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 first calculate the nominal GDP for both 2001 and 2002 using the given quantities and prices:

Nominal GDP 2001 = (500 gallons of Milk * $2 per gallon) + (2000 gallons of Butter * $1 per gallon) = $4500
Nominal GDP 2002 = (900 gallons of Milk * $3 per gallon) + (3000 gallons of Butter * $2 per gallon) = $13500

Using 2001 as the base year, the fixed-weight price index for 2002 is:

Price index = (900 gallons of Milk * $2 per gallon) + (3000 gallons of Butter * $1 per gallon) / (500 gallons of Milk * $2 per gallon) + (2000 gallons of Butter * $1 per gallon) = 1.8333

Therefore, the percent change in price level between 2001 and 2002 is:
Percent change = (1.8333 - 1) * 100% = 83.33%

Hence, the answer is C.

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