1. Calculate Consumer Price Index in each year using 1988 as base year and compute the CPI inflation rate. Products in CPI Market Basket are: Apple - 2 Banana -3 Year 1988 1989 1990 Price of Apple 9 10 11 Price of Banana 2.500 3.000 3.500

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Price Index Analysis

A price index is used to measure inflation in most countries and is focused on a collection of products and services significant to a particular economic segment. It is a measure of changing prices over some time. The price index is a scale or a valuable device to measure changes in price levels. The economists randomly choose a certain year as the base year to convert the amount spent on a basket into a price index.