The following table shows the prices and quantities consumed in the country known as the United States. Suppose the base year is 1996. The fixed basket is determined by 1996 quantities. 1996 is also the base year.
Year Price of Books Quantity of Books Price of Pencils Quantity of Pencils
1996 $2 40 $5 100
1997 $4 50 $8 120
(a) What are the costs of the basket in 1996 and 1997?
(b) What are the values of the CPI in 1996 and 1997?
(c) What is the inflation rate between 1996 and 1997?