The country of Old Jersey produces milk and butter,and it has published the following macroeconomic data,where quantities are in gallons and prices are dollars per gallon:
$$\begin{array} { l c c c c }
& 2001 & &{ 2002 } \
\hline \text { Good } & \text { Quantity } & \text { Price } & \text { Quantity } & \text { Price } \
\hline \text { Milk } & 500 & \$ 2 & 900 & \$ 3 \
\text { Butter } & 2000 & \$ 1 & 3000 & \$ 2 \
\hline
\end{array}$$
Between 2001 and 2002,the percent change in the price level as measured by a fixed-weight index that uses production in 2001 as the fixed "basket" of goods was

Question

The country of Old Jersey produces milk and butter,and it has published the following macroeconomic data,where quantities are in gallons and prices are dollars per gallon:
$$\begin{array} { l c c c c } 
& 2001 & &{ 2002 } \
\hline \text { Good } & \text { Quantity } & \text { Price } & \text { Quantity } & \text { Price } \
\hline \text { Milk } & 500 & \$ 2 & 900 & \$ 3 \
\text { Butter } & 2000 & \$ 1 & 3000 & \$ 2 \
\hline
\end{array}$$
Between 2001 and 2002,the percent change in the price level as measured by a fixed-weight index that uses production in 2001 as the fixed "basket" of goods was

Quizplus · Accepted Answer

To calculate the percent change in price level, we need to use a fixed-weighted index. The formula for a fixed-weighted index is:
Price Index = (total cost of goods in the current year / total cost of goods in the base year) x 100
Using production in 2001 as the fixed basket, the total cost of goods in 2001 is:
Milk: 500 x $2 = $1000
Butter: 2000 x $1 = $2000
Total: $3000
Using the same basket, the total cost of goods in 2002 is:
Milk: 900 x $2 = $1800
Butter: 3000 x $1 = $3000
Total: $4800
Plugging these values into the price index formula gives:
Price Index = ($4800 / $3000) x 100 = 160
Therefore, the percent change in the price level between 2001 and 2002 is 83.33%. The answer is C.

The Country of Old Jersey Produces Milk and Butter,and It