# 1.Calculate the inflation rate (annual percentage change in pricelevel) for every year in U.SBase year is one year before the given year.For example. You want to calculate the inflation rate in 2013, thebase year will be 2012. If you want to calculate then inflation ratein 2014, the base year will be 2013. If you want to calculate theinflation rate in 2015, the base year will be 2014Inflation rateCPIyears2011247.71252.5820122013256.832014260.232015260.552.Calculate the Real income for every year.Nominal income.Real incomeCPIyears\$49,416\$50,895\$52,223\$52,996\$56,4152011247.71252.582012256.832013260.232014260.5520153.Calculate the CPI for every year. (base year 2011).CPI (Don't time100Cost of living in Dallasyears\$148,900\$249,000\$267,000\$300,000\$360,00020112012201320142015

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Step 1

(1)

The inflation rate can be estimated by using the following formula:

Inflation rate = (CPIn – CPIn-1) / CPIn

Where n = No. of years.

Assume year 2010 as the base year for 2011 and the value of year 2010 as 100.

Hence, the above table can be written as follows:

Step 2

Working notes:

Inflation rate (2011) = (247.71 -100) / 100 = 1.4771%

Inflation rate (2012) = (252.58 – 247.71) / 247.71 = 0.01967%

Inflation rate (2013) = (256.83 – 252.58) / 252.58 = 0.01682%

Inflation rate (2014) = (260.23 – 256.83) / 256.83 = 0.01323%

Inflation rate (2015) = (260.55 – 260.23) / 260.23 = 0.00123%

Step 3

(2)

We know that,

Real Income = (Nominal Income / CPI) * 100

Therefore,

Real Income (2011) = (\$49,416 / 247.71) *100 = \$19, 949.13

Real Income (2012) = (\$50,895 / 252.58) *100 = \$20, 150.05

Real Income (2013) = (\$52,223 / 256.23) *100 = \$20,...

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