of an Apple

Number of Apples Consumed

Price of an Orange

Number of Oranges Consumed

2012

2

3

3

2

2013

3

2

4

1

2014

5

1

5

2

Consider 2012 to be the base year.

A.
100 CPI, 49.56 percent inflation
B.
165 CPI, 45.40 percent inflation
C.
185 CPI, 55.35 percent inflation
D.
175 CPI, 60.56 percent inflation
E.
125 CPI, 50.60 percent inflation

To determine, based on the prices of goods given, what will the economist find to be the CPI and inflation rate for 2014, knowing that in 2012 an apple cost $2 and 3 apples were consumed, and an orange cost $3 and 2 oranges were consumed; while in 2014 an apple cost $5 and only one was consumed, and an orange cost $5 and two were consumed, the following calculations must be carried out:

2012 = 3 x 2 + 2 x 3 = 12
2014 = 5 + 5 x 12 = 15
12 = 100
15 = X
15 x 100 / 12 = X
125 = X

Thus, the CPI in 2014 was 125 and there was a 50.6 percent inflation.

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